SYNOPSIS: We analyze the relation between customization and standardization in corporate financial reporting. We argue that "Customization Around a Standard Report" (CASR) is a promising approach to financial reporting. Under this approach. the prevailing general purpose report serves as a benchmark, upholds information credibility, maintains information comparability, and satisfies users' common information needs while the added customization meets users' different information and presentation requirements. CASR will be less effective if implemented by the reporting company alone. To be more effective, CASR should be undertaken jointly by the reporting company, the information intermediary, and the end user. Such joint CASR could be implemented in a peer-to-peer networking environment where databases from primary financial data sources, such as reporting companies, and secondary reports from certified financial analysts are networked and shared. Such an environment will create an enormous demand for both cus tomization and standardization. We predict that networking and file sharing in this way will greatly enhance opportunities for assurance services to add legitimacy and selectivity to an overwhelming menu of customization options that will one day be available online.
Keywords: assurance services; financial reporting; general purpose reporting; information technology; the Internet; customization; standardization.
Traditional financial reports are becoming increasingly untimely and shrinking in importance to investors and analysts. Elliott and Pallais (1997) state:
Financial reports prepared under generally accepted accounting principles are losing decision-information "market share" (both inside and outside the enterprise), and software increasingly is taking over routine accounting functions....Information technology gives nonaccounting departments additional power to collect and report their own information. If internal users are dissatisfied with the information supplied by the financial reporting system, they may look to other departments to supply the information decision makers need.
Problems of financial reporting arise partly from use of the general purpose reporting model. Under this model, a company provides different users with the same audited financial report and different companies provide standardized financial statements to all users. Because users and their information needs are different, we believe that customizing financial reports can help meet users' heterogeneous information requirements.
Customization in financial reporting entails providing customized or customizable information suited for the timely needs of particular decision makers. It acknowledges that different decision makers have different needs and different priorities. The information may be a single report or a network directory linked to a variety of documents and subsets of libraries and databases. Customization may entail preparing a channel (portal or vortal) designed particularly for a decision maker or a group of decision makers with similar information needs. Some Internet services now let users request customized channels that provide daily streams of news and information on particular topics. A portal covers a horizontal variety of related topics, whereas a vortal is a vertical knowledge base on a given topic. Portals and vortals can be used to exclude unwanted information at particular levels of aggregation, unlike Internet searches that usually provide numerous links to irrelevant information.
Given the merits of the prevailing general purpose report and the increasing demand for a greater customer focus in financial reporting (AICPA 1994), we propose "Customization Around a Standard Report" (CASR) as the way forward. Under this approach, the prevailing general purpose report satisfies users' common information needs and the added customization meets users' different information and presentation requirements. …