Awareness of the importance of XBRL, a method for tagging financial and
business performance information, has been ramping up rapidly since the
government decided last year that the standard will become mandatory by 2010.
However, there has been scant attention paid to some of the less prominent
benefits which XBRL can deliver. One of the most important of these is the
ability for companies to easily benchmark their performance against peers.
XBRL benchmarking can integrate internal and external financial data,
allowing organisations to benchmark their own actuals and forecast figures with
competitors and peer groups. It can also deliver consistent data for regular
comparisons and calculations of growth trends and performance drivers.
Mike Willis, a founding chairman of not-for-profit group XBRL International and
partner at PricewaterhouseCoopers, says that the introduction of XBRL is nothing
short of revolutionary. “It is as if HTML had been introduced in a fax machine
world,” he says.
Willis believes firms adopting the language will benefit from improved
financial forecasting, in addition to faster, cheaper and more accurate
peer-to-peer benchmarking. One of the main advantages is that the information
available for benchmarking using XBRL is more accurate and complete.
“Without XBRL there are intermediaries that are tagging the information, they
are normalising, distorting and consolidating,” he says. “So, typically, the
information that companies have is a couple of hundred elements. It is certainly
not all the information that companies report and there is an error rate that is
fairly significant. Using XBRL eliminates these problems.”
“The second benefit comes from the fact that companies are tagging the
information themselves, so the data is more in line with what the company is
trying to communicate. This is the idea that the companies are able to say what
they mean, rather than the data coming from some intermediary.”
But the key benefit of XBRL comes from the language’s ability to allow
benchmarking of data. Before adoption of XBRL as an accepted reporting standard,
such data sharing was problematic or even impossible, according to Willis.
Liv Watson, vice president at EDGAR Online agrees that, without XBRL as an
agreed underlying standard, finding like-for-like reporting data that can be
used for peer benchmarking is often impossible. “For example, with a measurement
such as revenue per square foot, what does this really mean if there is no
shared framework? Unless there is a framework that firms can share, the numbers
don’t mean the same thing,” says Watson.
“The question has always been ‘how transparent do you want to be?’ – and XBRL
is going to bring more transparency. The marketplace, management and the board
of directors will benefit from understanding how you are doing compared with
peers in the market,” she says.
James Fisher, director of finance and performance management software
specialist Cartesis, stresses that adoption of XBRL allows firms to benefit from
standardisation throughout their performance management applications. “Now we
are able to allow people to consume data and make it consistent within their
performance management applications. So when they come to analyse, for example,
their month-end figures or statutory quarter, or half-year-end or annual
figures, they can bring down the data for their competitive organisations and
use this to benchmark their performance,” says Fisher.
Implementing XBRL in this way allows companies to generate and manipulate data
in addition to letting them accurately assess trends in the wider market. In
terms of cost-benefit, Willis argues that the XBRL can offer compelling
advantages. “When it comes to estimating the cost of acquiring benchmarking
data, XBRL allows companies to move away from spending days and hours on this
process,” says Willis. “It can now be done in seconds.”
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