For the Investor:
#Technology and #Data

By Alicia Posta and Hal Schroeder


Today’s financial reporting system is paper based, designed for human consumption of financial information, not machine consumption. However, investors commonly use financial information in digital formats and computer-based earning models.  For investors, technological advances have (and will continue to) impact:
  • What information is useful
  • Who consumes the financial information, and
  • How that information is consumed.
Technological advances along with disruption from other forces (such as management and performance fee pressures and a continuing shift from active equity funds to passive exchange traded funds) are resulting in an increasing ability to produce and consume ever greater amounts of financial reporting information.
 
We continue to see growing interest in technological advances throughout the investing and accounting communities.

We continue to see growing interest in technological advances throughout the investing and accounting communities. For example, the #1 issue that keeps the accounting profession’s leaders up at night is “the impact of technology.”

For the FASB to better understand the potential benefits and costs of technological advances, it is important for us to explore questions, such as:

What do these changes in the business environment mean to investors, companies, and auditors in the future? And what are the potential impacts of those changes to our accounting standards and disclosures?

The FASB strives to develop standards that provide useful information—that is part of our mission—and that can withstand the test of time. An understanding of, and adaptation to, future technological advances may play a role in maintaining or increasing their shelf life.
 

Data Trends and the Consumption of Financial Reporting Information


Technological advances already have increased:
  • Computational speed and memory. There has been tremendous growth in computing power and computational speed, as demonstrated in IBM’s Watson, the Blue Gene, and U.T. Austin’s Lonestar Advanced Computer Cluster.  However, significant increases to those capabilities are still needed before they surpass those of a human brain.
  • Amount of data. Our own analysis shows the numbers in some company filings have increased 4-fold to 20-fold in the last 40 years. Additionally, companies are providing more and more voluntary information and research organizations are distributing more and more alternative datasets to investors.
  • Quality of data. Many companies have created new roles and appointed chief data officers, given the importance of data in their businesses. Companies also are providing more structured data than in the past. There is a large volume of structured financial data that was not previously available to data users in such an easy-to-access format.
As more and better data is generated, the increase in computational speed and memory will create faster processing of the data. That in turn, can be leveraged by investors, companies, and others to consume more data using technologies such as artificial intelligence.  Some may view this cycle as virtuous because it can lead to better decision making, while others see it as vicious because it is never-ending.
 
 

Production of Financial Reporting Information


Corporate spending on technological advances in financial reporting often vies with spending technology-related capital in other areas.  Particularly those that have the potential to generate higher returns for investors, such as R&D or consumer-interfacing solutions.

Some companies also face significant challenges with:
  • Multiple, decentralized systems
  • Outdated infrastructures
  • Containing costs to collect and maintain the data, and
  • Competition for capital spending on technology improvements within finance departments.
For some companies, technological advances have begun to affect how data is produced, as they seek to cut costs through automation efficiencies, facilitate internal data analysis, and increase data security. Those advances have (and will continue to) impact how companies adopt and apply new and existing financial reporting standards, as well as how that information is shared with investors and other financial statement users.
 
Technological advances could impact the costs to provide financial information in the future and the time needed to implement changes in accounting standards.

Technological advances could impact the costs to provide financial information in the future and the time needed to implement changes in accounting standards. They also could affect future financial reporting requirements, including disclosure and standards for structuring data (or electronically tagging business and financial reports).
 

“Listening and Learning”


So, while the “impact of technology” is keeping many up at night, we view this as an important opportunity for us to learn from investors and our other stakeholders. Over the last year, we held preliminary discussions with diverse types of investors, companies, auditors, educators, and others about the potential implications of technology on financial reporting. We’ll continue to gather information about financial reporting and the systems and processes that support those activities.

This input will help us better understand the current technologies that companies and investors are using, and how they may evolve over the next five years. Our goal is to raise awareness about the potential impacts to our accounting standards and disclosures and to develop a plan that is responsive to changes that may be needed in the future.