February 1999 Issue

It's easier than reading an annual report. The links are the reason.



By Simon Petravick

In Brief

Proxies Can Be Voted Online

Many public companies use their websites to distribute a wide variety of financial information. This article summarizes the types of financial information typically reported on these sites and the manner in which that information is presented.

Annual reports with all their glitz and color are the stars of the show. But there are also quarterly reports, news releases, and the creative use of links to other information.

Some websites let you do "what-if" scenarios and others let you vote your proxy. The cross-linking of financial statement items to notes to the MD&A makes for an easier understanding of the statements.


Public corporations present a vast amount of financial information on their websites. Exhibit 1 provides a summary of data gathered from Fortune 150 websites. Financial information was broadly defined to include information besides full annual reports such as earnings releases or condensed financial statements.

Exhibit 1 shows a tremendous growth in the Fortune 150s' use of the Web over a 14-month period; 93% now use the Web to post financial information. This should not be surprising, as these large companies attract a great deal of attention, and the Web is a useful means for making relevant information available to the public.

Although large companies might be expected to make the Web an integral part of their operations, to what extent do smaller companies use their websites for distribution of financial information? To measure this, I randomly selected 86 companies whose securities are traded on the Nasdaq stock markets, excluding stocks included in either the Nasdaq 100 or the Nasdaq Financial 100 indices as they contain Nasdaq's largest nonfinancial and financial companies, respectively. Exhibit 1 shows that a majority of these smaller companies are also embracing Web-based reporting, though not quite at the levels of the Fortune 150.

Outside interest further illustrates the growing importance of online financial reporting. First, the FASB staff is focusing its attention on this topic. FASB has developed a website illustrating online reports for FauxCom, the fictitious company discussed in the Jenkins Committee Report, at raw.rutgers.edu/Accounting/raw/fasb/
fauxcom/Default.htm. They are seeking comments on this representation.

Moreover, the AICPA has established the Electronic Dissemination of Financial Information Task Force. It is charged with evaluating and developing guidance on this ever-evolving topic. Most recently, the task force surveyed CPAs about their experiences and concerns regarding financial information distributed through websites. While the format of the task force's final report has not been determined, Chair John Archambault stated that it is considering issuing a document that describes best practices in this area.

Financial Information Typically Reported


Exhibit 2 summarizes eight types of financial information found on corporate websites. The URLs listed in the exhibit contain examples of each type. The first four--annual reports, interim reports, SEC filings, and stock price-- are routinely found on corporate websites. The latter four--analysis and query tools, summaries of meetings and presentations, international presentations, and proxy voting--are more recent developments and represent the state-of-the-art in online financial reporting.

Annual Reports. The annual report is the main focus in many organizations' financial reporting cycles. Accordingly, corporate websites should serve as repositories for the most current report and several prior years' reports. Two formats are commonly used, HTML and PDF.

HTML is a programming language used to create the documents viewed by a Web browser such as Netscape's Navigator or Microsoft's Explorer. Financial reports created in HTML have the greatest portability, because Web browsers can display them without additional plug-in helper applications. HTML can also be used to link related information for easy navigation. The Intel example illustrates some of these points. The current annual report has a table of contents that links directly to any section or can be turned page by page as if printed. The use of advanced HTML makes the experience intuitive and attractive.

Adobe Acrobat software is used to create Portable Document Files (PDFs). This software translates files containing legacy documents into files that can be read with the free Adobe Acrobat Reader. The PDFs maintain the look and feel of the original documents and can be read across multiple platforms, i.e., by computers using various versions of Windows, Unix, or the Mac OS. The Amoco site provides annual reports presented as PDFs.

A full annual report saved as a PDF can be quite large. Whirlpool's full report is over 2 MB. Large files take a long time to download, making them less convenient to access. Whirlpool resolves this problem by making smaller files available that contain components of the full annual report. This allows interested parties to obtain what they desire quickly.

Interim Reports. These reports keep investors up-to-date with information about interim results. The most current report and several prior periods' reports are usually included on websites. Companies may include earnings releases, notifications of dividend declarations, and other reports to shareholders. Caterpillar's site provides a nicely organized summary of its quarterly earnings releases from 1995 to the present. Walgreens' site presents both quarterly results and monthly sales.

SEC Filings. Public companies now file electronically with the SEC. The SEC's EDGAR system performs automated collection, validation, indexing, acceptance, and forwarding of these submissions. Through the SEC's
website, www.sec.gov, individuals can access electronic filings that are made available to the public. Therefore, it is very simple for a corporate website to have links to EDGAR, making those documents directly available.

The Hewlett Packard site is a good example of this technique. It has multiple links and provides concise descriptions of the documents the links will return. For example, one link returns annual, quarterly, and change reports. Another link returns proxy statements. On the other hand, Baxter's Financial Information contains only one link to EDGAR and returns a long list of SEC filings. Novice users may not be able to quickly find what they are looking for.

The ARCO example shows an alternative approach. In this case, the company has stored its SEC filings on its own website, listed by year and form type. This provides greater control, because all information is within the corporation's domain.

Stock Price. Two types of stock prices can be shown: current and historical. The AT&T site provides a good example of how both types can be presented. Here, the current stock price is shown along with other comparative information, such as data about the S&P 500 and stock prices of other telecommunications companies. PG&E's presentation is more straightforward. There are links to other websites that provide current stock quotes and historical data at no charge.

Analysis and Query Tools. The AT&T, IBM, and Compaq sites all provide menus that allow users to choose various types of historical information. The data is retrieved and presented as either a report or a graph. This allows individuals to explore statistics such as sales, cost of sales, net income, or earnings per share, over an extended period.

Texas Instruments uses a different approach. TI presents a copy of its 1997 income statement. Users can input changes, e.g., increase sales by $1 billion, and TI's "What If Calculator" computes the overall effect on other lines in the statement, such as gross margin and profit, and earnings per share. Users can also input a hypothetical stock price and the What If Calculator will compute the new price earnings ratio, market capitalization, and market capitalization to revenue ratio.

These analysis tools certainly extend beyond what can be included in printed annual reports. Making these tools available to users shows the willingness of these organizations to make information accessible, but the tools have imperfections. AT&T's report generator, for example, shows a very legible graph when asked to display expenses as a percentage of revenues. However, this report generator miscalculates the percentage increases and compound annual growth rates.

I anticipate organizations will resolve problems with these tools and improve them over time. They certainly demonstrate interesting ways of making useful information available.

Summaries of Annual Meetings and Presentations to Security Analysts. Websites serve as repositories for significant financial information. Since the Web is an electronic medium, the financial information can extend well beyond text. The three sites listed in this section of Exhibit 2 illustrate the breadth of information that is made available. For example, at the AT&T site, interested parties can listen to a re-broadcast of a portion of the annual stockholders' meeting. The HP site provides summaries of semiannual presentations to security analysts and links to full texts. Finally, the Motorola site includes transcripts of conference calls placed to release earnings, some of which have been broadcast live over the Internet. Any interested party could join in by obtaining a free RealAudio player plug-in from RealAudio's website.

International Presentations. Microsoft has restated its income statement in the language, currency, and accounting conventions used in Australia, Canada, France, Germany, Japan, and the United Kingdom. Since a website can be easily accessed by anyone in the world, this approach is practical for any company wishing to provide information to non-U.S. investors or creditors.

Proxy Voting. While not strictly a financial reporting event, proxy voting certainly is intertwined with financial reporting. The first two websites listed provide support for the collection of votes. The proxyvoting.com site provides a sample ballot illustrating how the proxy would be presented online. The proxyvote.com site provides instructions for voting. Voting is controlled by having voters enter a 12-digit control number. It also provides the option of receiving a confirmation via e-mail. Finally, the third site is an article from USA Today that provides some general information about online proxy voting. For example, 10% of the votes for the Vanguard Group were cast over the Internet, saving Vanguard $300,000 in postage.

Organization of Financial Information


Exhibit 3 lists three factors that are important to the effective organization of online financial information. The first two topics, linking directly to the financial reporting section and displaying a table of contents, are relatively common. The third point, which links related information, is currently found only on a few websites. The URLs listed in Exhibit 3 illustrate these concepts.

Link Directly to Financial Reporting Section. The availability of financial information should be clearly indicated on the company's homepage. For example, on Pfizer's homepage, the financial information can be found by clicking on the "Investing in Pfizer" link. Xerox has two links indicating the availability of financial information: "1997 Annual Report" and "Investor Information." Other commonly used labels indicating the availability of financial information include "Stockholder Information," "Company Information," or "Financial Information."

Display a Table of Contents. Interested parties should be able to quickly locate the desired information in the financial reporting section. This objective is easily achieved by having a table of contents. The examples given in Exhibit 3 illustrate three different ways of implementing this. For example, FauxCom presents a site map that looks like an organizational chart. Each major element (balance sheet, income statement, etc.) is shown and linked to the corresponding file. IBM provides a different approach. Its site uses a drop-down menu that displays available options. Interested parties select the desired element from the menu and go directly to it. Finally, Xerox's homepage displays a table of contents that stays in the screen's left margin while the financial statements or notes are displayed. Each item is linked to the corresponding data.

Link Related Information. Annual reports contain an abundance of information that is disbursed through many sections, e.g., financial statements, footnotes, and management's discussion and analysis. Links can be used to facilitate users' review of related information. For example, at FauxCom, the inventory line of the balance sheet is linked to the inventory accounting policy footnote. At the end of this footnote, there is a link to the footnote that discusses inventory's major components: raw materials, work-in-process, and finished goods. From there, one more link takes readers to the inventory valuation allowance footnote.

IBM follows a similar process. On its statement of earnings, the hardware sales line is linked to the corresponding management's discussion, which is linked to the segment information footnote that also discusses sales. Finally, on Microsoft's website, the names of the financial statements listed in the introductory paragraph of the auditors' report are linked to the corresponding statements. *

Simon Petravick, PhD, CPA, is an assistant professor of accounting at Bradley University.

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