When the tail wags the dog? Digitalisation and corporate reporting

To facilitate digital corporate reporting and enable computers to 'read' accounting information, standard setters must construct a taxonomy to assign contextual 'metadata' that codifies disclosures arising from accounting concepts, standards and practices. But digitalisation poses a problem for corporate reporting. Within internationally accepted accounting practice, 'principles-based' standards give companies significant discretion in deciding what they disclose and how they report accounts of their activity. How would the principles-based nature of corporate reporting be influenced by the construction of a taxonomy that seeks to specify all accounting disclosures? Drawing on literature examining the constitutive potential of classification and formal representation, we use our case study of the digitalisation project undertaken by the global standard-setter, the IASB, to understand how digitalisation intervenes on standard-setting and reporting practice despite the intentions of standard-setters. Our results detail how standard-setters sought to minimise the impact of digitalisation by modelling the taxonomy only on disclosures explicitly required by accounting standards. We reveal the circumstances that led the IASB to change its taxonomy design by seeking to capture not only what should be reported (as prescribed in extant accounting standards) but also what was being reported (as prescribed in a new classification called 'Common Practices'). We analyse the process by which international accounting disclosure practices were judged to be 'common', and demonstrate how the 'Common Practices' classification was perceived by early users of the taxonomy. When interpreting the IASB's Common Practices (what is) as disclosure standards (what should be), digitalisation generates a self-validating feedback loop that can generate more homogenous corporate reporting and push International Financial Reporting Standards beyond the principles-based approach they were designed to engender. Although standard-setters became increasingly aware of the influence of the digital (machine-readable) 'tail' on the traditional reporting (human-readable) 'dog', their attempts to take tighter control of the taxonomy development process strengthened user perceptions that the taxonomy and its 'Common Practices' represented an authoritative view of what should be reported. Our results reveal the process by which digital reporting both represents and intervenes in accounting, and how digitalisation impacts key accounting debates. As digitalisation attempts to provide a universal codification of reporting disclosures, it valorises comprehensive machine-friendly disclosure rules over principles, which offer standardised comparability over entity-specific communication. Our study also offers a perspective on the relations between information representation and intervention that moves beyond a study of passive, 'reactive' conformance to consider how representations can intervene despite the intentions of those generating the representation. In doing so, we reveal the constitutive potential of digital representations in generating 'non-passive' conformance. (c) 2021 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).