|Timothy J. Louwers, CPA, PhD, is an assistant professor in the Department of Accounting at Louisiana State University. William R. Pasewark, CPA, PhD, is an associate professor in the Department of Accountancy and Taxation at the University of Houston. Eric W. Typpo, CPA, PhD, is an assistant professor in the Eberhardt School of Business at the University of the Pacific.|
The FASB, housed in Norwalk, Connecticut, is very far—physically and culturally—from Silicon Valley. As guardian of the traditional and sober world of financial accounting, it would seem to have nothing in common with the flashy graphics, animation and music of the World Wide Web. What do lists of HTML code and Java applets have to do with scholarly tomes of accounting regulations? Plenty. Behind online company logos are Web sites jammed with financial information—pages of annual reports connected to each other and the rest of the corporate site in ways undreamed of with printed documents. And in recognition of the increasing role the Internet will play in financial accounting, FASB is exploring the many reporting issues the Internet raises. Whether you prepare, audit or use financial statements, you need to know what some companies are doing online today with their financials—and what further options the Internet offers for tomorrow.
Virtually every Fortune 500 corporation has a Web site. Visitors to them can find facts on distribution, customer service, product awareness, environmental consciousness—and the bottom line. Financial information that companies formerly disclosed only to those who requested it by mail is now available to anyone with Internet access. Preparers and auditors therefore must evaluate this new online audience to learn how they are using data. In such an environment, how can CPAs help make financial and other corporate information useful for current and potential investors as well as the public at large? Look at what some corporations have already done.
QUALITY IS KING
On a corporate Web site—as in a printed annual report—the quality of information is paramount. A high-quality site accurately anticipates users' information needs in four key areas:
Some corporations try to educate viewers. For example, IBM has posted a Guide to Understanding Financials (www.ibm.com/FinancialGuide), an online brochure that helps the beginning investor grasp financial statements.
EASY TO ACCESS
Some companies bury financial data deep in the Web sites, while others present it up-front, close to the home page. For example, Intel's investor relations page (www.intel.com/intel/finance/index.htm) is only two clicks from the home page. Once there, users can look up financial statements, stock price information, SEC reports, financial press releases and analyst data—all information that was formerly difficult to obtain quickly.
Visitors to any Web site may have to wait several seconds—even minutes—after each click for a new page to load. Those who don't have state-of-the-art technology may find themselves unable to use a site at all. Internet consulting companies that prepare sites for major corporations often add multimedia features to sites that older computers—with older Web browsers—can't take advantage of. Many sites—the IRS, for example (www.irs.ustreas.gov)—include text-only versions for those with technology-constrained Web browsers. Such sites have text without all the flash.
HOW DOES IT LOOK?
Users may come to a Web site seeking financial information, but they'll probably end up looking at other pages as well. Therefore, corporate controllers or CFOs need to concern themselves not only with the financials but also with the presentation of information located elsewhere on the site. Online pages can flow almost seamlessly from financial statements to press releases. The quantity, quality and presentation of all information on a Web site make a powerful statement about a company. For the first time, potential customers and stockholders are gaining their perceptions of corporations through the Internet rather than the traditional channels of annual reports, prospectuses and the financial press.
Companies are taking many different approaches to hold visitors' attention and keep them coming back. Many corporate sites greet Web surfers with strong colors and bold graphics—and sometimes motion and sound; for example, Exxon features a tiger running across the screen (www.exxon.com). Several corporations, such as IBM, allow visitors to listen to speeches or comments by management (www.ibm.com/lvg). A company that rarely updates its information or varies its presentation suggests that it doesn't care if the public has up-to-date knowledge of its operations.
MEETING USER NEEDS
Successful corporate sites present accounting information in formats that meet user needs; some users may require a wide range of information spread throughout a site. For example, an analyst may want to read the balance sheet and find out how many employees are in each field office. All this information appears on different pages, which is why many sites provide search engines that locate information based on key words. Exhibit 2, page 24, describes several features more sophisticated Web sites should have. User-friendly sites provide links directly from the financial statements to explanatory notes. Microsoft, for example, places links from balance sheet accounts directly to notes or, in some cases, to explanatory charts. Links to the notes should appear directly on the face of the financial statement.
Some sites let users take "electronic possession" of the data: Users can download financial information into presentation media such as Adobe (see Wal-mart,www.wal-mart.com) or into a Lotus or Excel spreadsheet. Microsoft allows users to download its income statement as an Excel spreadsheet file, an "Excel PivotTable" or an Excel "what-if" model (www.microsoft.com/msft/ar97/analysis/analysis_tools.htm.)
Web site visitors have come to expect current stock prices online. Some corporations provide stock prices on their sites (for example, www.ibm.com/IBM/Stock), while others have links to free stock price providers such as StockMaster (www.stockmaster.com). The SEC maintains approximately two years of 10-K and 10-Q filings in its free EDGAR database (www.sec.gov/edgarhp.htm). Most corporations now provide a link to EDGAR for users who want to view these filings.
Has the Internet made some investing and accounting disclosures obsolete? Companies use annual stockholder meetings to announce corporate direction, receive stockholder feedback and vote on issues mandated by the charter. Cybercasting—the ability to broadcast live audio, video and transcripts over the Internet—would allow stockholders to "attend" meetings while remaining at home, to vote using e-mail (www.proxyvote.com) and to participate in discussions in online forums or chat groups (boards.fool.com/boards.asp?).
|Exhibit 1: Information Needs of Internet Users|
Right now, the Internet provides fast and inexpensive services to stockholders regardless of where they are located. For example, Mobil (www.mobil.com/this/financial/stock/l) permits stockholders to enroll in a dividend reinvestment program using forms on the Web.
In the future, the timeliness and convenience of the Internet also could reduce the information disparity between institutional investors—who tend to have greater data—gathering resources-and individual investors. Corporations are likely to make announcements simultaneously to all stockholders through e-mail and hold analyst conferences online via cybercasting.
Investors and analysts of the future also will be able to tailor information to their specific needs. Although a few companies now provide users with charts of historical data (www.ibm.com/Investor/HistoricalCharts/), the Internet site of the future will give users opportunities to chart data in the ways most useful to them. For example, users will be able to specify the number of years of information they need or to plot growth rates against industry averages. They will be able to tailor the financial statements to appear in different languages, currencies and accounting conventions. Microsoft, (www.microsoft.com/msft/ar97/analysis/analysis_tools.htm) and Nortel (www.nortel.com/home/home.html) already allow some user customization. Finally, uniform charts of accounts and disclosure formats may eventually standardize reported data so that Internet users may download data into software that automatically performs historical analysis, forecasting and industry comparisons. Exhibit 3, page 26, lists some key services companies will be able to offer via the Internet.
|Exhibit 2: Common Investor Relations Internet Features|
The issue of financial reporting on electronic sites remains relatively unaddressed. To date, the only authoritative literature on financial statements on corporate web sites was issued by the AICPA auditing issues task force of the ASB. While auditors must review other information accompanying traditional audited financial statements for consistency (see Section 550, "Other Information in Documents Containing Audited Financial Statements," in AICPA Professional Standards ), the task force issued an interpretation (AU section 9550.17) saying the Web sites are a means of information distribution and not "documents" as defined by current auditing standards. As financial reporting on the Internet becomes more commonplace, it remains to be seen whether this interpretation will be retained.
CPAs AS KNOWLEDGE LEADERS
Individuals who are well-versed in the Internet's possibilities are valuable to their business colleagues. Therefore, CPAs need to explore ways to harness the Internet for the good of their employers, their clients and the investing public. They must examine how these rapidly changing technologies will affect the traditional financial statement audit. Standard-setting authorities are just beginning to address issues such as: What should an auditor's responsibility be for online statements? Should companies be allowed to dispense with printed statements altogether? Since the Web knows no international boundaries, will the IASC play an increased role in regulations for online statements? (See "Calling All Members," JofA, May98, page 109, and "Model Company Goes Online," JofA, June98, page 17, for further discussion).
|Exhibit 4: Evaluators of Investor Relations|
For CPAs, the first step is discovering what some sites have already achieved. Fortunately, several groups evaluate Internet sites and rate their usefulness, based on the quality of information, site accessibility and ease of use (see exhibit 4).
Cyberspace provides accountants with an incredible opportunity to tell their companies' stories in ways previously unimaginable. How the accounting profession faces this challenge and bridges the gap between Norwalk and Silicon Valley will determine its role in the reporting of information—both financial and nonfinancial—in the next century.
|Exhibit 3: Internet Features of the Future|