Only one-half of one percent of an average FD’s time is spent on decision support analysis and planning, according to new research by the Hackett Group. Most of the remaining 99.5% of the day is spent in old-fashioned bean counting and data collation, or in board meetings discussing bean counting and data collation. But a host of accounting, business and government heavyweights hope to improve the situation by implementing XBRL (Extensible Business Reporting Language) to compile, maintain and publish operational and financial data.
With ever increasing pressure for shorter reporting times and more time spent creating value than measuring it, XBRL tagging will enable FDs to spend less time on lagging measures and more time on leading indicators, risk analysis and shareholder relations. But XBRL hasn’t been created just to make the FD’s job easier. It also empowers everyone in the financial supply chain.
J Louis Matherne, director of IT for the American Institute of Certified Public Accountants (AICPA) told Financial Director: “Whether you provide data, are a data aggregator or an end user, you all benefit from saved time and transparency of information. Each link in the chain is strengthened by the XBRL standard.” With XBRL, financial reporting can be standardised and publishing costs reduced, so financial data becomes more accessible – and so more valuable.
Despite the onerous “standard” tag, XBRL is not intended to be restrictive. “Standards do not mean less choice,” says Mark Hunt, director of XML strategy for Reuters. “Take HTML for example. It is a standard that has created an explosion in choice. Standards are not restrictive, they just decrease the barrier to entry for more people.”
Futhermore, XBRL does not mean that sensitive financial information will be laid bare to all and sundry. “Companies should note that XBRL does not require you to disclose any more information than previously,” says Christy Reichhelm, head of Microsoft’s B2B enterprise solutions. “It just speeds up data collation and makes that collated information more accessible.”
Languages such as XBRL that are based on XML coding techniques share the same common function – to break up data into fragments that are tagged in a universally standard way. When this is done, data can be aggregated instantly from incompatible legacy systems without the need for major IT infrastructure changes, and the fragments can be pieced together in any way by anybody: for accounting, reporting, competition analysis and investment purposes, all in a media agnostic, on-line environment.
On-line reporting via XBRL is set to revolutionise the way financial information is consumed. “Previously, research on the internet has been a practice of trading in pictures,” says Reichhelm. “Companies produce static information that is then passed on from user to user unchanged.
This is not very dynamic. But we now have the technology, bandwidth and devices that can change those pictures into data.” Where paper reporting provides a snapshot of financial data, electronic reporting encourages flexibility, standardised procedure and financial transparency.
More than 80% of major US public companies provide some kind of financial disclosure on the internet, a trend that is set to grow internationally as the reporting process becomes cheaper and more efficient. A recent Gartner survey predicts that the implementation of XBRL will reduce the cost of publishing on-line by 30-60%.
XBRL has been gaining momentum for about a year. The first XBRL taxonomy for accounting purposes was published in July 2000. In February 2001 the first international XBRL meeting was held in London. At it, the International Accounting Standards Committee (IASC) released a draft taxonomy for international accounting standards. Concurrently, Morgan Stanley Dean Witter became the first company to use XBRL when it published its Q4 results on-line.
XBRL is gaining ground in companies such as MSDW because it reduces the need for IT spend, unifies disparate accounting systems, and cuts the number of parallel processes finance staff undertake when compiling accounts.
Traditionally, the integration of legacy systems requires bespoke coding and/or the transfer of information in set formats through interfaces. Maintenance is a pain because interfaces have to change with each upgrade. But XML is simple to implement and immune to systems upgrades.
“Take the example of Merrill Lynch,” says Hunt. “Merrill Lynch has 2,500 trading applications, all in different formats. The more IT a company like it implements, the harder it becomes to make incisive and instant analysis. Companies need a standard information interchange format so that they can leverage technology more easily and make their information internet-ready.”
This is beneficial to FDs in two ways. It improves the information they depend on to make decisions – and it gives them more time to make those decisions. As the bean counting is reduced, FDs will have more time to work on company strategy, investor relations and risk analysis. “If a company can close its accounts in one day, executives can then spend seven days thinking about approach to market,” says Peter Mayne, head of assurance innovation for KPMG.
Mayne predicts a huge shift of emphasis onto risk analysis. “The banking industry is a prime example, especially in the field of credit applications. Aggregating company data will be easier so, on one hand, the bank has time to consider more loan applications. But, more importantly, the bank has more time to consider risks.”
Secondary benefits of XBRL include the ability of company executives to undertake strategic competitor analysis, gather market intelligence internally, and tackle non-financial reporting efficiently. Furthermore, in these turbulent days of fervent M&A activity, XBRL will also help to integrate businesses. Where nine-out-of-ten mergers currently do not add significant value to the business proposition, XBRL facilitates speedy integration of data, systems and processes.
The effects of XBRL are expected to be so far-reaching that Mayne even predicts benefits on a macroeconomic level. “XBRL works on several strata, from regulators to government agencies. Companies in developing countries, for example, can publish their results internationally and, as this trend increases, governments get a macroeconomic view of developing nations. In this way, the UK and developed nations must also implement XBRL to keep up with the pace of change and threat of competition from abroad.”
Even the US Department of Defence is implementing XML to unify its 1,400 systems and increase transparency. Presumably, US government accountants will now be able to find out where the missing billions are being spent.
At the moment, it must be admitted that many of the benefits and uses of XBRL are hypothetical because it isn’t widely used. Nevertheless, once data is freely available, cost savings will be around the corner. Most notably, it will be unnecessary for auditors and analysts to charge exorbitant fees for ploughing through company figures if an Excel spreadsheet of historic financial data can be called up in seconds. “If you pay for advice from an analyst you want advice – you don’t want to pay people to aggregate data,” says Microsoft’s Reichhelm. “It will be harder for an analyst to charge for putting numbers together. They will have to deliver value for money.”
Likewise, auditing will become quicker and cheaper. “Auditors can collaborate over the internet with a company’s financial team,” says Mayne. “Furthermore, companies will be empowered to publish grains of audited financial information on their websites to maximise impact. Of course, the auditor may have something to say about this, but the relationship between company and auditor will have to change. This potential for change is scary for companies like KPMG, which is why we are driving the technology.”
In the light of international movement towards international standards of accounting and auditing, KPMG and the Institute of Chartered Accountants in England & Wales are spearheading UK XBRL initiatives. Sarah Foster, project manager of UK XBRL for the ICAEW is keen to encourage companies to adopt the new technology. “On the technical side we can see huge benefits,” she says. “We want to find a way of putting XBRL on the business agenda. Initially, XBRL was targeting improved investor relations, but the potential is also there to improve internal processes. We have set up a UK working party to establish and publicise the benefits.”
The UK steering group, which also comprises PricewaterhouseCoopers, Andersen and the FSA, among others, announced in February this year its intention to publish a UK-specific taxonomy in the second quarter of this year.
“We are aiming to publish a taxonomy in April. This will be the first jurisdictional XBRL taxonomy outside of the US,” says Mayne. “Then we need to establish whether accounting standards will be applicable at the company level. XBRL will definitely be the mechanism by which we facilitate this discussion in the UK. We will soon demonstrate the technology to a select list of FTSE-100 companies. Expect us to coming knocking on FDs’ doors in the middle of the year.”
If you can’t wait that long, XBRL.org, the IASC and ICAEW are actively encouraging companies to join the steering committees and will welcome any enquiries. “XBRL is just a community coming together to agree on tags,” says Reichhelm. “We are not creating a new technical language.”
If you want to find out more about XBRL, there are several taxonomies in circulation and open for public comment on www.xbrl.org, along with practical demos of company accounts published using in XBRL. Happy tagging.
WHAT IS XBRL?
Extensible Business Reporting Language (XBRL), formerly code-named XFRML, is an open specification which uses XML-based data tags to describe financial statements for both public and private companies.
XBRL is a standards-based method with which users can prepare, publish, exchange and analyse financial data. It is freely licensed and permits the automatic exchange and reliable extraction of financial information across all software formats and technologies, including the internet.
The American Institute of Certified Public Accountants (AICPA) was the first accounting body to explore the business case for XML. The XBRL specification and the first taxonomy for financial reporting of commercial and industrial companies under US GAAP was released in July 2000.
In February 2001, the XBRL.org steering committee held its first global meeting in London, where the London-based International Accounting Standards Committee (IASC) released a draft taxonomy of XBRL for financial statements to members of XBRL.org for review. The IASC has released its taxonomy for public comment on www.iasc.org.uk.
In the UK, the ICAEW has formed a steering group, including representatives from the accountancy profession and information specialists, to develop a UK-specific XBRL taxonomy for release in April 2001. The UK is on course to become the first country outside the US to develop its national taxonomy.
Members of the UK XBRL steering group include PwC, Andersen, KPMG and the FSA.
For information contact Anthony Carey, project director, UK XBRL at email@example.com, or visit www.xbrl.org.
Electronic Data Interchange (EDI)
The electronic communication of business transactions between organisations. XML complements EDI because it can be used to exchange e-commerce information.
Extensible Business Reporting Language (XBRL)
The new “digital language of business” proposed by the American Institute of Certified Public Accountants, which enables the financial community to exchange and analyse a variety of financial data and reports.
Extensible Financial Reporting Markup Language (XFRML)
The old name for XBRL.
Extensible Markup Language (XML)
A subset of SGML defined by the W3C. Provides a uniform method for describing and exchanging structured data in an open, text-based format through the use of tags, much like a barcoding system. Developers, organisations, and communities can define their own XML dialects, such as business is doing with XBRL.
HyperText Markup Language (HTML)
A methodology for creating Web pages. HTML defines the page layout, fonts, graphic elements, and hypertext links to other Web documents, by embedding tags within text. Like XML, HTML is a subset of SGML.
Information describing the contents of a document. Tags, processing instructions, and comments are all markup.
Standard Generalised Markup Language (SGML)
The ‘parent’ language to HTML and XML, itself descended from Generalised Markup Language. SGML is the international standard for defining descriptions of structure and content of electronic documents. XML is a subset of SGML designed to deliver SGML-type information over the Web.
The World Wide Web Consortium, which sets the standards for XML, HTML, HTTP, XSL, CSS, RDF, and a number of other Web-oriented standards.
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