Technology and financial reporting

Organisations store much of the same information in their own internal systems, but in widely varying formats and granularity. This is common even between businesses that share the same financial software products. This inconsistency makes it difficult for organisations to share information reliably or cost-effectively when performing many aspects of their business, including applying for credit, reconciling accounts, or reporting to investors, or many other common activities.

With the growing Internet dispersion, our entire communication network has been transformed — and this is particularly true in the business environment. Organisations have now begun to realise that the Internet can bring the promises of better, faster and cheaper to business decision making and specifically to corporate reporting.

In recent past, the accounting community has seen the fall of giants like Arthur Andersen, and scandals like Enron, Paramalat, Worldcom, etc. Public outcry has forced the regulators to demand information thus there is an ever-increasing pressure on the management to collate and report their performance to the stakeholders with more accuracy, in greater detail and with increasing frequency. Add to this, they have to publish the same report in a variety of formats for the requirement of the multiple regulators/statutory bodies.

From the business perspective it may be easier said than done. For the reason that every business comes with its own set of complexities. Take the instance : A company with many subsidiaries wants to compare revenue from each subsidiary, so it asks each subsidiary to submit financial data through Excel spreadsheets. When creating financial reports across multiple divisions, the data must be collected and often must be normalised before it can be added to a specific model and used in a report. Data might also need to be normalised if a generated report covers a breadth of business areas in an organisation. Furthermore to consolidate and compare the data, an analyst might have to normalise the data submitted by each subsidiary, validate the data to ensure that it is accurate, and then copy and paste it appropriately into a single spreadsheet. This is often a manual process that is extremely time-consuming and potentially error-prone.

Complying with stringent reporting requirements results in consumption of the best part of a finance department’s resources. The process as a whole can entail a huge drain in terms of time, effort and cost for most companies.

Now we change sides and look from the perspective of the users of the financial statements. For the stakeholder, the financial reports pose a dilemma of a different sort. Every stakeholder has a different perspective and need, therefore views the financials in different light. The main challenges encountered by analysts and finance professionals are to efficiently author reports, analyse financial data, share financial data and verify data.

Data elements in a financial report lose the descriptive contextual information when the grouping/summarisation of the information is done in the financial report. As a result, when sharing data, analysts must include text that describes the data or make sure it is re-keyed into the appropriate place in a model. The data in the report may have already become outdated, dare I say inaccurate information. The reason for saying ‘inaccurate’ is that most of the reports are in static formats, contain terms that are interpreted differently by different users. Interestingly, the pertinent or crucial information is actually in notes and disclaimers.

What the readers may appreciate is that the entire effort in financial reporting exercise is devoted to what is (or not) being reported and not how the same is reported. Worldwide the roles have been split, the regulators specify what is to be reported and technology fills the gap as to ‘how’ it is reported. This was one of the reasons that XBRL was born. Larger accounting firms and many of the Fortune 500 companies, recognising the benefits XBRL has to offer, have already adopted this standard and are spreading the word about XBRL.

What is XBRL ?

XBRL stands for eXtensible Business Reporting Language (XBRL), an XML-based technology standard, it is a language for capturing financial information throughout a business information process that will eventually be reported to shareholders, banks, regulators, and other parties. The goal of XBRL is to make the analysis and exchange of corporate information more reliable and easier to facilitate, in that it can help business in increasing the business value and provide reliable, and transparent financial data. The adoption of XBRL may permit stakeholders to access, compare and analyse data in ways that are at this time impractical or unreal. The reason is that the language is robust enough to boast of capabilities like :

• Drill-down facility for abridged data

• Reduced preparation time, effort and cost

• Enhanced analytical capability

• Standardised and simplified international access and acceptability

• Platform neutrality ensures wider acceptability

• Leverages the efficiencies of the Internet.

XBRL language was touted in 1998 as a standard for defining and naming data. The endeavour was to articulate financial data in a form that all users would understand in the same manner (although their conclusions may be at variance). XBRL works similar to a bar-coding scheme for individual data elements within financial statements. By means of this bar-coding scheme, data can be automatically posted, shared, and validated, thereby providing major benefits in the preparation and analysis, and in the announcement of business information.

XBRL does not require modification of existing accounting standards, it is not purported to be a tool for standardising accounting, it merely offers an efficient and reliable means for the exchange. Based on uniform, underlying data tags, XBRL does not necessitate companies to reveal any additional information beyond that which they normally disclose in their current financial statements. XBRL extends the capabilities of XML through ‘tags’ that describe and identify each line item in a company’s financial statements, making it easier to access and analyse that information. The result is an XML ‘dialect’ that closely maps to the particular needs of various stakeholders.

XBRL employs tags based on standardised accounting industry definitions to describe and recognise each item of financial information, such as gross/net revenue, cost of sales, etc. Tagging each financial item reduces subjectivity when users evaluate financial results from industries and geographies, and the uniformity afforded by tagging data, as a consequence, making it easier for users to extract and analyse comparable information from companies’ published statements. Users will also be able to leverage these tags with XBRL-enhanced tools to search for specific historical data in company financial reports, rather than manually combing through multiple reports for the same data. Although XBRL makes financial information more consistent and accessible, it does not require companies to change the way they report financial results under current accounting standards. Tagging each item increases uniformity in financial information across geographies and industries, which can be rendered once in an XBRL document, then delivered and analysed in whatever form needed.

XBRL facilitates straight-through reporting of business information and unclogs the data pipeline, so that information flows freely, efficiently and cost-effectively to end users of financial data.

What XBRL is not :

• It is not a Generally Accepted Accounting Principal or an Accounting Standard

• Universal chart of accounts

• Translator

• Licensed technology

What does the future hold for us :

Anyone can download the Excel workbook from the Internet or the company sites. Users can then request any available data on any of the companies in the pilot, which comes in the form of an XML-based Web service that is ‘consumed’ by the Excel workbook. All this is transparent to users, of course. They just request data and see it appear in Excel. Users can select any of the default analysis to run automatically on the data, or they can configure their own analyses. Countries like USA, UK, Australia, Japan, and Germany have been early adopters and the market for business reporting is booming worldwide. In India, though large enterprises were largely aware about XBRL, the use (abuse) is yet to begin.

E filing :

The trend has already started. The day may not be far when you may not leave the confines of your office to file your clients’ tax returns or other regulatory reports. You may not have to hop to your nearest TINFAC or worry whether your software vendor has given you the latest software for creation, verification and uploading for the ‘e-report’. You may well do that just by clicking on the tool bar of your Excel sheet and generating an xml report, which would then be uploaded to a website and your reports may be taken as filed. The TIN network is just the beginning.

Source : Article by Mr.Samir Kapadia,Chartered Accountant