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Compact disks - a new technology for finding answers to client's questions.

Compact Disks--A New Technology for Finding Answers to client's Questions

A client has just called and asked you a technical accounting question regarding the financial reporting of a very complex issue. Instead of going to the library, you flip around to your personal computer (PC) and insert a compact disk that contains the entire accounting standards publications--FASBs, APBs, ARBs, SASs, ARSs, and other relevant monographs and topically arranged material.

You begin your research by directly accessing a particular pronouncement that you think is relevant. You narrow the possibilities by entering a few key words (topical search) and follow the menus on the screen (as opposed to command lines on an on-line system). Once you finish with this search of authoritative literature, you decide you would like to see how other companies are disclosing this particular issue. You insert another disk that contains the annual reports of companies listed on the New York and American Stock Exchanges. Key word searches are done until the proper information is found in financial statements and notes thereto. There are no on-line charges. You may search until your heart or partner is content. The cost is fixed, not variable.

Does all this sound too good to be true? It is true. It is the shape and sound of a relatively new technology called CD-ROM (Compact Disk-Read Only Memory). CD-ROM also refers to optical storage or laser storage devices.

Also worth mentioning is the technology of "juke-box" changers. This technology is not presently commercially available but would allow a drive to have a disk changer magazine (up to six discs) much like the changers used in the audio compact disk market. Multiple drives or juke-box changers may be important if frequent access is needed to the same data on several disks.

Hardware Requirements

The hardware requirements of a CD-ROM are very similar to a hard disk installation. They start with a CD-ROM drive, either stand-alone (external) or internal. The internal drive fits in a regular drive opening in most desktop computers (5 1/4" opening). Next, on the list are an interface card and cable. The card occupies one slot in the computer, and the cable connects the drive to the interface card. Drive manufacturers may provide their own proprietary bus or use the more standard SCSI interface bus. As the use of CD-ROM grows, the use of more than one drive is very likely since databases can then be grouped to be most efficiently used.

A computer with 640K of RAM and a hard disk capacity of 20 megabytes or more tops off the requirements. A mouse can be useful for some operations. Also, an 80286 processor may prove to be worth-while.

Reference Technology allows up to four Sony or eight Hitachi drives to be connected to one computer. One other nice possibility is that of networking your PCs so that one to 21 CD-ROM drives may serve all the PCs in an office or on a floor.

Software Requirements

Most computer devices (including CD-ROM drives) require a device driver to allow that device to communicate with the computer. One of the emerging standards in device driver software is Microsoft's MS-DOS Extensions software. This software allows MS-DOS to view the CD-ROM drive just as it would any other drive. Therefore, data exchange is much the same as it would be between a floppy and a fixed disk.

In addition, search software is necessary for the use of a CD-ROM drive. This is the interface between the computer (using the CD-ROM) and the user performing the search and retrieval. Search software may be command structured (e.g., LEXIS, DIALOG, NEXIS, WESTLAW, and PHINet) or menu driven, which is easier for the less experienced user.

One other important matter relates to a file format standard, which determines the layout of the files on the CD-ROM disk. The standard today seems to be the High Sierra Group format and the relatively new ISO 9660 format. The latest release of Microsoft's MS-DOS extensions for CD-ROM (Version 2.0) should handle either file format. Version 2.0 is bundled with drives or may also be obtained from vendors, including Microsoft, for approximately $50. This 2.0 version requires MS-DOS version 3.1 or higher.

The High Sierra Group file format seems to be the de facto industry standard. Different operating systems could use the same CD-ROM disk as long as each system uses the same file format standard.

What is CD-ROM?

A CD-ROM disk is a plastic disk with a reflective aluminum coating and a final lacquer sealer applied to protect the data integrity. The disk itself, absent any data, costs less than $1.70 to manufacture. A project to transfer a database to CD-ROM can cost from $100,000 to millions of dollars. Computer Decisions, in June 1988, noted that Arthur Andersen & Co. planned to spend some two million dollars to place their 30 firm manuals on one CD-ROM. This CD-ROM would be made available to some 15,000 field auditors.

A CD-ROM can hold from 550 megabytes (five inch version) to 6.8 gigabytes of information (14 inch version). A gigabyte is a thousand megabytes. To put the storage capacity of a typical five inch CD-ROM disk into perspective, such a disk will hold the equivalent of 20 four-drawer filing cabinets, or 250,000 pages, or some 500 law books. In other words a CD-ROM disk can store the same amount of information as 1500 5 1/4" floppy disks.

The access time is somewhat slower than a fixed disk at somewhere between 240-500 milliseconds. Most fixed disks are in the 25 to 80 millisecond range.

CD-ROMs can hold a variety of information. This includes: 1) text; 2) graphics; 3) images; and 4) audio. This makes the CD-ROM technology great for replacing many micrographic and printed media products as well as instructional field service products, e.g., verbal instructions on how to perform an audit procedure.

A CD-ROM disk drive usually costs between $600 and $1200. This cost usually includes the necessary driver software, interface, and cable. The CD-ROM disk products may cost as little as $100 or over $100,000. Updates are usually included in the cost and generally are monthly, quarterly, semiannualy, or annually depending somewhat on the time sensitivity of the data and the cost.

CD-ROM media is very reliable since the disk is encased by a hard lacquer coating. The data is read by a low level laser beam that should last virtually forever. Head crashes (more common on fixed disk installations) are virtually unheard of.

CD-ROM products are reproduced from master disks much the same as audio CDs. There are many companies that provide the mastering disk product and stamping of a master disk to provide the necessary number of copies. The cost can range from $5 to $20 or more per finished copy. One company is reportedly able to provide the technology necessary to produce the CD-ROM final disk on-site in about an hour.

Pros and Cons of CD-ROM

Some of the literature suggests that CD-ROM will eventually replace: 1) micrographic (microfilm and microfiche) technology; 2) printed or hardcopy materials; 3) on-line databases; and 4) magnetic media. However, most commentators envision CD-ROM technology as an auxiliary or complement to these alternative storage media.

The Pros. CD-ROM disks can hold approximately 550 megabytes of information in the typical five inch format. This is a very compact way to distribute data in a very mailable form.

One of the greatest selling points of CD-ROM is that the cost is fixed. As with most fixed costs, the more the product is used the less the cost per unit of usage, which gives the user freedom to be more creative and exhaustive than if using an on-line service.

CD-ROM can provide for the integration of numerics, text, graphics, images, and audio, some of which may be absent from on-line services. Also, micrographics requires cumbersome hardware. Information from CD-ROM can be copied into a number of word processors which adds flexibility in the use of the information.

Users of on-line services occasionally experience problems with communication errors and temporary system shutdowns. CD-ROM users should have none of these problems.

A final advantage of CD-ROM over printed materials is the nice end product received as part of an update. Any time the database needs to be updated, the new information is added to the old database, the updated database is remastered, stamped, and shipped to the user in an envelope. Office personnel and the users who rely on printed updates can appreciate this new way to update the information services (both tax and non-tax) found in many accounting offices.

The Cons. While being one of its strengths, updating of the CD-ROM database is also one of its major concerns. Users cannot always wait for the quarterly or even monthly full update. Daily, or even more frequent update of critical data may be necessary. These interim updates may be accomplished in many ways. Some vendors (e.g., Dialog and West) plan to update using their on-line product. The user would have to have a PC with a modem. Using the same menu as the CD-ROM software, the user would, at the end of his/her CD-ROM research, log onto the on-line service for up-to-the-minute updating.

Another possibility for updates is the mailing to the user of a floppy disk with weekly updates. This method is similar to the printed weekly updates the major print product producers currently use. When the CD-ROM research is done, the menu would have a provision to select the latest weekly update via floppy. The floppy disk would be inserted and the menus would motivate the update search.

One producer of an on-line service argues that CD-ROM is nice for rather confined database type research but is too vertical (confined to one or a few databases) in nature for its users. He argues, "Why should one of my subscribers turn to a CD-ROM file and search one or a few databases when he or she could go on-line and search many hundreds of databases at one time?" Some would respond that most accounting or tax reference sources can be placed on about 10 (or less) CD-ROM disks. With proper menu software cross-referencing, movement across databases should not be a problem. In addition, with multiple drives, all the disks in a subgroup would already be loaded.

Users cannot write to these read only memory disks; however, there are two other types to which data can be written. One is the WORM (write once read many) drives. This technology allows users to produce their optical disks in-house as opposed to external CD-ROM mastering facilities. A 14 inch WORM disk can hold up to 6.8 gigabytes of information. This medium could be very useful for archiving data. The second possibility is the EOS (erasable optical storage) medium.

The slower retrieval speed when compared to that of a fixed disk is also a problem for some users (e.g., 240 milliseconds is a fast access time for CD-ROM). But, as with most media, tradeoffs must be made.

The high fixed cost is a problem for CD-ROM. But, if hundreds or even thousands of copies of the product can be used by end users the cost per unit decreases to a manageable amount very quickly.

Physical control is another problem of CD-ROM disks. Obviously, disks can be misplaced. Other possibilities include the theft of data from the database (much the same argument as photocopying copyrighted materials) and having disks stolen.

Evaluating a CD installation including the products to be used on the CD drives is a difficult one. Evaluating the database's integrity, thoroughness, reliability, etc., can be a complex undertaking.

CD-ROM Products Useful to

Accounts

A number of products may be useful to accounting offices, such as national zip code directories, encyclopedias, city telephone directories, city business directories, etc. Lexis (legal) and Nexis (nonlegal) are two very large groups of databases offered by Mead Data Central, Inc., (MDC). Part of the Lexis or Nexis is the very useful NAARS (National Automated Accounting Research System) database. MDC is currently developing (in conjunction with the AICPA) a CD-ROM version of NAARS. This product is expected to contain:

* Federal Government Annual Reports (1986-87, 1987-88);

* Corporate Annual Reports (1983-88);

* Authoritative and Semi-Authoritative Literature (includes superseded literature);

* Journal of Accountancy, January 1987 to present; and

* The Tax Adviser, January 1987 to present.

MDC also has indicated plans to produce social security information and state statutes on CD-ROM, as well as 10-year databases of the nation's largest newspapers (e.g., The New York Times, The Los Angeles Times, etc.).

Dialog Information Services, Inc.'s CD-ROM products include the following:

1. Standard & Poor's Corporation data services. Includes data from Standard & Poor's Corporate Descriptions, Standard & Poor's Register (Biographical and Corporate), and Standard & Poor's Compustat Services. This data is organized into three files: Public Companies (financial information on some 9,000 publicly-owned U.S. Corporations), Private Companies (important business facts on more than 40,000 leading private corporations), and Executives (profiles of 70,000 key business executives).

2. Information on publicly announced transactions involving a merger, acquisition, leveraged buy-out, divestiture, stock purchase, tender offer, self tender offer, share repurchase, or other major transactions.

3. The Thomas Register of American Manufacturers. Includes company descriptions and profiles and product indexing for the more than 148,000 manufacturers.

Most of the Dialog CD-ROM products provide for up-to-the-minute updating using Dialog's on-line service.

Disclosure, Inc., offers at least five CD-ROM products. One of their least expensive products is their Compact Disclosure product which includes the Disclosure Database. This product is $3,700 yearly with quarterly updates ($6,000 with monthly updates). One compact disk holds the information of more than 12,000 public companies. Each company record contains data extracted from 10-Ks, 10-Qs, 20-Fs, 8-Ks, proxy statements, annual reports to shareholders, registration statements, and more. To be included in the database, a company must have at least $5,000,000 in assets and 500 shareholders, and have filed a 10-K or 20-F in the past 18 months. A free 30-day trial is available.

Lotus Development Corporation offers a number of financially oriented products. CD/Investment includes daily stock price history, value line, Ford investor services, and Disclosure II ($11,000-$30,000/year with updates and system hardware). For $6,500 per year CD/Corp Tech offers information on public and private high-tech companies. Databases including banking, international, corporate, and private companies are also available and vary in price from $7,000 to $19,500 per year.

Standard & Poor's Compustat Services offers Compustat Database on CD-ROM. The database contains annual report information on traded companies and is priced at $12,000 to $45,000 per year with updates and system hardware.

A number of firms offer the Government Printing Office's monthly catalog for less than $100 per month. Other firms' offerings include demographic data by zip code, census data, county statistics, retail trade information by zip code, encyclopedias, telephone books, and the list goes on.

Conclusions

CD-ROM has proven to be a big hit since its introduction in 1985. CD-ROM is not intended to replace some of the on-line search services that make available some 1200 databases for many users of information of all conceivable kinds. But where the database may be carved out and broken into subsets, the CD-ROM disk may be the answer. Note: A tax version of this article entitled "Compact Disks--A New Technology May Change the Shape of Tax Research," appeared in The Tax Advisor, December 1989.
COPYRIGHT 1990 New York State Society of Certified Public Accountants
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Title Annotation:The Practitioner and the Computer
Author:Price, Charles E.
Publication:The CPA Journal
Date:Mar 1, 1990
Words:2589
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