Digital Corporate Reporting in Europe: Socio-Technical Factors, Regulatory Challenges, and Auditor Independence

This doctoral thesis comprises of five studies with a major focus on digital corporate reporting in Europe. A minor focus is on the role of the auditor in (digital) corporate reporting. The first study in section B.1 analyses ESEF (European Single Electronic Format) filings which European listed issuers are mandated to publish as of January 2020. XBRL (eXtensible Business Reporting Language) enables automatic processing of reports for preparers and analysts. However, the data quality can be reduced and less trustworthy due to errors in ESEF reports. Errors in the metadata such as rounding tendencies and calculation errors are detected by demonstrating the capabilities of an XBRL validating processor. Furthermore, major accounting errors such as incorrectly reported financial numbers are also found through the use of the validator. In summary, this study presents distinctive errors in ESEF filings while also highlighting the capabilities of an XBRL processor in order to assist preparers of ESEF filings and future research. The study in section B.2 examines the application of extensions in ESEF filings of German-listed companies. Extensions are accounting events in XBRL reports that are not covered by the IFRS taxonomy. However, the application of extensions varies greatly across German companies. The regression analysis reveals that the coefficients for company size, index, and industry sector are significant for the use of extensions in German ESEF filings. Subsequently, the results are transformed into a calculation scheme for auditors in order to support the assurance process. As a result, we present an overview of German companies that deviate from the expected number of extensions. Auditors can use the provided calculation scheme to predict the number of expected extensions and identify ESEF filings with potentially redundant extensions. The research paper presented in section B.3 focuses on the key objectives of the European Securities and Markets Authorities (ESMA) to harmonise digital corporate reports. We assess the transparency, comparability, accessibility, and ease of analysis of ESEF filings in order to evaluate the effectiveness of the ESEF mandate. The results of the dataset consisting of STOXX Europe 600 companies reveal that the transparency and comparability of ESEF filings are constrained by significant variations across countries, industries, and company sizes. The variations are more pronounced in individual parts of the report such as Balance Sheet or Cash Flow Statement. Furthermore, we identify filing errors for integral accounting events in 7.7% of filings which has a negative impact on the accessibility and ease of analysis of ESEF filings. The incorporation of domestic languages and (dis)aggregations of taxonomy elements further reinforce this impact. We conclude that the effectiveness of harmonising digital corporate reporting in Europe is still limited due to the presented issues. The study presented in section B.4 investigates how organisational, regulatory, and socio-technical factors influence digital corporate reporting practices. A dataset comprising of ESEF filings from 2020 to 2023 is analysed based on factors that are highlighted by the ESMA. By integrating socio-technical theory, it provides a comprehensive framework for understanding how preparers’ behaviours, including the use of extensions, anchoring, and reliance on third-party service providers, shape the quality and comparability of digital corporate reports. The results indicate that particularly smaller firms exhibit higher extension ratios potentially due to limited resources and expertise, which reduces report transparency and comparability. A regression model is employed to further examine the impact of those factors on the extension ratio. The findings of the regression model reveal that third-party service providers are associated with a higher likelihood of unnecessary extensions likely due to communication barriers, reduced firm-specific knowledge, and time pressure, which diminish report quality and comparability. Furthermore, a sub-sample of filings contain unanchored elements which might lower report comparability and increase complexity. In summary, this study presents a novel framework on socio-technical factors that shape digital corporate reporting in Europe. Section B.5 concludes the main body of this thesis with a study that investigates the career path of German auditors and board members. The dataset consists of 4.214 curricula vitae of auditors, and board members of DAX, MDAX, and SDAX companies. The data is analysed with a Knowledge Graph in order to find connections between auditors and board members. We find that 23.4% of all German-listed companies in this dataset employ a management board member with audit experience, which implies that the industry is seeking personnel with an audit background. An analysis of the timeframe between the signing of the auditors’ opinion and the undertaking an important management activity reveals two auditors that assumed a position with the client within a two-year period following the audit's completion. Both cases are relevant as they could be violating against section 43 WPO which stipulates that the auditor of a public-interest entity may not perform any important management activities there within two years after the end of the audit (cooling-off period). The first case suggests a violation against the cooling-off period due to a contract signing within the two-year time frame. The second case unveils a regulatory gap of the cooling-off period based on the audit of a parent company and the subsequent move to a subsidiary.