When the bottom line is online.

Corporations have established Web sites to market their products and services, to offer freebies to potential customers or just to polish the corporate image. Increasingly, companies are finding still another use for the Web: publishing a wealth of financial information about themselves, including annual and quarterly reports and filings with the Securities and Exchange Commission. The Internet gives companies far more options than print, including plenty of space to add financial pages and even audio and video clips. Regulatory bodies barely have begun to address accounting and auditing issues, but many corporations are pushing the limits right now, bringing generally accepted accounting principles and generally accepted auditing standards into the information age. All CPAs, especially those in business and industry, should be aware of the implications--and the opportunities.

TECHNICAL ISSUES

Before CPAs interested in putting their companies' financial statements online start uploading pages of data, they should consider the following questions, keeping in mind that the answers may change in the near future.

* "Can a company omit the printed statement altogether if it puts its statements on its Web site?" The cost savings for a large company that has to send statements to thousands of stockholders could be significant. Right now, most public companies, however, like most stockholders, are not online. SEC spokesman John Heine told the Journal that "basically, the rules that apply to paper disclosures apply to electronic disclosure as well. Companies can offer shareholders the option of receiving required information online but still must make the paper version available." A comprehensive SEC report on on-line disclosures is on the SEC Web Site; go to release no. 33-7233 at http://www.sec.gov/.(The SEC has been requiring companies to file certain documents online for public viewing. For more details, go to http:// www.sec.gov/edaux/wedgar.htm.)

* "What additional disclosures can, or should, companies put on the Web?" Even Fortune 500 companies, with their fat, glossy annual reports, can't find the room in them to add all the financial information they would like. But computer memory is cheap, and a Web site offers an almost unlimited amount of room. Many companies hyperlink to the SEC site for 10-K and 10-Q filings. Some even have copied portions of the SEC site to their own sites, so visitors can view filings--without leaving the company's pages. Another popular feature is a hyperlink to one of several online quotation services, allowing visitors to check out the price of the company's stock. It's almost like getting an updated financial statement every 20 minutes. (There are a number of such services; one example is http://quote.pathfinder.com/money/quote/qc.)

* "What is the auditor's responsibility?" Or, from the company's viewpoint, "What can it expect the auditor to look at, especially regarding all these additional disclosures?" The American Institute of CPAs auditing standards board issued an interpretation to AU section 550 titled "Other Information in Electronic Sites Containing Audited Financial Statements" (see page 114 in this month's Official Releases), which says auditors have no responsibility for considering or even reading online information. However, Practice Alert 97-1 advises CPAs to consider potential problems: Is the site secure, or can hackers break in and alter financial information? Has the company clearly separated financial statements and the auditor's report from other information so unsophisticated investors are not misled? (This alert, a brief discussion intended to provide guidance on online statements, appears in a supplement to the January/February 1997 CPA Letter for AICPA members in public accounting firms. Members who did not receive this supplement can get a copy from AICPA Online, the Accountants Forum and the faxback system, 201-938-3787.)

Thomas Ray, AICPA director, audit and attest standards, told the Journal that the ASB is forming a task force to address issues related to the electronic dissemination of audited financial information and other information attested to.

WHAT SOME COMPANIES HAVE DONE

Despite the dearth of guidance, companies are stuffing their sites full of financial information. As might be expected, technology companies have some of the most elaborate sites, but they are not the only ones taking advantage of the Web.

Exxon (http://www.exxon.com) has reproduced the cover of its printed annual report on the financial portion of its Web site. Visitors can get there by following links from the home page. Current and potential investors can hyperlink directly to tile financial section or to eight other sections, including a letter to shareholders and operating highlights. "Financial" links to a detailed table of contents, with over 30 links to different parts of the annual report, such as the report of independent accountants, notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations. Each page links to other parts of Exxon's site, giving the company a public relations boost: it's able to repeatedly display its hyperlink to its statement of environmental concern and its work in preserving the tiger--its corporate logo--in the wild.

Raytheon (http://www.raytheon.com), a major defense contractor and aviation manufacturer, goes a step further. Neatly organized on its finance page are quarterly reports, annual reports and 10-Ks going back to 1992. Visitors can click on a graph of stock prices for the past 10 years and a table of stock highs, lows, closes and volume for the past five days. There's even an investor's e-mail address for any shareholder seeking general information about the company.

Intel, the computer-chip giant, offers more than financials. It offers a presentation. Visitors to the financial page will find what could be, for the novice, a daunting series of questions about modems, Internet connections and software: Intel displays customized sites, depending on the sophistication of the hardware and software the visitor has. If your computer can handle it, you will see video clips and hear audio clips. Click on icons to investor news, releases on earnings, stock ticker, SEC filings, a presentation of the annual stockholders meeting and the annual report, the last item further divided into eight sections. Intel offers many hyperlinks from the annual report to product descriptions but flashes an "EXIT" sign when you are leaving the annual report section. Green arrows allow readers to flip through the online annual report as they would the paper version, skipping the extraneous hyperlinks. Intel advises visitors to use a computer with a Pentium chip, which it manufactures.

Although visitors can reach Microsoft's financial site through its home page, it is much quicker to go to this huge section directly (http://www. microsoft.com/msft/). Animated icons lead to "audio & chats," for example, where you can hear and see presentations from Microsoft executives at the 1996 financial analyst meeting and get a transcript from the most recent shareholder meeting. Potential investors can download financial information into Excel spreadsheets--Excel being, of course, a Microsoft product. (The financials page says, "This page, in addition to providing the latest financial information about Microsoft, also demonstrates the capabilities of our products.") Visitors can see SEC filings, the annual report, up-to-the-minute stock quotes and general stock information. Income statements have additional hyperlinks, indicated by graph icons, that lead to bar charts giving more information. Click on "research and development" or "sales and marketing" for more information on these figures.

But Microsoft really pushes the GAAP envelope--and takes full advantage of the Internet's international nature--with international statements. Microsoft supplies consolidated profit and loss statements for Canada, France, Germany, Japan and the United Kingdom. Each statement uses the language and the currency of the country, and is prepared in accordance with that country's accounting standards. The statements are clearly marked as "unaudited," but their very existence on the Web next to Microsoft's audited financial statements, and the easy way the Internet crosses national boundaries, will no doubt make online features like this a subject for regulatory action in the future.

FOR THE FUTURE

Michael G. Edwards is an internal auditor for BB&T Bank in Winston-Salem, North Carolina, and he assists in reviewing his bank's financial statements before they are made available to the public. "I think eventually most SEC-mandated public company financial statements will be on-line," he told the Journal. "I think the push toward real-time information will continue until ticking and tying historical data are a thing of the past. I foresee statements being available online in real time with the audit attestation being on the same system that the company uses to produce and provide the information. Like it or not, I think all auditors eventually will be information systems auditors."

EXECUTIVE SUMMARY

* PUBLIC COMPANIES ARE increasingly putting their annual reports and other financial information on their Web sites, where extra room and hyperlinks provide many options.

* AS YET, THERE IS LITTLE SEC or other guidance, although the AICPA auditing standards board has issued an interpretation on electronic sites for audited data and has formed a task force.

* COMPANIES NEED TO CONSIDER issues of security and demarcations between SEC-required financial statements and other information.

* EXXON, RAYTHEON, INTEL AND Microsoft are offering features as simple as hyperlinks to the SEC and as complex as video clips and real-time stock market quotes.

* AT LEAST ONE COMPANY IS offering unaudited statements in different countries' accounting standards, taking advantage of the Internet's international nature.

RICHARD J. KORETO is a news editor at the Journal. Mr. Koreto is an employee of the American Institute of CPAs and his views, as expressed in this article, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.