In class today, we discussed the issue of “disclosure overload.” This is an issue that standard setters and financial statement users have been discussing for years (the article we discussed in class was written in 1994.) The basic problem is that there is so much information disclosed in financial reports that the footnotes begin to decrease in usefulness because the average user cannot possibly read and analyze the full report.

Today, we have information-disaggregation technology that we use every day to sort through blog posts and Amazon.com reviews that we could potentially apply to electronic versions of financial statements. Using these to format financial reports in a more use-able manner could make pulling useful information out of footnotes much easier without reducing the actual amount of disclosure.

This isn’t a serious, thought-out discussion, and I think we need to put more thought into how the actual disclosures might be reduced, but I thought it would be an interesting topic.

What electronic financial reports might look like if we used some social media tools to format them:

1. A “read more” option
   Financial disclosures could be summarized in an introductory paragraph, with key points mentioned in it, the way the first paragraph of a blog post or a news article summarizes the key points of the following article.
   Then, if a financial statement user is interested in reading further details about that disclosure, they can click a “read more” button to expand the text to read the full disclosure.
   This would allow users to scan all of the disclosure summaries on one page, and only view the expanded disclosure on those footnotes that promise interesting or unusual details.
2. A “like this” button
   All financial statement users could have the opportunity to select whether they found the disclosure more useful or less useful, similar to how users can rank reviews on Amazon.com. They might give it a rating out of five stars on whether the disclosure answered all of the questions they had about the topic.
   Then, other users could sort the footnotes by average user usefulness rating.
   Of course, having all users able to rank disclosures might not result in very relevant rankings. The company could always set up a system where only certain privileged users could have this option.
   Theoretically, like when users vote “like this” or “dislike this” for blog posts, this could generate some interesting information on which disclosures most users are reading, and whether the disclosures contain the information the users were looking for.
3. Tagged Disclosures
   Of course, XBRL is aiming towards this tagging thing for us, but it could make footnotes more useful if they were tagged with the financial statement line items they tied to. For example, if you’re interested in all disclosures that relate to operating expenses, a tagging system would allow you to quickly pull up all disclosures tagged as “operating expenses.”

I’m sure there are more social media tools that could theoretically make financial reports easier to use- can anyone think of some others?

Related posts:

1. Kel’s Intro to XBRL
2. The Seven Deadly Myths of Accounting
3. Regulation Topic: How not to get sued

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