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XBLR - New Era in Financial
Reporting
XBRL (extensible business reporting language) has been hera=
lded
as a technology that will lead to a new era in financial reporting.
Corporates should pursue XBRL not just as a compliance issue but to also =
help
them navigate the current market environment.
XBRL is an open standard that supports information modeling =
and
the expression of semantic meaning required for business reporting. XBRL =
is
XML-based and uses technologies such as XML Schema, Xlink, XPath and
Namespaces to articulate this semantic meaning. XBRL consists of an insta=
nce
document, containing primarily the business facts being reported, and a
collection of taxonomies (called a discoverable taxonomy set (DTS)), which
define metadata about these facts, such as what the facts mean and how th=
ey relate
to one another. XBRL is extensible, meaning that the terms available for =
use
can be customised so that companies using XBRL can create their own eleme=
nts
(extensions) to describe a unique reporting situation. XBRL is not an
accounting standard and will not change what is reported, only how it's
reported. The XML tagging makes the information in a business report is
computer readable and can be more easily extracted, searched and analysed=
by
users of that information.
XBRL - Mandate and Status
With regards to the SEC rules which are to be adopted =
by
first quarter 2009, all public companies with market capitalisation great=
er
than US$5bn would need to start applying XBRL tags to their 10-Ks and 10-=
Qs
for periods ending on or after December 15th 2008. While these dates
discussed above represent the need for organisations to move towards XBRL
rather quickly, a recent Institute of Internal Auditors (IIA) survey of m=
ore
than 200 chief audit executives worldwide found that more than half are n=
ot
yet familiar with XBRL, and over 90% would need guidance on the new proce=
ss
of filing financial statements with interactive data. This just shows that
the majority of internal auditors have not yet been engaged in the proces=
s of
converting financial reporting into an interactive data format.
While it is already being put to practical use in a number of
countries in North America, Europe and
elsewhere and implementations of XBRL are growing rapidly around the worl=
d, there
still seems to be an opportunity for others to start the process and reap=
the
benefit.
Benefits
Lower cost of production of reports<=
/i>
In most current financial systems, the data is stored in tex=
t format
and must be re-entered in order to be used in other applications. XBRL not
only increases the speed of handling of this financial data, but also red=
uces
the chance of error and permits automatic checking of information and, he=
nce,
reduces the overall cost of production of reports significantly.
Lower consumption costs
Consumers of information (including managers, corporate
treasurers, investors, creditors, regulators, and others) will gain incre=
ased
access to information in corporate reports at lower cost.
Enhanced information sharing
XBRL exponentially increases the timeliness and communication
abilities between any and all parties interested in corporate information=
.
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Stakeholders=
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XBRL
regulatory report benefits
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Ban=
ker
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Reg=
ulatory
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Ven=
dor
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Ana=
lyst
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Red=
uce
reporting burden
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&nb=
sp;
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&nb=
sp;
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&nb=
sp;
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&nb=
sp;
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Get it right first time=
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Automate data entry
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Reuse data for reports
internal or external
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Integrate data for repo=
rts internal
or external
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Imp=
rove
data timelines
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&nb=
sp;
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&nb=
sp;
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&nb=
sp;
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&nb=
sp;
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Publish bank's data day
after receipt
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X
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X
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X
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Create and deploy event
driven reports
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X
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X
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X
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Imp=
rove
data accuracy
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&nb=
sp;
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&nb=
sp;
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&nb=
sp;
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&nb=
sp;
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Validate prior to submi=
ssion
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X
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X
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X
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Deploy unique set edits=
per
set of banks
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X
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X
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X
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More
accurate and less burden
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&nb=
sp;
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&nb=
sp;
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&nb=
sp;
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&nb=
sp;
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Provide consistent
validation edits
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X
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Sim=
plify
programming effort
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&nb=
sp;
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X
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&nb=
sp;
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&nb=
sp;
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Provide integrated and
structured - forms, edits, instructions, test data, edit data and code<=
o:p>
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Improve flexibility
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Update report requireme=
nts
more easily
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X
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X
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Areas of Impact
Continuous auditing and
monitoring
Due to the need of compliance with regulators' mandates, many
organizations are trying to use XBRL at the end point of the business
reporting supply chain. With XBRL, internal auditors can access deeper
business data, perform easier data analytics, improve profiling and risk
assessments, and continually audit and monitor the supply chain better.
Operation risk measureme=
nt
and management
The current economic environment highlights the need for sus=
tainable
technology standards at the core of information governance. XBRL could be
exploited for identifying and managing risks, ensuring oversight and
enforcing corporate policies. In this extremely challenging economic clim=
ate,
XBRL could be used for meeting the challenges of operational risk and
compliance management.
Fraud prevention<=
/b>
Many millions of dollars are being lost by organisations due=
to
inefficient fraud prevention systems that do not provide real-time inform=
ation
from across all of its operations. Much manual intervention is required t=
o do
deep analysis from disparate data sources and systems. With XBRL at deeper
ledger levels of information, the entire accounting and operational proce=
sses
can be integrated using the same language of communication and hence beco=
ming
more efficient. XBRL provides a single version of the truth, streamlining=
the
anti-money laundering (AML) and fraud reporting processes and allowing all
stakeholders to collaborate effectively.
Corporate performance
management
<=
/span>
XBRL offers significant potential benefits for internal
reporting and hence better manage corporate performance. By taking the
appropriate GAAP taxonomy and extending it to link with management report=
ing
structures, an organisation can bridge external statutory reporting syste=
ms
and internal management reporting. This also can provide real-time financ=
ial
and management information that can be disseminated internally to any use=
r at
any level of the organisation, because XBRL handles the semantic complexi=
ty
of aggregating financial data. Most CPM vendors provide the capability to
produce financial statements as XBRL output.
Implementation
There are three ways with which organisations have been purs=
uing
tagging of financial statements:<=
/o:p>
1. Build the application. While with this approach, organisations
may have more control of the development schedule and feature set; this is
not recommended unless they can support and upgrade the application.
2. Purchase an XBRL document creator. Many vendor companies, su=
ch
as Rivet Software (Dragon Tag is an XBRL enabler which is a Microsoft Off=
ice
add-in), Snappy Reports, Hitachi, Impede, and UBmatrix, have products that
enable taxonomy creation, taxonomy validation, report production and ad h=
oc
financial analysis of XBRL-tagged data. These products simplify the proce=
ss
by converting existing Microsoft Word and Excel financial data into XBRL
format. The SEC released its own XBRL reporting tool, Financial Explorer,
which provides a graphical analysis using graphs and interactive charts of
the chosen company's performance. Enterprises can use these technologies =
to
create Web 2.0-style mash-ups that could feed up-to-the-minute financial
information for a business unit to an executive based in his or her
geographic location.
3. Outsource the solution. Companies, such as RR Donnelley, pro=
vide
complete solutions for public companies' EDGAR and SEC Online filing need=
s.
They provide outsourced solutions that provide financial statements to co=
mpanies
converted to XBRL formatted data. The user can request different data typ=
es
using a wizard to create proprietary templates and models or use one of t=
he
pre-packaged models.
Challenges and Risks
XBRL is still in the process of developing and being adopted
which means:
- Existing
taxonomies continue to change and evolve based on feedback from the
field.
- Internal
reporting software may not yet accommodate XBRL data or upgrades may=
be
required. =
- Maturity
of the existing XBRL-enabled tools may be an issue.
- Staff
training will be needed.
The risks to management of companies filing under electronic
filing and reporting systems relate primarily to information being
incorrectly compiled or being altered by unauthorised persons, either bef=
ore
or after it is reported or during transmission.
Conclusion
With the status of SEC proposal being in pending state,
corporate treasurers and internal auditors will have time to catch up whi=
ch
could be beneficial to the organisations in the end. But the main point to
note for the new adopters is to start now and get some test filings done =
and
get prepared for the mandate which could happen very soon.
Article by Mr. Thomson, =
a US ba=
sed
consultant.
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