The article discusses financial reporting issues raised by the U. S. corporations in the increasing use of the Internet. The Internet is affecting traditional statements and audits as companies explore online options. Financial information is now easily available online, creating a new readership. CPAs must consider how to help make this information useful to the expanded public. Companies need to identify who will use their sites and provide appropriate features. Search engines help users connect information from all over a given Web site. Analysts may want to download financials into spreadsheets

Louwers, Timothy

Pasewark, William R.

Typpo, Eric W.

English

Pacific McGeorge School of Law

Silicon Valley Meets Norwalk

Scholarly Commons

University of the Pacific Scholarly Commons Eberhardt School of Business Faculty Articles Eberhardt School of Business 8-1-1998 Silicon Valley Meets Norwalk Timothy Louwers Louisiana State University William R. Pasewark University of Houston Eric W. Typpo University of the Pacific, etyppo@pacific.edu Follow this and additional works at: https://scholarlycommons.pacific.edu/esob-facarticles  Part of the Business Commons Recommended Citation Louwers, T., Pasewark, W. R., & Typpo, E. W. (1998). Silicon Valley Meets Norwalk. Journal of Accountancy, 186(2), 20–26. https://scholarlycommons.pacific.edu/esob-facarticles/273 This Article is brought to you for free and open access by the Eberhardt School of Business at Scholarly Commons. It has been accepted for inclusion in Eberhardt School of Business Faculty Articles by an authorized administrator of Scholarly Commons. For more information, please contact mgibney@pacific.edu. Silicon ValleyTell your company's story online.The FASB, housed in Norwalk,Connecticut, is very far—^physicallyand culturally—from Silicon Valley. Asguardian of the traditional and soberworld of financial accounting, it wouldseem to have nothing in conuiion withthe flashy graphics, animation and music of the WorldWide Web. What do lists of HTML code and Java ap-plets have to do with scholarly tomes of accounting reg-ulations? Plenty. Behind online company logos are Websites jammed with financial information^pages of annu-al reports connected to each other and the rest of thecorporate site in ways undreamed of with printed docu-ments. And in recognition of the increasing role the In-ternet will play in financial accounting. FASB isexploring the many reporting issues the Internet raises.Whether you prepare, audit or use financial statements,you need to know what some companies are doing on-line today with their financials—and what further op-tions the Internet offers for tomorrow.Virtually every Fortune 500 corporation has a Web site.: Visitors to them can find facts on distribution, customerservice, product awareness, environmental conscious-ness—-and the bottom line. Financial information thatcompanies formerly disclosed only to those who request-2 0 J O U K N A L . . / A C C O U N T A N C Y A u g u s i 199Seets NorwalkB Y T I M O T H Y J . L O U W E R S . W I L L I A M R . P A S E W A R K A N D E R I C W . T Y P P Oed it by mail is now available to anyonewith Internet access. Preparers and audi-tors therefore must evaluate this new on-line audience to learn how they are usingdata. In such an environment, how canCPAs help make financial and other cor-porate information useful for currentand potential investors as well as the pub-lic at large? Look at what some corpora-tions have already done.QUALITY IS KINGOn a corporate Web site—as in a printedannual report—the quality of informationis paramount. A high-quality site accurate-ly anticipates users' information needs infour key areas:• Breadth, which refers to the quantityand comprehensiveness of information at aparticular point in time. For example, thecasual investor may be interested only in fmancial high-lights, while a fmancial analyst may want to see the earn-ings announcements and the forecasts the corporationissues (see exhibit 1, page 23.)Some corporations try to educate viewers. For example,IBM has posted a Guide to Understanding^ Financials{irivw.ihm.com/EinancialGuide), an online brochure thathelps the beginning investor grasp financial statements.• Dfpth. which refers to the number of periods of histori-the Web for product and50.6 million U.S. andCanadian adults usethe Internet.cal informadon the site covers. Some users may need financialdata fioni multple time periods to perform trend analyses. Al-though most companies provide only two to three years ofhistorical data, others, such a.s MCI, offer 10 years of annualreports {unini'.inivstor.md.com/annual jvports/).m Frequency, which refers to the number of times acompany relays data in a given period. Some usersmight desire monthly information, such as that provid-ed byJ .C. Penney {tvwu'.Jcpenney.cow), rather than')'>« JOURNAL 0/ ACCOUNTANCY 21GUIDE KOttt*- I CETrWCSTAftTED' [ STKTtMENI ElASICS | tHVtSlQRS T|pj> [ H^SOURCtS | GIOSSARTGuideTO UNDERSTANDINGFINANCIALSSuda [(Widtt I bMK Mlroa«C<IM MiMmol lUtmMli «i • CMWMr̂•diMlnpo'l V )MkM IMknKtwMa tomINTERNET/BUSINESS AND INDUSTRYCybercasting would allow stockholdersto "attend" meetings while remaining at home, to voteusing e-mail and to participate in discussions.Internet for immediate news of corporateevents. Free services, such as InfoBeat {wtt'w.infohea(.com) and PointCast (wwtv.pointcast.coin) provide press releases and analyst an-nouncements to individual investors.EASY TO ACCESSSome companies bury financial data deep inthe Web sites, while others present it up-front,close to the home page. For example, Intel'sinvestor relations page {www.intel.com/intel/finance/index.htm) is only two clicks from thehome page. Once there, users can look up fi-nancial statements, stock price information,SEC reports, financial press releases and analystdata— âll information that was formerly difTi-cult to obtain quickly.Visitors to any Web site may have to wait sev-eral seconds—even minutes—after each click for a newpage to load. Those who don't have state-of-the-art tech-nology may find themselves unable to use a site at all. In-ternet consulting companies that prepare sites for majorcorporations often add multimedia features to sites thatolder computers—with older Web browsers—can't takeadvantage of. Many sites-—the IR-S, for example [unvwArs.ov)—-include text-only versions tor those withGETTING STARTEDSTATEMENT BASICSINVESTORS TIPSR.ESOURCESGLOSSARYFinancial statements are useless if you don't know what you're looking at.IBM provides a guide.merely annual data. The frequency of information re-lease varies widely among companies.• Timeliness, which refers to how up-to-date the dataare. Companies traditionally mail paper copies of theirannual reports about three months after their fiscalyearends. However, some businesses send significant in-formation over the Internet as soon as they have it. Bro-kers, analysts and the fmancial press thus depend on theE X E C U T I V E S U M M A R Y• THE INTERNET IS AFFECTING traditional statements andaudits as companies expiore online options.• FINANCIAL INFORMATION is now easily available online,creating a new readership. CPAs must consider how to helpmake this information useful to the expanded public.• CPAS NEED TO EXAMINE the quanitity of the informationa Web site can offer, the range of historical financial infor-mation provided, the frequency with which the company up-dates the information and the timeliness of its delivery.• CORPORATE WEB SITES need to be easy to access to betruly useful. Financial information should be upfront. Com-plex sites should offer a "text-only" version.• THE SITE SHOULD MAKE a positive statement about thecompany. For example, a company may want to post an ac-tual recording of its president's speech at a recent stock-holders' meeting.• COMPANIES NEED TO CONSIDER who will use their sitesand provide appropriate features. Search engines helpusers connect information from all over a given Web site.Analysts may want to download financials into spread-sheets, for example.• CYBERCASTING, ONLINE VOTING and forums are justsome of the ways cotiipanies may help investors partici-pate more easily in stockholder activities. CPAs awareof the possibilities can become leaders.TIMOTHY |. LOUWERS, CPA. PhD, is an assistant professor in the Department of Accoiinting at LouisiaiKi StJte University.WILLIAM R. PASEWARK, CPA, PliD. is an associate professor in the Department of Accountancy and Taxadon at the University' ofHouston. ERIC W. TYPPO, CPA, PhD, is an assistant professor in the Eberhardt School of Business at die University of the Pacific,2 2 J t l U R N A L .)f A C C O U N T A N C Y A u g u s ttaivastor rwtatlaa* .technology-constrained Web browsers. Such sites havetext without all the flash.HOW DOES IT LOOK?Users may come to a Web site seekitig financial informa-tion, but they'll probably end up looking at other pages aswell. Therefore, corporate controllers or CFOs need toconcern themselves not only with the financials but alsowith the presentationof information locatedelsewhere on the site.Online pages can flowalmost seamlessly fromfmancial statements topress releases. Thequantity, quality andpresentation of all in-formation on a Website make a powerfulstatement about a com-pany. For the first time,potentiiil customers andstockholders are gain-ing their perceptions ofcorporations throughthe Internet rather than the traditional channels of annualreports, prospectuses and the financial press.Companies are taking many different approaches tohold visitors' attention and keep them coming back.Many corporate sites greet Web surfers with strong col-ors and bold graphics—and sometimes motion andsound; for example, Exxon features a tiger runningacross the screen (u'ww.exxon.com). Several corpora-tions, such as IBM, allow visitors to listen to speechesor comments by management {unt'w.ihm.cotn/hj;). Acompany that rarely updates itsinformation or varies its presen-tation suggests that it doesn'tcare if the public has up-to-dateknowledge of its operations.Your computer probably has an Intel chip inside. Use K to leam all aboutthe company.and find out how many employees are in each field office.All this information appears on different pages, which iswhy many sites provide search engines that locate infor-mation based on key words. Exhibit 2, page 24, describesseveral features more sophisticated Web sites should have.User-friendly sites provide links directly f'rom the fman-cial statements to explanatory notes. Microsoft, forexample, places links from balance sheet accounts direct-ly to notes or, in somecases, to explanatorycharts. Links to thenotes should appeardirectly on the face ofthe financial statement.Some sites let userstake "electronic posses-sion" of the data: Userscan download financialinformation into pre-sentation media suchas Adobe (see WaUmart, www.tratmarl.torn) or into a Lotusor Excel spreadsheet.Intel 1B97Annual Reportww^v.lnlc-cofTinow available!VWwthamporfonhn*..Olunta II.XMJMMicrosoft allows usersto download its income statement as an Excel spread-sheet file, an "Excel PivotTable" or an Excel "what-if" model {trww. microsoft .com /msft /ar97 /analysis /analysis_tools.htm.)Web site visitors have come to expect current stockprices online. Some corporations provide stock priceson their sites (for example, www.ihm.com/lBM/Stocb),while others have links to free stock price providerssuch as StockMaster {www.stockmaster.com). The SECmaintains approximately two years of 10-K and lO-QMEETING USER NEEDSSuccessful corporate sites presentaccounting information in for-mats that meet user needs; someusers may require a wide range ofinformation spread throughout asite. For example, an analyst maywant to read the balance sheetExhibit 1: Information Needs of Internet UsersInformationbreadth Users ExamplesNarrowModerateWideWeb surfersInformal investorsStockholdersStockbrokersEmployeesFinancial analystsInstitutional investorsI Financial highlightsI Partial annual reportsI Full annual reportsI Quarterly reportsI Stockholder meeting transcriptsEarnings announcements: Earnings forecastsA u g u s t JOURNAL of ACCOUNTANCY 23filings in its free EDGAR database{www.sec.gov/edxarhp.him). Most cor-porations now provide a link toEDGAR for users who want to viewthese filings.1995 1996CurrenI assMs:Cash and shoiMefm inveslmBnlsTotal current as&atsPrpperiy. plani. and BouipmertlOthsr S8«ei8Total asselsWHArS AHEADHas the Internet made some investingand accounting disclosures obsolete?Companies use annual stockholder meet-ings to amiounce corporate direction, re-ceive stockholder feedback and vote onissues mandated by the charter. Cyber-casting—the ability to broadcast live au-dio, video and transcripts over theInternet—would allow stockholders to"attend" meetings while remaining athome, to vote using e-mail {www.proxyvote.com) and to participate in discus-sions in online forums or chat groups {http://hoards.fool.com/hoards.asp?).Right now, the Internet pmvides fast and inexpensive ser-vices to stockliolders regarcllcss of where they are located. Forexample, Mobil {www.mohil.com/this/financial/stock/itidex.htmt) permits stockholders to enroll in a dividend rein-vestment program using forms on the Web.In the future, the timeliness and convenience of the In-ternet also could reduce the informadon disparity' betweeninstitutional investors—who tend to have greater data-gathering resources—and individual investors. C^orpora-tions are likely to make announcements simultaneously toExplanatory notesmay b« accestadby clicking th«account nam*.5.620 73391,192 1.3?6398 92817 210 t1B,093 (i)-A chart depletingafs«t growth Isviewed by clickingtti« graph Icon.Exhibit 2: Common Investor Relations Internet FeaturesFeatureSearch enginesLinks toexplanatory notesDownloadingStock price dataEDGAR linksDescriptionDirect the user to an area of the site thatcontains key words provided by the user.Direct the user from the financial statementaccount to the associated explanatory note.Transfers financial data to storagecomponents on the user's computer.Allow online viewing of the current tradingprice of stock.Provide a link to the SEC's EDGAR databasecontaining 10-K and 10-Q filings,Where do you want to go today? How about to Microsoft's accounting department?all stockholders through e-mail and hold analyst confer-ences online via cybcrcasting.Investors and analysts of the future also will be able totailor information to their specific needs. Although a fewcompanies now provide users with charts of historical data{tvww.ihm.com/Investor/HistoricalCharts/), the Internetsite of the future will give users opportunities to chart datain the ways most useful to them. For example, users willbe able to specify the number of years of information theyneed or to plot growth rates against industry averages.They will be able to tailor the financial statements to ap-pear in diflerent languages, currencies and accounting con-ventions. Microsoft, {umm\microsoft.com/msft/ar97/analysis/analysis_tools.him) and Nortel{wwtf.ttorteicom/home/home.html) already al-low some user customization. Finally, uniformcharts of accounts and disclosure formats mayeventually standardize reported data so that In-ternet users may download data into softwarethat automatically performs historical analysis,forecasting and industry comparisons. Exhibit3, page 26, lists some key services companieswill be able to offer via the Internet,The issue ot financial reporting on electronicsites remains relatively unaddressed. To date, theotily authoritative literature on financial state-ments on corporate web sites was issued by theAK;I*A auditing issues task force of the ASB.While auditors must review other informationaccompanying traditional audited finaticial2 4 J O U R N A L 0 / A C C O U N T A N C Y A u g u s tINTERNET/BUSINESS AND INDUSTRYWhat should an auditor's responsibilitybe for online statements? Should companies be allowedto dispense with printed statements altogether?statements for consistency {see Section ,ir>0, "Other Infor-mation in Documents Containing Audited Financial State-ments," in AICPA Professional Standards), the task forceissued an interpretation (AU section 9550.17) saying theWeb sites are a means of information distribution and not"documents" as defined bycurrent auditing standards.As financial reporting on theInternet becomes morecommonplace, it remains tobe seen whether this inter-pretation will be retained.Exhibit 4: Evaluators of Investor RelationsRater Internet Siteinvestor Relations WebOff-LineTechWebCPAs AS KNOWLEDGELEADERSIndividuals who are well-versed in the Internet's possibilities are valuable to theirbusiness colleagues. Therefore, CPAs need to exploreways to harness the Internet tor the good of their em-ployers, their clients and the investing public. They mustexamine how these rapidly changing technologies will af-fect the traditional fuiancial statement audit. Standard-setting authorities are just beginning to address issuessuch as: What should an auditor's responsibility be forExhibit 3: Internet Features of the Futureonli[ie statements? Should companies be allowed to dis-pense with printed statements altogether? Since the Webknow^s no international boundaries, will the IASC playan increased role in regulations for online statements?(See "Calling All Members." JofA, May^H, page 109, and"Model Company CioesOnline," jofA,June98, page17, for fijrther discussion).For CPAs, the first step isdiscovering what some siteshave already achieved. For-tunately, several groupsevaluate Internet sites andrate their usefulness, basedon the quality of informa-tion, site accessibility andease of use (see exhibit 4, above).Cyberspace provides accountants with an incredibleopportunity to tell their companies' stories in ways previ-ously unimaginable. How the accounting profession facesthis challenge and bridges the gap between Norwalk andSilicon Valley will determine its role in the reporting ofinformation^—both financial and nunfinancial—in thenext century. •www.investor-rel.com/index.htmlwww.of f-on .com/top2 5. d bmwww.techweb.com/FeatureShareholder servicesCharting and graphingE-Mail subscriptionsShareholder forums and chat groupsBasis selectionCyhercaslingShare votinsShare purchasing and tradingData "packaging"DescriptionShareholders may change their mailing addresses, request documents or enroll individend reinvestment programs through the Internet.The user may create charts or graphs using corporate financial data.The user can get press releases and financial information by e-mail as they become available.The site provides a means for shareholders and managers to communicate their viewsconcerning corporate policy and operations.The U5er may select a preferred language, currency or accounting convention to analyzefinancial statements.The user may hear or view corporate activities, such as stockholders' meetings oranalysts' conferences, as they occur.Shareholders may vote their shares over the Internet rather than by mail or by attendingmeetings.Users may purchase or trade stock.The company may place financial data automatically into standardized accounts foranalysis and industry comparison.2 6 J O U R N A L . . / A C C O U N T A N C Y A u y u s i 19'JM

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Silicon Valley Meets Norwalk

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