Web-based financial reporting -- unlocking our brains.

• Author: Livingston, Phil
• Position: President's Page - Brief Article

FEI's recently released recommendations for post-Enron reform included strong suggestions about financial reporting and standard setting. Recommendation 8 suggests that we "modernize" corporate reporting. The SEC is actively discussing it, and Dave Nord, Controller of United Technologies, is leading a group of members to lay out a vision and examples of where we should head.

As I've discussed in this space before, 10-Ks and annual reports are little more than an archeological dig for the plaintiff's bar. Given this de facto purpose, it's no wonder that the reports are overrun with legalese and cleansed of anything relevant to forecasting future cash flows.

The pile of annual reports on my desk reflects a wide range of approaches and stabs at the problem. Some have abandoned glossy annual reports altogether (SBC Communications). Some do a glossy with only summary financials and no notes or management discussion and analysis (MD&A), relegating that detail to the proxy statement (Caterpillar Inc.). The Washington Post Co.'s annual report includes a letter from the CEO telling readers to ignore a $321 million gain as "bookkeeping fiction." The Post's CFO, Jay Morse, an active FEI member, is hailed in the CEO letter as being somewhere between "conservative and very conservative."

Accounting standards and disclosure overload abounds. Extensible Business Reporting Language (XBRL) seeks to give us a data interchange methodology over the Internet. Plain English is being harped on as the standard for clear communication to shareholders. Competing accounting standards may actually come to be, if the International Accounting Standards Board (IASB) delivers on its promises.

So, where are we headed? Technology clearly holds the answer. Paper documents have to cease, at least for the mundane and detailed minutiae required by today's reporting maze. Technology can give us financial reporting with the options to: include the Post's gain or exclude it, as the management team would prefer; list derivatives at fair value or report them at cost. Customer-oriented, user-friendly reports would be the result.

But we are stuck. Progress is too slow. There are too many lawyers and accountants who are really good at telling us why we CAN'T do new things. It's obvious to me, at least, that financial reporting would be much more useful if...