FINANCIAL UPDATES Information Age thrives on reports

Quarterly reports are out of date, but real-time reporting of financial information may be asking too much.
ST. LOUIS POST-DISPATCH
Just as the invention of double-entry bookkeeping revolutionized commerce in 14th-century Italy, the quarterly earnings report helped to spur the growth of financial markets in 20th-century America. By getting four peeks a year at a company's books, investors could tell whether their money was being put to profitable use.
But the quarterly report, which was considered a cutting-edge facet of the Industrial Age, might not be enough for investors in the Information Age. Some important people in the world of accounting say companies need to make more frequent disclosures.
More often: To some extent, businesses are doing so already. Retailers have a long-standing practice of announcing monthly sales reports, and other industries have started to post monthly information, too.
For example, Emerson began to disclose monthly data on orders for its various businesses a year ago, and Regulation FD from the Securities and Exchange Commission has companies issue warnings whenever their profit pictures change.
But few standards exist for moves toward more frequent disclosure.
Almost instant: Harvey Pitt, the SEC's chairman, has said that the quarterly reporting system might be out of date. He suggests replacing it with an Internet system in which companies report results continuously, in something close to real time.
St. Louis accountant James Castellano, who recently was elected president of the American Institute of Certified Public Accountants, agrees with Pitt in principle.
"The model we use today was really created in an industrial age," he said. "It's based on past transactions and historical costs. There's interest in supplementing this model with more forward-looking information."
The continuous reporting that Pitt envisions would create challenges for accountants, Castellano acknowledges.
If a retailer were to report daily sales data online, having a team of auditors pore over the information each day might not be feasible.
New responsibilities: In such a system, accountants might have to view their roles differently.
"Accountants won't just be auditing the financial statements, they'll provide insurances about the systems being used," Castellano said. "With technology that is here today and ought to be even better in the future, the process ought to be there for us to have more frequent reporting."
Ron King, a professor of accounting at Washington University's Olin School of Business, said suggestions for real-time reporting are "somewhat amorphous" at the moment. But, he said, any disclosure method must have three qualities: reliable, relevant and timely.
"Existing accounting is definitely reliable but somewhat poor in terms of relevance and timeliness," King said.
Reluctance: As electronic commerce becomes more prevalent, statistics might emerge that give investors useful information about what's going on up and down the supply chain, King said. For example, a sudden slump in auto-parts orders would be interesting to an analyst following the auto industry.
But most executives would have a problem handing out real-time, company-specific information that would get into a competitor's hands. For that reason, King doesn't believe that the SEC will mandate a daily look at a company's books.
"I think that's wishful thinking in our lifetime," he said. "Firms really are very sensitive about not disclosing proprietary information."