The Irony of Financial Reporting

Purpose: Reporting is one of the most basic functions of the accounting information system. Financial information of entities is transferred to financial statement users through the reporting function. Also, the audit process, which ensures the reliability of the accounting information system, ends with reporting. In today’s world with the changes in the economic, cultural, social, and technological areas, the standard reporting approach has changed, the scope of reporting activities has expanded and the diversity of the items to be reported has increased. This study aims to consider the matter of irony caused by these changes in the nature of financial reporting system and make a propasal to this matter. Methodology: This study was based on theoretical research. Research papers prepared and issued by big four audit companies and information obtained from literature were used in the study. In the scope of the study, changing reporting approaches and new types of reportings were considered based on the changes in the reporting function which is one of the main functions of accounting and auditing and a matter of irony in the nature of the financial reporting system that caused by these changes was discussed, theoretically. Findings: Recommendations and proposals were presented at the end of the study for dealing with the matter of irony in the financial reporting system. Originality/Value: Unlike the previous studies in the literature which focused on changes, advantages, and usefulness of new reporting approaches and new trends in reporting systems, this study focused on raising awareness of problems of new reporting approaches and trends and attracting attention to a matter of irony caused by these approaches and trends in the reporting system.


Introduction
Economic, social, cultural, and technological changes in Today's World have led to changes such as the usage of new reporting tools in the scope of reporting tools, usage of new or different reporting approaches, and the existence of different types of reporting ways or trends in reporting process as well as all other processes related with entities. Especially, changes and developments caused by the environment of economic crisis with uncertainties and concordantly changes in needs and expectations of financial statement users have required a change in the reporting process of entities.
As a significant function, reporting has been used for making a connection between business companies and financial statement users since ever. In other words, financial and non-financial information about entities has been submitted to financial statement users by a reporting tool. Financial statement users mainly expect the financial information obtained from reporting tools to be relevant and represented faithfully. In addition, they expect the information presented in financial reports of entities to be understandable and clear enough to obtain useful financial information for their economic decisions. In a most general definition, it can be said that financial statement users hope to have access to useful financial information in making decisions about the reporting entities based on information in their financial reports.
Despite the expectations of financial statement users explained above, access to useful financial information about entities is getting more difficult, the variety of reporting tools and reporting information to be presented are getting increased, and thus reporting process is getting more complex day by day because of the environment of economic crises and uncertainty in the changing world order.
Therefore, financial information presented in the scope of the standard reporting approach remains incapable of meeting financial statement users' reporting needs and expectations. Also, the expansion of the activities of entities, the increase in transaction volumes and social responsibilities of entities, change of the factors that Journal of Accounting, Finance and Auditing Studies 8/4 (2022): 98-116 100 affect going concern of entities, and growing awareness of the social dimension of the entities' objectives have led to the occurrence of new reporting tools, new reporting ways, new reporting approaches and usage of them by entities.
Different reporting approaches such as environmental reporting, social reporting, sustainability reporting, integrated reporting, etc. that have taken place based on the need of seeking new reporting approaches have started to be frequently used by entities rather than standard reporting approaches and their popularity has gradually increased in recent years.

Reporting Function, Financial and Non-Financial Reporting
As is known, reporting is one of the most basic functions of an accounting information system. The accounting information system starts with the recording function and ends with reporting function including related disclosures. The information produced by the accounting information system is delivered to financial statement users by reporting and disclosures. In other words, all the information obtained from the accounting information system of entities can be delivered to external and internal users of accounting information through reporting.
The main purpose of reporting activity is to transfer financial information from entities to financial statement users. These financial statement users who are interested in the financial information of entities might be owners/ shareholders, managers, investors, employees, creditors, government, etc. Most categories of financial statement users of accounting information are interested in knowing information about entities' assets (volume, structure, and liquidity of them), entities' financial structure, and the risks assumed by entities (Pantazi and Vasile, 2021:40).
For these financial statement users, the information in the scope of reporting activity might be financial or non-financial information.
Although the term, reporting generally sounds like just financial reporting, nowadays non-financial information is being reported by entities as well as financial information. Thus, it is seen that non-financial reporting has come into prominence Journal of Accounting, Finance and Auditing Studies 8/4 (2022): 98-116 101 and expanded in recent years. Also, the reporting activity is divided into two groups; internal reporting and external reporting based on the reported parties that are called financial statements users above.
According to the definition of Cambridge Dictionary; "financial reporting is information that entities give about their financial situation including their profit or loss for a particular period or process of giving this information". Whereas nonfinancial reporting "non-financial reporting is a disclosure provided to outsiders of the organization on dimensions of performance rather than the traditional assessments of financial performance from the shareholders and debt-holders viewpoint" (Stolowy and Paugam, 2018:528). Non-financial reporting is known as "NFR" more shortly, and non-financial reports, non-financial information, nonfinancial statements, extra-financial information, extra-financial reporting, and extrafinancial disclosure are used to refer to non-financial reporting in terminology.
Business reports which include disclosures of social, environmental, and economic activities of enterprises are in the scope of non-financial reporting (Özbay, 2019:445).
Based on the definitions stated above, financial reporting is mainly related to gathering and disclosing financial data or information whereas non-financial reporting (NFR) is related to gathering and disclosing non-financial tools. There are so many tools used for reporting non-financial information and several kinds of reporting concepts in the scope of the non-financial reporting approach unlike the standard concepts and tools of financial reporting. Therefore, non-financial reporting is more comprehensive than financial reporting.

New Approaches to Financial Reporting
As it is known, corporate reporting is reporting financial and non-financial information together. However, there is a contradiction in terms in the literature. In The different approaches used in financial reporting can be categorized under two different types of reporting; financial reporting and non-financial reporting. In the literature, the approaches used within the scope of financial reporting are called standard reporting or standard reporting approaches, while the approaches used under the name of non-financial reporting are called new reporting approaches.
Therefore, new approaches in reporting or financial reporting are referred to as the approaches used in non-financial reporting (such as social reporting, environmental reporting, sustainability reporting, integrated reporting, etc.).
It can be said that all other types of reporting, other than standard reporting which is mainly based on the just presentation of financial information, have arisen from the understanding of non-financial reporting. The starting point of the non-financial reporting approach is the environmental, social, and governance problems in which the enterprises are involved and the risks created by these problems. Accordingly, non-financial reporting approaches, therefore new reporting approaches can be explained with the concept of "ESG". ESG, which is the abbreviation of environmental, social, and corporate governance criteria, refers to the situation in which existing and potential investors of enterprises take these three basic criteria (environment, social environment, and corporate governance) into consideration when evaluating the financial performance of these enterprises (Demir, 2022:36). ESG is a concept based on sustainability. The financial performance of enterprises might be measured by social, environmental, and governance risks, because the factors of ESG affect the financial performance of the enterprises, indirectly. Accordingly, enterprises should include these factors in their KPI (key performance indicators) targets in terms of their sustainability and should include these factors in their reports as reporting tools to respond to the changing needs of financial information users.
As emphasized in the online panel titled "Environmental, Social and Governance gathering and disclosing data or information on non-financial aspects of an enterprise's financial performance (Stolowy and Paugam, 2018:528). Detailed information about the new reporting approaches has been stated below; Environmental reporting: Since enterprises are social organizations that constantly interact with their environment, environmental impacts closely affect the economic performance of enterprises. Therefore, the importance of environmental reporting for businesses is getting more increased. Environmental reporting is transferring of information about the environment in which an enterprise operates to the relevant parties through reporting function. According to a broader definition; environmental reporting is transferring of audited or unaudited environmental information such as environmental risks, environmental impacts, environmental strategies, environmental policies, environmental targets, environmental costs and liabilities, and the environmental performance of enterprises to the relevant information users (Ulusan, 2009:184). Environmental reporting is one of the sub-branches of sustainability reporting and environmental factors, which are one of the three basic factors within the concept of ESG, form the basis of environmental reporting. The information disclosed to the public in environmental reports prepared with environmental reporting might be qualitative or quantitative. In practice, the information within the scope of environmental reporting is voluntarily disclosed and presented to the public by the enterprises, usually in the form of a separate report or in a certain part of the annual reports (Kavut, 2010:11). However, it is not completely different than other non-financial reporting approaches mentioned above. Integrated reporting is based on disclosing financial information including environmental, economic, and social matters that affect the financial performance of enterprises, together. Thus, it involves both financial reporting and social reporting (corporate social responsibility reporting or sustainability reporting) within the scope of one report called an integrated report.
Corporate reporting of a non-financial nature is divided into three phases in the historical process. These are; non-financial reporting initiatives, sustainable reporting periods, and integrated reporting periods (Büdeyri ve Kısa, 2016:183).
Regarding this, integrated reporting is the last step of non-financial reporting approaches. Therefore, it is increasingly being talked about as the future of corporate reporting and is similarly considered by many to be the future of corporate reporting.
Because integrated reporting is one of the leading trends worldwide in recent years.
As a reporting approach, integrated reporting mainly aims to provide a systematic approach to corporate reporting and an integrated view of the future. In this respect, integrated reporting is one of the most effective ways of communicating with all stakeholders related to enterprises (Altınay, 2016: 57-58).

New Approaches to Audit Reporting
In this study, new approaches to audit reporting have been explained separately, because the term; financial reporting is generally referred to the annual reports prepared by enterprises, themselves not auditors. However, audit reports are finally issued within the scope of these financial reports. According to this, audit reports might be considered a part of financial reporting at the same time.
In the literature, the independent audit report is defined as a written letter from the independent auditor containing her/his opinion on whether an enterprise's financial statements are in accordance with IFRSs and free from any material misstatements.
But, this definition is not valid in Today's World. Due to the dynamics of today's world and the changing needs and expectations of financial statement users, an audit mechanism that only audits the financial information of enterprises and reports it to financial statement users is not enough.
As we all know, financial statement users need information about the environmental social, and governance performance of enterprises as well as the economic performance, simultaneously in recent years. According to this, as enterprises disclose a greater number and variety of information to financial statement users, there was a need to change the scope of reporting which is the final stage of the audit.
Thus, the concept of standard audit reporting has changed over time. Information asymmetry and audit expectation gap have been the major factors of this change.
Some revisions have been made in independent audit reports to prevent financial statement users from any lack of knowledge, misstatements, and conflict of interest (Uludağ, 2021:92-96). The major changes that have been reflected in the concept of audit reporting as a result of these two factors can be summarized as below (Hepp and Reinstein, 2021:3); -moving the opinion to the first part of the report, -containing more titles,

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109 -disclosing going concern issues, -disclosing key audit matters if there are, -expanding the disclosure of independent auditor responsibilities.
Considering the major changes in audit reporting stated above, it is clear that the concept of audit reporting has expanded, substantially. More importantly, reporting approach to the audit profession has been changed, thus audit reports have changed, too. This new approach has been called "an enhanced audit or enhanced auditor reporting" by International Accounting and Auditing Standards Board (IIASB). This new audit reporting has been considered critical to the perceived value and continued relevance of the audit profession by IIASB.

A Matter of Irony in Financial Reporting System
It is a clear truth that, enterprises have been continuing to face to face new financial and audit reporting challenges each passing day in Today's World. Forecasting, disclosure or communication, and internal controls are three leading reporting challenges that really matter for the sustainability of enterprises (Knachel and Allen, 2020:1). Forecasting is associated with uncertainty. Because of the ongoing uncertainties in the century we live in, enterprises have to plan the future by forecasting. As a result of these uncertainties, enterprises performed to disclose nonfinancial information as well as financial information in their financial reports.
Similarly, the section of key audit matters has been included in the scope of audit reports to give information about the future. Regarding disclosure or communication, communication with stakeholders and detailed disclosures have become more important than ever for transparency. And finally, the effectiveness of internal controls of enterprises and disclosures of it within the scope of financial and audit reporting have been considered by enterprises and auditors more seriously than ever.

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110 All these challenges have changed the way of reporting, significantly. So, enterprises have to take a response to run their business and create value. But regarding responses, enterprises have several alternatives to consider to respond to each of these challenges. On the other hand, so many new reporting tools, reporting approaches, and different kinds of reports have come into sight including too much information that burst out. All of these subjected to the reporting have caused an irony in the nature of financial reporting. The main aim of reporting is to present and disclose useful information to financial statement users in a simple, clear, readable, and understandable way. But, simplicity, clearness, readability, and understandability are questionable in the new reporting systems surrounded by new and relatively unknown tools and too much information.
Questions about new reporting approaches that caused an irony in the nature of the financial reporting system might be summarized as below;

1) Information overload: Information overload is one of the basic characteristics of our modern life. It can be defined as the excess of information available to people
aiming to make decisions. Regarding financial reporting, information overload might be described; as the confusion felt by financial statement users who find themselves receiving more information than they need for making their economic decisions.
According to Hans Hoogervorst who is the chairman of IASB, "information or disclosure overload is the widely perceived problem and this problem is getting bigger and bigger" (Stolowy and Paugam, 2018:525). In Today's World, financial reports are quite comprehensive and more complex than ever due to just financial information is not enough for the economic decisions of financial statement users. These reports contain both financial and non-financial information (environmental, social, and governance performance) including extra information reports and disclosures when there is a need. 2) The number of reports: One of the main questions that have come into our minds based on new reporting approaches is how many reports will be prepared by enterprises. With the occurrence of new reporting approaches, the number of different kinds of reports has increased. But, there is no exact number for enterprises. On the other hand, it is uncertain whether there is a need for different new reports or more of the same reports. The question is that are enterprises going to present one report in a more detailed way or more than one report by using new reporting approaches. is more suitable. In addition to this, a number of tools subjected to reporting is much more than ever. In this condition, it is very difficult to decide between different tools and alternatives for enterprises.

Conclusion
As a matter of fact, the way of standard financial reporting is not working by itself in Therefore, it is clear that, that subject probably will continue to be one of the most common hot topics in the forthcoming days. The most important thing about which enterprises take care of is to consider the ironic matters that lie behind the new financial reporting issues while being in accordance with the new trends and tools within the scope of the reporting area.