Information at your fingertips; databases can be useful for everything from complex engagements to practice development.
This article explains how firms can benefit by using information contained in third-party electronic databases. It gives specific examples of research materials available and their practical applications and helps CPAs understand the characteristics, computer requirements and evaluation of third-party databases.
THE BASIS OF A SUCCESSFUL PRACTICE
Successful accounting, tax or management advisory service engagements almost always include fact-finding and research. Most practitioners have relied on previous work experience, seminars and written publications to obtain their industry and technical information.
The vast quantity of printed material practitioners receive each day makes it impossible to read about and remain current on each client's industry. Additionally, the increasing rate of technological changes and industry sophistication concerns practitioners. How can they obtain information that is not outdated before it is even printed? Cataloging, storing and retrieving information also can be problems. Computer database programs have been developed to address these difficulties.
Many accountants use databases daily in managing varous areas of their practices, including client lists, mailing lists and time and billing programs. Most of this practice management information is readily available on in-house databases. However, those seeking information about another type of business or industry in order to perform or obtain an engagement should look to third-party databases for assistance.
Such a database, which can be accessed through a commercial on-line information service using a microcomputer equipped with a modem and a conventional telephone line, includes information on client industries, corporate files, ratio analysis and related topics.
There are over 500 on-line information services available from 1,700 on-line databases. Here are some of the advantages of using on-line databases:
* Information can be retrieved immediately, while a great deal of time usually is necessary to obtain the printed version of the same information.
* Data can be accessed, downloaded from the database, stored in the computer and then printed.
* Library storage space needs and costs are reduced.
* Many databases are updated daily, or even hourly, to provide the most current information.
What's available from on-line services. An abundance of information on clients and their industries can be obtained when CPAs use databases.
* Company histories, historical stock quotes, stock trading volumes, insider trading activity and investment research are available from databases such as the Dow Jones News/Retrieval service. This service also offers articles from the Wall Street Journal and Barron's on clients or related industries. Commission 10-K extracts, earnings-per-share estimates and price-earnings forecasts for thousands of publicly traded companies. Corporate profiles, which can help in an analytical review of a client's performance compared to other companies in the same business, cover
1. Five-year summary of operating data.
2. Line of business data.
3. Balance sheets and income statements for two years.
4. Quarterly balance sheets and income statements.
5. Sources and uses of funds.
6. Financial ratios.
7. Weekly price-earnings data.
8. Names of officers and directors.
9. President's letter.
10. Management discussion and analysis.
* Insider trading information is available on many publicly held companies on transactions of 100 shares or more.
* Research reports are offered on services provided by brokers, investment bankers and other analysts.
* Statistical comparisons are available for thousands of companies and hundreds of industries.
* Annual reports on thousands of companies, plus authoritative and semiauthoritative accounting literature are offered by the Total On-Line Tax and Accounting Library (TOTAL), available through the American Institute of CPAs. This service also provides a federal tax library as well as NEXIS, which contains news and wire articles. It includes the National Automated Accounting Research System (NAARS), the Institute's accounting research library.
USING ON-LINE SERVICES
IN AN ACCOUNTING PRACTICE
CPAs can tap into these services for useful information in a number of practice areas.
Audit, review and compilation engagements. All three types of engagements require knowledge of a business, its industry and the accounting practices used in that industry.
Information from on-line services can enhance the required analytical review procedures of audits and reviews. For example, information obtained on industry ratios can be compared with the client's data. These ratios can be used to disclose going-concern areas, assist in developing work programs and provide management letter recommendations.
The services also provide technical research and documentation, including access to other auditor reports, technical pronouncements, financial disclosures and technical articles.
Tax engagements. Tax laws are continually changing. The Tax Reform Act of 1986 added a considerable burden to the tax practitioner's work load by changing many code sections and adding several new ones. On-line services help in tax research and planning. For example, new tax laws and regulations can be obtained from the Federal Register. Searches on codes, regulations and rulings, Tax Court cases and published articles are available from TOTAL and LEXIS. Additionally, the LEXIS on-line database includes a federal tax library with federal court cases, Internal Revenue Service releases, U.S. Treasury regulations and proposed regulations, proposed tax legislation, private letter rulings, House Ways and Means Committee reports, Senate Finance Committee reports, House-Senate conference committee reports and complete state tax libraries.
Practice management. Management issues can be researched by monitoring professional publications for new ideas and emerging issues. Practice management areas that could benefit from the use of on-line services include
1. Travel. Firms can manage their own arrangements by checking flight availability through the Official Airline Guide, searching for the lowest fares and entering reservations or obtaining hotel, motel and car rental information.
2. Electronic mail service. These are available from a number of providers. They deliver messages and printed documents to any subscriber to an on-line service.
3. Practice development. CPAs can perform market research to identify industries or specific companies that might benefit from their services. They also can monitor articles from various publications for tips on marketing, etc.
Management advisory services. MAS consultations and engagements usually require knowledge of the client's business, its industry and the accounting practices used in that industry. On-line services provide background information, financial data and technical research and documentation, including a wealth of market research and industry outlooks.
Computer consulting. Databases available from CompuServe include a buyer's guide with product literature for thousands of computer products, abstracts of product reviews from several hundred publications and computer industry news.
COSTS OF ON-LINE SERVICES
Fees for on-line services generally include one-time set up charges, subscription and monthly charges, on-line time charges as well as possible special access charges for certain databases.
Set-up charges may vary according to whether the customer account is business, individual or corporate. Some on-line services offer executive package memberships. Set-up charges may range from nothing to $50, with annual fees ranging up to $250.
On-line time charges are based on how much time the customer spends using the service. This usually is calculated in minutes or fractions of minutes. The cost varies depending on the speed of the modem; faster modems usually carry a higher cost per minute. Cost per minute may range from $.10 to $5. Many on-line services offer a package that allows reduced time charges if some charges are paid in advance. Costs usually are lower during nonpeak hours.
Some databases have additional costs for accessing or printing a document. For example, Dow Jones News/Retrieval charges extra for corporate profiles and financial report databases. In many instances, these access charges can be recovered through increased client billings.
Many on-line services offer access to the same databases but costs may vary among the different providers. Downloading costs also will be different among the various services. CPAs should make cost comparisons before they sign up for any service.
WHAT'S NEEDED TO USE
AN ON-LINE SERVICE
The hardware necessary to use these services includes a computer or terminal, a modem, a standard telephone line and a printer. almost any type of personal computer or terminals can be used. The modem must be compatible with the computer. Most on-line services accept modem speeds of 300, 1,200 or 2,400 baud. Virtually any type of compatible printer is acceptable.
General communication ASCII-coded software may be used if compatible with the modem and computer. Many packages in the public domain are available free of charge through computer user groups and other organizations.
A number of on-line services provide access and retrieval software custom designed for use with the service. The best software for use with on-line services should have data capture and file transfer facilities that can write to the computer's hard disk. This is faster than printing on paper and saves connect time charges.
Training requirements will vary for each on-line service. Many services offer training guides, user manuals, on-line tutorials and toll-free hotlines for user assistance.
MAKING THE MOST OF THE SERVICE
The easiest but most expensive way to learn about a new service is by browsing through it to get an idea of everything it offers. To minimize connect time charges, it is important to organize a search before it is begun and too know the on-line service well in order to use it efficiently. Several steps can help make the most of connect time.
* Use efficient log-on procedures. Logging on to the database is accomplished by configuring the modem and software to the appropriate specifications. The on-line service is then tapped by dialing a telephone number through the computer and providing a password. The service may provide software that automates the log-on process.
* Define the objective. One of the most frequent mistakes searchers make is to go on line without a clearly defined objective. For example, to obtain a company's financial history, the search definition might include the following to help narrow the possibilities:
1. STock exchange symbol.
2. Financial information desired.
3. Number of yeares' history required.
4. Balance sheets.
5. Income statements.
6. Current ratio.
7. Gross profit ratio.
8. Net income before tax ratio.
* Choose the database carefully. Users should know in advance which database will contain the information they want. The on-line customer service support staff can provide assistance.
* Read the documentation manual. Many users avoid this step until all else fails. Reviewing the documentation manual in advance decreases connect time charges and helps establish a search strategy. The manuals usually contain sample strategies using live data so users can become familiar with the commands.
* Use specific word searches. Key search words, subtopics, fields to select and topic characteristics should be developed and written down before going on line, to enable the user to concentrate on giving the proper search instructions. Multiple search topics can minimize connect time if the primary search topic is very broad and provides many alternatives.
* Capture incoming information. Down-loaded information can be stored in the computer and printer later, minimizing the connect time necessary.
* Search carefully. Users should note the results after they log on and enter the first search. If the search terms was too general and they receive too many choices for the next step, the second topic should be a subset of the original to narrow the search. For example, if "mergers" provides too many choices, try "mergers--shoe companies" on the second try.
* Log off correctly. When the search is finished, use the proper disconnect method to exit the on-line service. Exiting without logging off may incur excess connect time.
Given the large number of information services and databases, how do CPAs choose which service to use? Some of the factors to consider include services offered, sources and timeliness of data, frequency of update, reliability of data, cost, ease of use, quality of support and protection of privacy.
Databases are supplied to on-line services by providers that update information as frequently as every 90 seconds for news databases. In addition, all on-line services provide a security code or number to diminish the risk of improper charges. CPAs may want to establish internal restrictions on who can access the service and may choose to change their passwords periodically. Firms also should establish policies on how to handle billing for professional time and connect charges.
A PROFITABLE INVESTMENT
On-line services can help CPAs improve their practices by cutting down on their research time and enabling them to learn a great deal about a client, industry or technical problem quickly and easily. Those who understand and use these services will find them to be profitable investments.
DARVIN C. MELTON, CPA, is president of Melton & Associates, Colorado Springs, Colorado. A member of the the American Institure of CPAs management advisory services executive committee, he is a former member of the AICPA computer applications subcommittee.
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|Author:||Melton, Darvin C.|
|Publication:||Journal of Accountancy|
|Date:||Dec 1, 1990|
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