Eager to soothe jittery investors, companies bulked up their annual reports this year with additional disclosures. Now, many CFOs are looking beyond the annual report for additional ways to convince shareholders that their accounting practices are on the up and up. General Electric, for example, issued a 21-slide PowerPoint guide to its wordy annual report. It also instituted quarterly earnings calls for the first time in its history.
Companies are discovering the virtue of more-frequent communications. Lightbridge Inc., a Burlington, Mass.-based telecom-services provider, simplified its annual report but is supplementing it with quarterly fact sheets. “Rather than the once-a-year, glossy publication, we can communicate five times a year with investors,” explains CFO Harlan Plumley. And it’s cheaper to boot.
Software provider Comshare Inc. has been gradually boosting the amount of information in its 10Qs for about six quarters, says CFO Brian Jarzynski. “We have added some supplemental schedules that break out our revenues on a more specific basis,” he says.
Jarzynski, a former auditor with Ernst & Young, says that although Enron heightened investor demands for disclosure, “some of this was coming anyway.” Comshare recently expanded its discussion of how it recognizes revenue–a key accounting issue for software companies. In fact, Jarzynski expects regulation to call for more industry-specific disclosures in the future. New rules, he says, may ultimately reduce accounting technique explanations in management’s discussion and analysis. Although SAB 101 revenue-recognition rules already address many issues specific to software companies like his, he speculates that “software companies will be required over time to have a specific chart of accounts, and we will have recommendations for disclosure that are very industry specific.” Industry-specific guidelines will make the rules simpler, he says. “They will get rid of the gray and make things more black and white.”