10.1.1.85.525.pdf

The presentation of financial information at corporate

Web sites

Michael Ettredge*, Vernon J. Richardson, Susan Scholz

Division of Accounting and Information Systems, School of Business, University of Kansas, 350 Summerfield Hall,

Lawrence, KS 66045-2003, USA

Received 1 September 1999; received in revised form 1 September 2000; accepted 1 September 2000

Abstract

The advent of the World Wide Web has provided a new avenue for companies to

communicate with current and potential investors. Our study investigates corporate Web site

financial disclosure practices. We evaluate and compare the Web site disclosure levels of 17

industries, and summarize the frequencies with which a variety of financial disclosure items are

found. Our examination identifies several practices that raise potential concerns for the

accounting profession. In particular, we investigate annual report excerpts tailored for Internet

users and identify information found at Web sites that may increase disclosure risk. We also

discuss issues associated with locating and using Web site data. D 2000 Elsevier Science Inc. All

rights reserved.

Keywords: Financial reporting; Internet; Voluntary dissemination; Corporate Web sites

1. Introduction

1.1. Background

The recent rapid development of the World Wide Web has provided a user-friendly

platform from which companies may, if they choose, communicate with a large and growing

number of financial information consumers. A June 1998 survey of senior Investor Relations

(IR) personnel released by the National Investor Relations Institute (NIRI) reported that 82%

* Corresponding author. Tel.: +1-785-864-7537; fax: +1-785-864-5328.

E-mail address: [email protected] (M. Ettredge).

International Journal of Accounting

Information Systems 2 (2001) 149–168

1467-0895/00/$ – see front matter D 2000 Elsevier Science Inc. All rights reserved.

PII: S1467 -0895 (00 )00017 -8

of survey respondents said they used Web sites for corporate communications (National

Investor Relations Institute (NIRI), 1998c). Furthermore, traditional press releases and

company reports often refer the reader to the company’s Web site for further information.

For example, a search of Lexis/Nexis revealed over 1000 such references in corporate press

releases for the month of May 2000.

The advantages to a corporation of supplying financial information at a company Web

site include providing individual (retail) investors with a quantity and timeliness of

information previously available only to select parties, such as institutional investors and

analysts. Sites can be used to aggregate existing publicly disclosed information such as

wire releases, company publications and Securities and Exchange Commission (SEC)

filings, as well as to equip retail investors with items not previously available to them, such

as transcripts or audio versions of analyst conference calls. As an additional benefit,

corporate costs of printing, mailing and staffing IR phone lines can be reduced (Noack,

1997; Theobold, 1998).

In addition to disseminating information to existing shareholders, a site can also create

interest among potential investors and provide a ‘‘boost [to] the corporate image’’ (Noack,

1997). The medium allows the company to control the context in which data are presented,

emphasize the positive and provide interpretation for potentially negative information. One

IR consultant stated that ‘‘a Web site . . . enables companies to present information on their

own terms.’’ Another noted that ‘‘the true value of an internet presence is the opportunity to

project the corporate brand’’ (Lowengard, 1997).

Because accounting-based information is often a key component of corporate Web sites,

these comments raise issues of interest and potential concern to the accounting profession.

Use of accounting data at Web sites, which are intended (among other things) to create

interest in the company’s stock, may create conflicts with the objectivity demanded of

accounting reports.

This is important because Web site presentation means that accounting information

is more easily accessed by a much larger group of users, who may possess a

different level of financial sophistication than previously assumed.1 A 1997 NASDAQ-

commissioned survey showed that the number of individual investors doubled over

the previous 7 years to include 43% of American adults. The same survey indicated

that the demographics of the investor population changed dramatically: 50% do not

have college degrees and 45% describe themselves as white/blue collar workers or

housewives. Only 29% consider themselves managerial or professional. Thirty-seven

percent of investors use the Internet to acquire information regularly (NASDAQ Stock

Market, 1997). This trend continues with the rising popularity of Internet broke-

rage sites.

In this paper, we describe and quantify corporate financial disclosures on this dynamic and

evolving medium. We identify issues arising from the inclusion and exclusion of different

types of information and investigate the practice of posting excerpts from the annual reports

1 Often questions to on-line investor guides such as The Motley Fool address accounting terms and practices.

For example, their May 24, 1998 column addressed the question ‘‘What’s this ‘goodwill’ I see on company

balance sheets.’’ (The Motley Fool, 1998).

M. Ettredge et al. / International Journal of Accounting Information Systems 2 (2001) 149–168150

on Web sites. We also discuss organization, format and terminology issues discovered during

our exploration of on-line financial information.

1.2. Summary of research design and results

Our research begins with an overview of the existing regulatory and legal atmo-

sphere surrounding Web site financial content. We also conducted interviews with

several IR directors to understand their attitudes towards the medium. We derive a list

of financial items that might be found at corporate Web sites from these interviews,

from the NIRI, from other practitioner sources and from visits to existing Web sites.

Using this list, we investigate the financial information presented by a broad sample

of firms. We calculate the frequency with which financial items appear at Web sites

and develop a measure of Web site disclosure level based on points assigned

to checklist items. Finally, we use these findings to identify issues of interest to

the profession.

The next section summarizes the current status of Web site regulations and legal

status. Section 3 provides some insights from our discussions with corporate personnel

regarding their use of Web sites to disseminate financial information. Section 4 presents

the sample and the occurrence of Web sites. Section 5 measures the level of disclosure

for different categories of data and discusses the relative frequencies of the underlying

data items. Finally, the last section is a summary of results with conclusions

and implications.

2. Current regulations and legal environment for corporate Web site disclosures

At present, financial disclosures at corporate Web sites are mainly voluntary and

unregulated. Companies are under no obligation to maintain a Web site. If they do, the

site content is largely discretionary. There is no governing body or set of regulations

that either requires or forbids the disclosure of any specific data at Web sites (Prentice

et al., 1999). The primary restriction is that information cannot be fraudulent, since the

SEC interprets ‘‘written communication’’ to include electronically distributed informa-

tion (Bell, 1998). In addition, rules that limit corporate communications during

preoffering and registration ‘‘quiet periods’’ apply equally to Web site information

(Witmer, 2000).

However, the SEC and the major stock exchanges do not currently consider Web site

postings to constitute the ‘‘broad dissemination’’ that is required for material information

(Prentice et al., 1999). Thus, we expect to find corporate Web sites that post information

that has already been released through alternate channels, such as SEC filings or wire

releases. However, this may change since the SEC has recently invited comment on this

issue (Securities and Exchange Commission (SEC), 2000).

Accounting entities such as the AICPA have focused on providing assurance for Web-

based transactions, such as Web Trust. Their primary reaction to Web-based financial

reporting has been to disclaim responsibility for verifying their clients Web site content

M. Ettredge et al. / International Journal of Accounting Information Systems 2 (2001) 149–168 151

(Ettredge et al., 2000a). Thus, the current environment permits a wide variety of financial

information to be presented at the discretion of the company.

3. IR perspectives on Web site disclosures

At the company level, IR personnel usually make financial content decisions. Their

decisions are generally made in consultation with company attorneys and chief financial

officers. We conducted interviews with IR directors at six companies, including

representatives of the finance, retail, restaurant, telecommunications, software and

entertainment industries.

There is a wide range of opinions regarding the potential use of the Internet as a conduit of

financial information. Some IR directors view the Internet as an important information

channel, citing reduced administrative costs and providing a ‘‘level playing field’’ for all

investors as primary advantages. These directors tend to actively experiment with new

technologies, such as audio and video, and consider their Web sites to be integral components

of their communication strategies.

Another strategy is to include only a minimal amount of financial information. The

content is selected to approximate the lower level of industry disclosure practices. Although

these directors do not want the company to be perceived as ‘‘backwards’’ relative to

industry peers, they do not intend to initiate any new types of disclosure or invest in

creating ‘‘cutting-edge’’ technologies.

Others provide no investor information at Web sites. The primary reason financial

information is excluded (even though the company may use a Web site for other

purposes) is the perceived lack of demand for Web-based financial information from

their investors. Some of these companies have a relatively small percentage of retail

investors and believe that the needs of institutional investors are best addressed via other

avenues; others simply have not received requests for Web site access to data. They also

emphasize the costs of maintaining an IR page. Specific costs include creating the site,

monitoring and maintaining the data content and the potential cost of giving too much

information to competitors.

Interestingly, the costs cited above do not include increased litigation risk from

Web site disclosures. When asked, the IR directors said that this risk is controlled

by posting only information on their Web sites that has been approved by the corpo-

rate disclosure committee and is also available through traditional channels. Thus, the

company’s overall disclosure policy covers all Web site disclosures, reducing the

incremental risk. Legal experts agree that this strategy is the safest course, but claim

that it does not eliminate all incremental risk. For example, stale information

remaining at a site could be cause for legal action if circumstances have changed

from the date it was posted (Wilson et al., 1998). The SEC has acknowledged

this issue by inviting comment on potential regulations to address such situations

(SEC, 2000).

Furthermore, many companies tailor disclosures specifically for the Web and/or add

hyperlinks to third-party sites. Theoretically, hyperlinks might create additional risk by


incorporating the information at the linked site into the company’s set of disclosu-

0res. The SEC recently attempted to clarify the issue of third-party hyperlinks by

stating that they depend on three factors: context, potential for investor confusion and

the presentation of the hyperlink (SEC, 2000). However, the precise meaning of these

criteria remains unresolved since no case law exists to provide examples and

guidelines. Finally, the same convenient access to data that makes Web sites attrac-

tive to investors makes the sites attractive to plaintiffs’ attorneys (Bell, 1998; Wilson

et al., 1998). Again, the unresolved legal issues and regulatory positions lead us to

expect a wide variety of financial information and presentations at corporate

Web sites.

4. Sample, industries and Web site frequency

We examine companies drawn from two sources. First, we use the companies followed

by the Association for Investment Management and Research (AIMR, 1997). This group

of 259 companies represents 15 industries and permits some evaluation of the effect of

industry membership on Web disclosure.2 In addition, the AIMR ranks these companies

according to the quality of their financial disclosures in traditional venues. We use an

industry-adjusted version of the AIMR measure to provide external validation of our

measure of Internet disclosure.

A disadvantage of the AIMR sample is that the companies tend to be consistently

large and established. Therefore, we supplement the AIMR companies with all

members of the biotechnology (SIC 2836) and computer technology (SIC 3674)

industries as defined by Compustat. In addition to representing industries not covered

by the AIMR firms, these companies provide wider variation of company size and

development stage.3

The distribution of firms across industries is provided in Table 1. Industries are listed

in descending order of the percentage with Web sites. A total of 490 companies are

included in the sample. Web sites were found for 402 (82%). This percentage is

consistent with the NIRI survey results. Four industries have 100% representation on

the Web: airlines, electrical equipment, health care and natural gas distribution. The

industry with the lowest percentage of sites is environmental controls, with only 50%.

The AIMR firms have a higher percentage of Web sites than the high-tech firms,

although the difference is only marginally significant (Pearson chi-squared P=.076).

Additional chi-squared analysis also suggests that the existence of a Web site varies by

industry (P= .000 for all industries, P=.003 considering only AIMR industries),

although the low number of expected observations in some cells may affect the

reliability of this result.

2 Industries are defined by AIMR.3 t tests of company size, measured by the natural log of market value of equity at December 1996 for

companies with available market data (n = 465), show that AIMR firms are significantly larger than technology

firms (t= 22.484).


5. Financial data found at Web sites

Next, we quantify the financial information presented at the Web sites. Sites were visited

by the authors and/or research assistants between February and May 1998. The checklist of

financial data items used to evaluate each site is shown in Table 2. The checklist includes

both accounting- and nonaccounting-based financial items. This broad definition is

consistent with the perspective of the IR directors and IR literature. In addition, the

nonaccounting data provide a basis for comparison with accounting information.

5.1. Frequency of data items

The frequency of each data item is presented in Tables 3 and 4.4 The most common

accounting items are quarterly reports (54%), followed closely by Edgar links (50%).

Table 1

Sample and industry distribution

Industry Total firms Firms with sites Percent with sites

AIMR firms

Airlines 11 11 100

Electrical equipment 12 12 100

Health care/Pharmaceuticals 17 17 100

Natural gas 12 12 100

Media 18 17 94

Automotive 14 13 93

Petroleum 20 18 90

Retail trade 26 22 85

Food, beverage and tobacco 31 26 84

Paper and forest products 27 22 81

Insurance 28 22 79

Railroad 8 6 75

Homebuilding 11 8 73

Precious metals — mining 12 8 67

Environmental controls 12 6 50

AIMR subtotal 259 220 85

Technology firmsa

Computer technology 112 102 92

Biotechnology 119 80 67

Technology subtotal 231 182 79

Total 490 402 82

Industries are listed in descending order of Web site percentages.a The Computer and Biotechnology industries include all companies identified by Compustat as belonging to

SIC 3674 and SIC 2836, respectively.

4 Frequency is the percentage of sites at which the item was found.


Complete annual reports are found in 45% of the sites and excerpts from annual reports

are found in another 17%. SEC filings such as 10-Ks, 10-Qs and proxy statements are at

18% of the sites. Recent accounting data (for example, monthly sales) are the least often

presented data item, at only 3%. Accounting information is fairly evenly distributed across

sample sources. Differences between the larger, more established AIMR firms and the

technology firms are not significant at traditional levels, except AIMR sites have more

annual reports (55% vs. 32%) and more recent accounting data (5% vs. 1%). The ability

to provide timely information is one of the Internet’s most highly touted features (e.g.,

Nathan, 1996). Currently, it appears that, at best, timeliness refers to quick dissemination

of traditional historical accounting documents rather than new disclosures of more recent

accounting-based results.

Financial news, a nonaccounting data item, is the most common of all items (80%). Links

to stock data (57%) are also found more often than any accounting items. The least common

nonaccounting item is speeches by IR directors or other officers (9%). Chi-squared analysis

indicates that the frequency of all nonaccounting items (except financial news) differs

significantly between groups. The smaller, less established technology firms are more likely

to include links to stock data and analyst information. All other items are more frequently

found at AIMR sites.

Table 2

Financial disclosure checklist items

Item Description Points

Accounting information

Annual report Complete annual report 2

Annual report excerpt Portions of annual report (only counted if no full A/R) 1

SEC filings SEC reports: 10-K, 10-Q, proxy, etc. 1

Quarterly reports Abbreviated financial statements and discussion 1

Recent Accounting information such as monthly sales 1

Edgar link Link to the SEC Edgar site 1

Total accounting

information points

6

Other financial information

Advantages Discussion of advantages of holding stock 1

Analyst Lists of or links to analysts following the company 1

Calendar Planned financial events: earnings release dates, etc. 1

Current price Stock price updated (at least) daily 1

DRIP Dividend reinvestment plan information 1

Historic price Past share price(s) 1

News Financial news: share repurchase, earnings release, etc. 1

Stock link Link to third-party stock data 1

Overview Highlights, graphs, charts, frequently asked questions 1

Speeches Transcripts or audio of IR or other officer speeches 1

Transfer agent Information about transfer agent: address, phone, link 1

Total other financial

information points

11

Total possible points 17


5.2. Disclosure levels

To measure the quantity of information provided by each company, we assign one

point to each potential disclosure item, as shown in Table 2. Complete annual reports

are awarded a second point to distinguish them from partial reports. These are the

only two mutually exclusive items on the list. Thus, 6 points are possible for

accounting information, 11 for other financial information and 17 overall. For AIMR

firms, the overall point totals are significantly correlated (n= 220, coefficient = .222,

P= .001) with disclosure scores awarded by AIMR analysts (industry adjusted). This

correlation indicates that our measure is consistent with AIMR evaluations of overall

firm disclosures.

Table 5, panel A presents summary statistics of the disclosure level measure for AIMR and

technology firms. The larger AIMR firms have significantly higher levels of disclosure for

both accounting and other financial data. On the average, AIMR (technology) firms earn 43%

(33%) of the possible accounting points and 35% (25%) of the points possible for other

financial data.

Table 5, panel B lists the industries in order of the mean accounting points assigned

to firms in the industry. The levels range from 3.3 (55% of possible points) in the

petroleum industry to 1.5 (25%) in the homebuilding industry. The technology industries,

Table 3

Frequency of disclosure items by sample source

Percentage of sites at which item is found

Rank Item AIMR firms Tech firms All firms

Accounting data

1 Quarterly reports 58 51 54

2 Edgar link 49 51 50

3 Annual reporta 55 32 45

4 Other SEC filings 19 17 18

5 A/R excerpts 19 15 17

6 Recent accounting dataa 5 1 3

Annual report and excerpts combineda 75 47 62

Other financial data

1 Financial news 82 77 80

2 Stock linka 49 68 57

3 Overviewa 50 38 45

4 Transfer agenta 55 26 42

5 DRIPa 36 3 21

6 Historic pricea 27 14 21

7 Analyst informationa 10 21 15

8 Current pricea 21 7 15

9 Advantagea 20 5 14

10 Calendara 16 7 12

11 Speecha 13 4 9a Difference between AIMR and technology firms is significant (P�.05).


Table

4

Frequency

ofdisclosure

item

sbyindustry

Percentageofsitesat

whichitem

isfound

All

Airlines

Auto

Electric

equip

Environmental

control

Food,beverage,

tobacco

Healthcare

Home

building

Insurance

Quarterlyreportsa

54

64

54

42

33

46

65

13

73

Edgar

link

50

36

38

42

50

35

65

25

50

Annual

reportb

45

82

46

33

83

50

71

25

45

Other

SEC

filings

18

031

17

67

19

12

38

14

A/R

excerpts

17

915

25

015

12

25

36

Recentaccounting

datab

30

00

00

00

0

Annual

report

andexcerptsb

62

91

62

58

83

65

82

50

82

Media

Naturalgas

Paper/forest

Petroleum

Preciousmetals

Railroad

Retailtrade

Biotechnology

Computer

Quarterlyreportsa

65

42

82

50

75

83

55

48

53

Edgar

link

35

58

36

78

63

67

64

55

47

Annual

reportb

71

42

41

83

63

67

50

28

35

Other

SEC

filings

24

25

14

28

13

17

919

16

A/R

excerpts

625

36

625

023

13

17

Recentacct’ing

datab

24

00

00

036

10

Annual

report

andexcerptsb

76

67

77

89

88

67

73

40

52

aDifferencesacross

industries

aresignificantat

P�.10level

orbetter(Pearsonchi-squared).

bDifferencesacross

industries

aresignificantat

P�.05level

orbetter(Pearsonchi-squared).


composed primarily of smaller firms, are near the bottom of the list. Computer disclosure

levels average 2.0 (33%) and biotechnology levels average 1.9 (32%). ANOVA tests

indicate that the variation across industries is significant (P < .01). This finding reinforces

IR director comments that they monitor competitors’ Web sites to benchmark their own

site content.

Table 5

Disclosure levels

Panel A: Summary statistics of levels by sample source

AIMR Technology All firms

Level Percentage Level Percentage Level Percentage

Accounting data Meana 2.57 43 1.96 33 2.30 38

Minimum 0.00 0 0.00 0 0.00 0

Median 3.00 50 2.00 33 2.00 33

Maximum 5.00 83 5.00 83 5.00 83

Other financial data Meana 3.80 35 2.73 25 3.31 30

Minimum 0.00 0 0.00 0 0.00 0

Median 4.00 36 2.00 18 3.00 27

Maximum 10.00 91 9.00 82 10.00 91

Total Meana 6.37 38 4.69 28 5.61 33

Minimum 0.00 0 0.00 0 0.00 0

Median 6.00 35 4.00 24 6.00 35

Maximum 15.00 88 13.00 77 15.00 88

Panel B: Accounting means by industry, in descending order

Accountinga

Rank Industry Level Percentage

1 Petroleum 3.3 55

2 Environmental control 3.2 53

3 Railroad 3.0 50

4 Health care 2.9 49

5 Media 2.9 48

6 Precious metals — mining 2.9 48

7 Retail trade 2.9 48

AIMR companies 2.6 43

8 Insurance 2.5 42

9 Airlines 2.5 42

10 Paper and forest products 2.4 39

11 Natural gas 2.3 39

12 Automotive 2.3 38

All companies 2.3 38

13 Food, beverage, tobacco 2.2 36

14 Computer 2.0 33

15 Electrical equipment 1.9 32

16 Biotechnolgy 1.9 32

17 Homebuilding 1.5 25

Percentage equals level divided by the number of possible points from Table 2.a Difference between sources/industries is significant at P�.01 level or better.


Table 6

Annual report excerpt components

Percentage of sites at which item is found

High-tech AIMR All

Income statement 70.4 72.5 71.6

Balance sheet 70.4 60.0 64.2

Management discussion 48.1 55.0 52.2

5- or 10-year highlights 14.8 55.0 38.8

Cash flow statementa 14.8 47.5 34.3

Selected f/s datab 29.6 27.5 28.4

Shareholder’s equityc 14.8 35.0 26.9

Footnotes 22.2 20.0 20.9

Auditor’s report 3.7 0.0 1.5

Sorted in descending order of overall frequency.a Chi-squared indicates difference is significant at P�.05 level or better.b Selected financial statement data includes excerpts of the income statement, balance sheet, cash flow

statement or statement of shareholders equity for up to 2 years.c Chi-squared indicates difference is significant at P�.10 level or better.

Fig. 1. Aetna’s ‘‘Annual Report’’ includes only ‘‘selected financial data.’’ Aetna also provides a warning that the

data are incomplete.


6. Web site content issues

Our investigation and analysis of the financial content of these Web sites raise issues of both

exclusion and inclusion of data. Some possible concerns deal specifically with accounting-

based information, such as annual reports; others arise from the presentation of other financial

information. In this section, we discuss these points and provide examples where appropriate.

The practice of excluding portions of an annual report from Web presentation appears to

pose the largest potential issue for the accounting profession. As mentioned previously,

excerpts from annual reports are found in 17% of all sites, including 25% or more of the

electrical equipment, homebuilding, insurance, natural gas, paper/forest products and precious

metals sites. The majority of these excerpts were found under the heading ‘‘Annual Report.’’

Table 6 summarizes the annual report components that were found in this subset of 67

sites.5 Again, the sections are listed in order of frequency. Excerpts usually include complete

Fig. 2. Honeywell’s ‘‘Annual Report’’ does not include footnotes. A note at the bottom of the excerpted income

statement refers the reader to the complete annual report.

5 Sixty-nine annual report excerpts were identified among the 402 sites. One was eliminated because it uses

Australian GAAP. The other was eliminated because the Web site was removed (due to a merger) before the

additional data could be gathered.


income statements (71.6%) and balance sheets (64.2%). The other two traditional statements

are included at fewer than half of the sites (cash flow statements: 34.3%, statements of

shareholders’ equity: 26.9%). Footnotes, an ‘‘integral part of the financial statements,’’ are

found among only 20.9% of the excerpts. Auditor reports are also rarely selected for

presentation. They were found in only two locations (1.5%). Both reports were unqualified.

As noted previously, legal experts warn against tailoring content specifically for Web

sites (e.g., Prentice et al., 1999). Although the omitted information is publicly available

elsewhere, many Web users may not take the additional steps to obtain it. Thus, a site

might provide historical information through balance sheets and/or income statements,

but not include management’s discussion of future risks and expected challenges.

Omitting footnotes may conceal information about off-balance sheet liabilities such as

options and contingent liabilities. Missing audit reports may obscure important informa-

tion if the reports are modified to reflect a going concern or other uncertainty about the

company’s prospects (see Ettredge et al., 2000a).6

6 SEC regulations require that annual financial statements be audited, but do not necessarily require that the

report be provided with the statements.

Fig. 3. Ohio Casualty’s ‘‘Annual Report’’ does not mention omitted management discussion, footnotes or

auditors report.


Some companies include disclaimers warning that their ‘‘annual report’’ information is

not complete. For example, Aetna (Fig. 1) explicitly states that ‘‘[the annual report Web

page] does not include certain important sections . . .’’ Honeywell (Fig. 2) notes that the

information is ‘‘excerpted from the 1996 Honeywell Annual Report.’’ On the other hand,

Ohio Casualty (Fig. 3) lists several sections of the annual report, but does not mention that

some portions are omitted. All examples were valid at the time of the Web site visits

(February to May 1998). Because of the rapid evolution of Web use, specific companies

may have changed their disclosure practices. However, in the absence of standards, it is

likely that examples of each of these disclosure practices persist.

It should also be noted that the 67 excerpt sites discussed here are sites at which

excerpts are the only ‘‘annual report’’ provided. Anecdotally, we noticed that some

sites present excerpts for on-line viewing and also provide a separate, complete annual

report in a downloadable file format (see Fig. 4: Baxter International). Such sites are

not counted as ‘‘excerpt’’ sites in this study. However, to view the complete report,

the user must obtain additional software (usually Adobe Acrobat). Anyone who does

not access the complete annual report file is effectively viewing an excerpted annual

report site.

Fig. 4. Baxter’s ‘‘Annual Report’’ includes selected sections (Letter to Shareholders, 1997 highlights, 5-year

summary of selected data). Baxter also provides a link to obtain Adobe Acrobat software so that electronic copies

of the complete annual report can be downloaded and viewed off-line.


There are other issues that may increase a company’s risk of litigation or adversely affect

the probability of prevailing in a legal action. One such item is analyst information. Some

type of analyst information (lists of analysts, links to analysts’ sites or analysts’ reports on

site) are found in 10% of the AIMR and 21% of the technology firm sites. If a list is

provided, the company must be sure it is comprehensive, including negative as well as

positive reports. The company should also state that the company does not sanction the

reports (Prentice et al., 1999). Links and on-site reports are more problematic (for an example

of on-site reports, see Fig. 5: MDC Communications). These practices may effectively

incorporate the analysts’ reports into the company’s set of disclosures, and may make the

company responsible for the analysts’ statements (Bell, 1998; Wilson et al., 1998). NIRI

recommends that companies refer requests for analyst reports directly to the analyst’s firm,

which may provide the report (NIRI, 1998a).

In addition, 5% of tech sites and 20% of AIMR sites include some discussion of the

advantages of owning their stock (for example, see Fig. 6: Lowe’s). Although the

distinction between information and ‘‘hype’’ is subjective, it is possible that stock

promotion of this nature could increase the risk of litigation if future events do not sustain

past performance.

Fig. 5. MDC Communications provides analysts’ reports on site.


Web site data management is another potential concern. Failure to update financial

information at company Web sites is one such risk. NIRI states that ‘‘it is just as important

to update and correct information that is contained on a company’s Internet home page as it

is to update and correct information made in oral or written statements’’ (NIRI, 1998a). Yet,

we noted several companies (for example, Louisiana Pacific and Centex) whose most recent

financial statements were well over a year old at the time of our Web site visits. Legal

experts say that stale data may be a hazard if the dated information will mislead users and

suggest that companies develop policies to keep information updated and to archive aging

data (Bell, 1998; Wilson et al., 1998). The SEC has recently invited comments on this issue

(SEC, 2000).

In addition, because some segments of the population do not have access to the Internet, and

because effective monitoring of corporate Web sites is costly, NASDAQ considers disclosures

made only on Web pages to be ‘‘unfair’’ and the NYSE considers them to be ‘‘selective’’

(NIRI, 1998b, pp. 30–31). Thus, companies should continue to use traditional sources of

information dissemination (NIRI, 1998a). Corporate news releases often refer the reader to

Web sites for further information. For example, Veronex Technologies’ August 7, 1998

earnings announcement includes this statement: ‘‘[F]or more information contact Veronex

Fig. 6. Lowe’s provides analysis of current price of stock purchased in 1961 to ‘‘prove the value’’ of an investment

in Lowe’s.


Fig. 7. Microsoft.


Technologies at its Web site . . .’’ and provides the address. This practice may raise disclosure

issues if the press release itself does not include all required disclosures (NIRI, 1998b, p. 53).

In summary, some company Web sites exclude potentially important investor information,

such as portions of annual reports. Others include questionable information such as analyst

reports and stock ‘‘hype.’’We found some sites at which stale data and the potential for selective

disclosure, arising from the emerging convention of referring financial press release readers to

Web sites for additional information, are presented. Each of these practices carries potential

risks for the companies and the professionals that prepare and interpret the financial data.

7. The future of corporate reporting on the Internet

In the future, firms will continue to provide critical information about their firms to

current and potential investors. Microsoft (Fig. 7), for example, provides ‘‘what-if’’

analysis and detailed pivot tables of its prior performance and its segments to assist

the financial reports’ decision maker. They also provide alternate income statements

presented in local languages, currencies and accounting conventions. In addition, links

to real-time analyst conference calls, which provide individual investors with informa-

tion once available only to financial analysts, are becoming more common. Links are

also provided to replay conference calls after the calls are completed.

Financial reporting at corporate Web sites is not particularly timely when compared with

other sources of real-time information like stock quotes and news releases (Ettredge et al.,

2000b). However, visionaries predict that companies will soon employ information and

Internet technology to enhance the timeliness of financial reporting. In 1997, the AICPA

Special Committee on Assurance Services (the Elliott Committee), predicted that firms will

soon maintain continuously updated, on-line financial databases that will allow the transmis-

sion of real-time financial reports to investors, analysts, creditors, customers and suppliers

over the Internet. The Committee also suggested that relevant nonfinancial data will be

included in the real-time information set. Current Web site reporting practices indicate that

this ideal is likely to take awhile to evolve. Furthermore, the efforts of regulators, litigators

and accounting professionals are all likely to play important roles in shaping the emerging

standards and conventions.

8. Summary and conclusions

Our investigation documents a wide range of accounting and other financial content at a

sample of Web sites. The surveyed sites represent 17 industries and a broad spectrum of

company sizes and development stages. Corporate Web sites present, on the average, about

38% of the accounting data items on our checklist and 30% of the other financial data items.

Larger, more established firms (the AIMR firms) tend to provide a higher level of disclosure

than do the smaller, emerging technology firms.

The most common financial data items at corporate Web sites are financial news releases,

found in 80% of all sites. The most common accounting-specific items are quarterly reports,


at 54% of sites, followed closely by links to Edgar, at 50%. Some version of an annual report

is found in more than half of the sites, but an ‘‘Annual Report’’ does not always include all

traditional elements.

An excerpted annual report usually does not include footnotes or the auditor’s report,

omitting potentially important information about off-balance sheet liabilities (i.e., contin-

gent liabilities, outstanding options, derivatives), off-income statement expenses (i.e., option

grants) and uncertainties highlighted by the auditor. Several other items found at sites may

present additional concerns. Examples include the treatment of analyst reports and officer

speeches, stock ‘‘hyping’’ and stale data.

Availability of accounting documents on the Web has the potential to dramatically

increase their audience. As the population of users becomes more diverse, traditional

assumptions of usefulness, clarity and technicality may be challenged. Accounting profes-

sionals should carefully consider the use and presentation of financial information at Web

sites with which they are associated.

Acknowledgments

We are grateful for our research assistants, Mary Angela Apple, Scott Barnes, Phillip

Vargus and Stacy Kerns. Financial support was provided by the Ernst & Young Center for

Auditing Research and Advanced Technology at the University of Kansas.

References

Bell BA. Corporate Web sites and securities offerings. N Y Law J 1998;5 (May 21).

Ettredge M, Richardson VJ, Scholz S. Going concern auditor reports at corporate Web sites. Res Account Regul

2000a;14:3–22.

Ettredge M, Richardson VJ, Scholz S. Timely financial reporting at corporate Web sites? Working Paper, Uni-

versity of Kansas, 2000b.

Lowengard M. The internet puzzle. Institutional Investor 1997;41 (May).

NASDAQ Stock Market (NASDAQ). Peter D. Hart Research Associates shareholder survey. http://www.nasdaq.

com/reference/survey.stm (February 21).

Nathan RJ. Remote control: emerging opportunities for directors on-line. Corporate Board 1996;17:21.

National Investor Relations Institute (NIRI). Standards of practice for investor relations. Newington, VA: Mas-

terPrint, 1998a.

National Investor Relations Institute (NIRI). Symposium on corporate disclosure impact of technology and role of

media. Lanham, MD: Van Cortlandt Press, 1998b.

National Investor Relations Institute (NIRI). NIRI survey finds significant improvements in corporate disclosure

practices among US companies; 1998 research measures changes against 1995 benchmark data. PR Newswire

Assoc 1998c. (June 8).

Noack D. Web pages help build investor relations. Investor’s Bus Daily 1997;A1 (October 10).

Prentice RL, Richardson VJ, Scholz S. Corporate web site disclosure and Rule 10b-5: an empirical evaluation. Am

Bus Law J 1999;36(4):531–78 (Summer).

Securities and Exchange Commission (SEC). Fact Sheet 2000-53: interpretive release on the use of electronic

media 2000 (April 26).

The Motley Fool. Ask the fool. PR Wire Serv 1998 (May 24).


Theobold S. Internet ‘‘bolsters’’ annual report. Toronto Star 1998;C4 (March 4).

Wilson S, Sonsini S, Goodrich S, Rosati S. Shareholder and investor relations in the electronic age. Mondaq Bus

Briefing 1998 (July 6).

Witmer R. Securities: guidance issued for online offerings, web site content, electronic delivery. BNA Corporate

Counsel Daily 2000 (April 26).


10.1.1.85.525.pdf

Documents

Transcript of 10.1.1.85.525.pdf