Enhanced Business Reporting: An Auditing Perspective

Abstract

The reporting of non-financial business information is highly regarded by valuation experts for better capital allocation decisions in the marketplace.  In January 2005, the AICPA created the Enhanced Business Reporting (EBR) Consortium and charged it with developing a framework that will improve the quality, integrity, and transparency of business information in a cost-effective and timely manner.  A draft of the EBR framework was completed in October 2005.  However, independent auditors may reject many provisions of the framework because auditing costs exceed informational benefits.  This study analyzes the current EBR framework from an independent auditor's perspective.  Qualitative analysis is used to evaluate the auditing implications of providing EBR disclosures to company stakeholders.  The findings indicate that the gains of providing better value oriented EBR information are offset by potential management misrepresentation through highly subjective EBR disclosures.  Moreover, many EBR elements are not subject to audit at reasonable cost.  The voluntary aspect of EBR makes intercompany and intracompany financial comparisons more difficult.