The CPA Journal

Web-Based Reporting

By Charles E. Davis, Whit P. Keuer, and Curtis Clements

In Brief

Possibilities and Progress in a New Medium

Web-based financial reporting is no longer a dream, it’s a reality. As with many emerging technologies, however, there is little in the way of specific implementation guidance. The authors examined the practices of Fortune 100 companies to get a sense of the trends and techniques currently used in web-based reporting. Companies should remember, however, that the same federal securities laws that apply to paper-based reporting apply to electronic media.

Accounting is about providing timely, useful information to decision makers. With web-based reporting, information is no longer available only at the end of the quarter or year; it is available instantaneously, in real time. For instance, Michael Young, partner in the New York law firm of Willkie Farr & Gallagher, states, “In its crudest form, it [real-time reporting] could simply involve the daily publication of revenue on a company’s website.”

While the printed annual report discloses required financial results, recent studies (e.g., the Jenkins Committee) have found that investors desire additional financial and nonfinancial disclosures. The World Wide Web provides the ideal medium for disclosing additional information. A 1998 Association for Investment Management and Research (AIMR) survey found that professional investors find that company websites make it easier to provide accurate analyses of companies.

Communicating financial information in paper-based format is costly, and web-based reporting promises to reduce such costs. Web-based reporting can reduce communications cost and avoid printing and distribution costs through a shift from paper-based statements to electronic dissemination. The more investors that agree to receive information electronically, the greater the potential savings.

Web-based reporting will certainly be the reporting format of the future with XBRL (Extensible Business Reporting Language), a platform-independent language based on XML (Extensible Markup Language) and tailored for financial reporting. XBRL provides a framework for preparing, publishing, extracting, and exchanging financial information. Using XBRL tags, data is entered once and then extracted and formatted into various reports, thereby reducing the time, effort, and cost associated with duplicate data entry operations and report generation. The standardized tags also make it easier to compare financial statements across companies.

Leading software vendors such as Great Plains, Hyperion, Oracle, SAP, and PeopleSoft have promised XBRL solutions that automatically generate XBRL-based reports. The SEC is also moving to accept XBRL-based filings; Morgan Stanley filed the first XBRL-based 10-Q in February 2001. The Sidebar lists additional XBRL resources.

Eventually, web-based reporting may partially discharge regulatory disclosure requirements. For example, a company may be able to satisfy its Regulation FD obligation by webcasting analyst conference calls or by promptly posting a call transcript on its website. While it is important to note that web-based reporting currently does not constitute broad dissemination of information as required by Regulation FD, a recent SEC special study recommends that its accepted use be expanded.

Identify the Expected Costs of Web-Based Reporting

While there are substantial benefits to web-based reporting, its adoption will introduce additional costs. For companies that already have a web presence, the incremental costs of coding data for web-based reporting may be minimal. Data preparation can be as simple as saving Word files in HTML or PDF format.

Such simple, in-house solutions may not, however, be suitable for companies with little or no current web presence. In-house development requires domain name registration, the purchase of hardware and software, and the hiring of qualified technology staff to create and maintain the website. Depending upon these costs, outsourcing the website may be a more attractive option. Costs for outsourcing can vary greatly depending upon the vendor selected (a sampling is shown in Exhibit 1). Regardless of the option chosen, the most important consideration should be the ability to maintain an up-to-date website that is always available and secure.

Identify Web-Based Reporting Best Practices

The authors visited the websites of the 1998 Fortune 100 in June 1999 and January 2001 to identify best practices in web-based reporting. While the companies may have changed their reporting practices since that time, the findings still identify web-based reporting trends and techniques.

If web-based reporting is to be useful, it must be easy to find. Investor relations sections are becoming more prominent on corporate websites, with many companies putting direct hyperlinks to financial information on the company’s home page.

As companies move toward web-based reporting, a natural starting point is regulatory financial disclosures. With the rapid growth of online trading accounts, such disclosures are an important information source for many individual investors.

Annual reports. Between the first and second examinations, annual report disclosure on the websites surveyed increased from 54.3% to 97.9%. Nearly two-thirds of companies present the annual report in PDF format, a printer-friendly document mirroring the hard copy, rather than in HTML format.

Companies are providing more online annual reports, an average of just over three years’ worth. This trend appears to go beyond the Fortune 100; the Public Register’s Annual Report Service advertises over 2,292 online annual reports (www.annualreportservice.com). This trend should only continue, because the incremental cost to keep a report on a website in subsequent years is small.

To enhance its usefulness, online annual reports must be user-friendly. A complete annual report in PDF can take a long time to download. The SEC Interpretation, Use of Electronic Media (www.sec.gov/rules/interp/34-42728.htm), recognizes that long download times and reluctance to view large documents online are slowing users’ adoption of electronic delivery of regulated disclosures.

Navigation tools should help users find desired information. One technique is to use separate files for each of the major sections of the report, as shown in Exhibit 2. A single PDF file should include an index as well, as shown in Exhibit 3. HTML files should provide indexes through a hyperlink or a navigation toolbar (see Exhibit 4).

Quarterly reports. Slightly fewer companies surveyed (90.4%) provide online quarterly reports than provide annual reports. In contrast to the annual report trend, quarterly reports are more often presented in HTML rather than PDF. Many companies present quarterly earnings announcements as part of a press release, making them difficult for investors to locate. The authors recommend a separate section of the website for posting quarterly announcements.

SEC filings. As disclosure of financial reports on corporate websites has increased, companies are providing SEC filing information directly on their website rather than through hyperlinks to the Edgar website (www.sec.gov/edgar.shtml). Others are linking to SEC filings through third parties such as CCBN (www.ccbn.com). This is often done through frames, which keeps the investor on the company’s website.

Financial analysis information and tools. In addition to regulatory reports, other nonregulatory information can be reported through the website. Most companies report stock prices, typically delayed quotes provided by third-party sources. When presenting third-party information on a website, the authors recommend using a disclaimer which requires active user acknowledgement. This type of disclaimer may be more likely read than one that is merely posted passively on a website.

Some websites list analysts that cover the company’s stock. This risks confusing investors as to which statements are external parties’ opinions and which are management assertions. Attorney Boris Feldman notes, “The greater the links to information provided by analysts, the more useful is the site to investors. Unfortunately, the greater the links to analysts, the more likely are plaintiffs to argue that the company is liable for the analysts’ projections” (www.wsgr.com/library/ libfileshtm.asp?file=internet.htm).

Two trends in providing financial analysis information are noteworthy. First, the majority of companies surveyed provide Internet-based access to analyst conference calls and other corporate presentations traditionally not open to individual investors. Second, more companies surveyed provide information that users can download into a spreadsheet program for additional analysis. For example, Texaco provides production trend data in a downloadable Excel format (see Exhibit 5).

Communication tools. Anticipating all users’ information needs is impossible. Even if the information a user wants is available, and even if it is provided in a variety of formats with clear instructions on how to download and view it, certain difficulties are probably inevitable. Therefore, an important component of effective web-based reporting is allowing users to directly request information. One-half of the companies surveyed provide a form allowing users to request a hard copy of specific information. Company websites also provide an e-mail hyperlink to the investor relations department, an option to receive e-mail newsletters, and a calendar of corporate events.

New Medium, New Ideas

Web-based reporting is more than posting financial statements on a website. And as with any system implementation project, investing in up-front planning can prevent headaches later. The approaches above represent one way to report a company’s financial results online. This is by no means a complete list of techniques to be considered. As a new medium, the web is ripe for exploring new ways of achieving traditional reporting objectives. Exhibit 6 lists some websites with additional information about, and potentially inspiring examples of, web-based reporting.

Charles E. Davis, PhD, is Ernst & Young Teaching Fellow and chair of the department of accounting and business law at Baylor University, Waco, Texas.
Whit P. Keuer is a graduate of Baylor University’s Master of Accountancy program and currently works as a tax and legal services associate at Pricewaterhouse Coopers, San Jose, Calif.
Curtis Clements, PhD, is Peat Marwick–Thomas L. Holton Research Fellow in Accounting and assistant professor in the department of accounting and business law at Baylor University.