Call to reform Big Tech's financial reporting rules

A permissive fiscal disclosures authorities allows Big Tech companies to conceal their marketplace power, summation nett margins, and grow integer level dominance, according to a caller study by a UCL-led squad of researchers.

The report, from the UCL Institute for Innovation & Public Purpose, concludes that the main fiscal disclosures model successful the United States facilitates companies specified arsenic Alphabet, Amazon, Apple, Facebook and Microsoft successful concealing large merchandise lines and halfway idiosyncratic show metrics from the public.

Companies successful the U.S. are required to record a 10-K study with the U.S. Security and Exchange Commission (SEC). The study is intended to springiness a broad summary of fiscal performance.

However, researchers accidental that flexibility successful disclosure rules allows Big Tech firms to fell highly profitable and increasing products, and merchandise level idiosyncratic numbers astatine their discretion. The study finds that companies are truthful capable to pre-empt antitrust scrutiny, further expanding precocious nett margins and globally ascendant platforms.

A collaboration betwixt UCL economists Dr. Ilan Strauss, Professor Mariana Mazzucato, and Dr. Josh Ryan-Collins, and entrepreneur and Big Tech betterment advocator Tim O'Reilly, the study finds that:

• Alphabet owns astatine slightest 9 products—including Google Maps, Chrome, Android, and YouTube—each with much than 1 cardinal progressive monthly users and ascendant planetary marketplace shares, but with minimal 10-K disclosure requirements since they are provided 'free' to the consumer.
• To widen its pb successful unreality computing, Amazon whitethorn person intentionally withheld disclosing Amazon Web Services' (AWS) stand-alone merchandise financials from its 10-K study for longer than permitted by conception disclosure rules.
• Apple relied connected conception disclosure rules successful its proceedings against Epic Games to assertion that the nett borderline of its App Store did not exist, perchance withholding a cardinal portion of grounds connected its anti-competitive conduct.

The study recommends:

1. Mandatory 10-K reporting connected Big Tech's idiosyncratic operating metrics (e.g., monthly progressive users by merchandise and platform), and a elaborate communicative astir the monetisation of those products successful different parts of the business;
2. Enhanced disaggregation of company financials for immoderate merchandise with $5 cardinal oregon much successful yearly revenues; and
3. Establishing a tech-specific SEC disclosures model focused connected multi-sided integer platforms—given the increasing ubiquity and interaction of this concern exemplary connected the U.S. system and superior markets.

Professor Mariana Mazzucato (UCL Institute for Innovation & Public Purpose), co-author of the report, said: "In the aforesaid mode that the conflict against clime alteration requires firms to study connected their c emissions, making digital platforms much unfastened and little rent-seeking requires a caller benignant of reporting which contention argumentation makers tin usage to steer platforms towards worth instauration alternatively than worth extraction."

Lead writer Dr. Ilan Strauss (UCL Institute for Innovation & Public Purpose) said: "Given however ample and diversified these integer platform companies person become, regulators necessitate modernized 10-K disclosures to recognize however precisely Big Tech marque their money. We request updated 10-K information filings which report cardinal institution financials disaggregated by large merchandise line, and supply operating metrics connected monthly progressive users and different applicable 'monetisable' assets."

Co-author Tim O'Reilly, visiting prof astatine the UCL Institute for Innovation & Public Purpose, said: "Understanding however Big Tech companies indirectly monetise their users is the starting constituent for amended regulation. Standard disclosure rules based solely connected gross and nett wholly miss the mode that immoderate of the largest and astir influential companies successful the satellite usage escaped products to predominate markets and extract bonzer profits."

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