The digitalization of financial reporting and auditing affects almost all facets of our field. The Center focuses on how digitalization can enhance the value of financial reporting. We understand financial reporting as a sender/receiver activity embedded in additional information flows. Digitalization enables firms to detach financial reporting data from financial reporting presentation. Financial reporting presentation has always been complex, but has become increasingly multi-dimensional in nature in recent years as traditional financial statements have been accompanied by ever increasing notes and additional non-financial information. Recent research in the area of financial accounting documents that a significant group of financial statement users perceive an information overload problem when presented with financial reporting information. Related to that finding, current research in user experience design stresses the importance of customized presentation of complex information, yet, historically, financial reporting has followed a one-size-fits-all approach. We posit that this is going to change radically in the future.
A key strategy to enhance the value of financial reporting in the digital age is to open up disclosed financial reporting information to algorithmic processing. To understand better how new developments in the area of natural language processing affect the usage of financial reporting information by professional investors, we hosted a one-day academic event where we brought together leading experts from the academic as well as from the investment community. One key takeaway of this very informative workshop was that various usage strategies will prevail in the future and that information sending firms are well advised to cater to these various usage strategies to enhance the value of financial reporting.
Based on these insights, our research in that area will (continue to) study how users of financial statement data use financial reporting information in various presentation formats. We already documented, based on a large sample interview study with institutional investors, how investors use and assess financial reporting data differently, and conditional on their decision problem at hand. In addition, prior work has documented vast differences in information behavior of institutional and retail investors. We plan to extend this line of research to internal decision members like board members. Our motivating question is to understand better how financial reporting data and its presentation can be customized digitally to cater to different user groups and decision problems. Building on interactive data visualization tools that we have already developed we will test in experimental settings whether and how users use additional financial information in their decision making and to what extent this behavior varies across different user groups.
We envision that our research will help firms and their advisors to develop better tools for presenting financial data to investors and internal decision makers. This will most likely allow for leaner data presentation, significantly the perceived information overload. The usage data collected by these tools can help firms to understand the decision-making process of their stakeholders better, feeding back to internal decision making and, ultimately, corporate performance.