A new era in business information reporting began in the spring of 2005 with the launch of the US Securities and Exchange Commission's XBRL Voluntary Filing Program. So what, you say. What is XBRL? Why should I care?
Imagine yourself back in 1993 and someone tells you about the latest and greatest thing that will change your world — a computer language called HTML. Actually, it's more likely they tell you that from your own personal computer you will be able to access information from all over the world. They make outlandish claims about how it will revolutionize your life, in all respects — work, family and social.
Now, ask yourself today in 2005 just how much you use the Internet. HTML, or HyperText Markup Language, and the ability it provides to people using different computers and software to view information no matter where that information is created, is at the core of our Internet experience. Don't know much about HTML? Not to worry — suffice it to say you recognize the ability it gives you to search for, load, then use and save information.
In the same way that HTML revolutionized our access to information, XBRL is revolutionizing our access to business reporting information. XBRL, or eXtensible business reporting language, enables business reporting information (financial and non-financial, numeric and narrative) to be created, validated, aggregated and published across computer platforms and computer applications. For the first time in the world of sophisticated ERP (enterprise resource planning) systems and all their connected feeder systems, it allows computers to truly "talk" to one another without costly technology-based interfaces. This streamlined exchange of information based on a standard language has benefits both within an enterprise for decision-makers and outside as the enterprise communicates with regulators, investors and the public.
XBRL is, at its simplest, an information format standard for expressing business information. Standard descriptions of data (e.g. revenue, inventory, cash) are created in "tags" that are applied to the information — much like the bar code on a box of cereal at your local supermarket or the ISBN code on the latest bestseller at your local bookstore. The application of these tags to unique pieces of business information allows that information to be used and reused by many people with many systems for many different purposes. The opportunities and implications for companies, accountants, auditors, tax preparers and filers, regulators, analysts and investors are vast.
For companies interested in the SEC XBRL Voluntary Filing Program, there are a variety of reasons for getting involved. Some see the value in reporting their story their way to the market, ensuring that analysts get the information directly from the company in an accurate and efficient manner — and if they can get their results into the hands of more analysts while making it simpler for those analysts to access the information, they expect more access to the capital markets. Others want to learn how XBRL can help lower the costs of collecting, validating and publishing information for a variety of internal and external users. Some want to be ready for the day when the SEC and other regulators switch from voluntary to mandatory reporting in XBRL. Others yet want to learn more about XBRL and understand how it can help internally with the movement of and access to information within their organizations for use by management and other decision-makers.
While the SEC is currently embracing the submission of XBRL-tagged information with its voluntary filing program, North America is behind Europe and Asia in its adoption of XBRL. Stock exchanges, in China and Korea in particular, and government agencies and regulators across Europe have implemented or are implementing XBRL-enabled systems as they strive to achieve efficiencies in the creation and exchange of business information across the corporate reporting supply chain.
Prior to the SEC program, public shows of interest in XBRL in North America have primarily lain with the Federal Financial Institutions Examination Council, which includes the Federal Deposit Insurance Corp. that oversees the 8,900 banks in the US. It will require quarterly call reports to be in XBRL. Closer to home, the TSX Group Inc., which runs the Toronto Stock Exchange, was the first Canadian public company and first publicly listed stock exchange to publish its annual results in XBRL.
So what does this all mean for you? Well, it depends on who you are. As a producer of corporate information for investors, regulators, tax authorities, etc., it means increased reuse of information and increased controls with efficiency in preparation. In short, greater economies of scale can be achieved using XBRL when reporting to multiple external parties. As an analyst or investor, it means easier, more timely access to business reporting information to help make informed investment decisions. As a regulator, it means streamlined collection, aggregation and validation of information.
If these are some of the benefits, what about the costs? Like HTML and the World Wide Web before it, XBRL is freely available. It is jointly developed by a consortium of over 250 organizations, including major accounting firms, software vendors and stock exchanges.
Like the companies involved in the SEC program, more and more enterprises are factoring XBRL into the mix when considering performance improvement as it helps to address cost reduction, quality improvement and the streamlined provision of information. Regulators and others around the world, including the Australian Taxation Office, Chinese Securities Regulation Commission, Dutch Tax Authority, UK Financial Services Authority and Bank of Japan are also looking to access these benefits as they adopt XBRL-enabled processes and systems to collect, aggregate, validate and use information.
Some specific areas of application where the advantages of using a standard like XBRL for individual companies are:
Mergers and acquisitions: In the scoping and due diligence phases of M&A activity, XBRL can be used as a uniform means to gather and compare information on target companies, allowing management to make better-informed decisions and project pro forma performance of the combined enterprise. Following the closing of the transaction and as integration takes place, management and advisers can use XBRL as an information standard to improve access to data held in different accounting packages and elsewhere across the new enterprise and to enable more streamlined communication with outside parties such as regulators, tax authorities and investors.
Sarbanes-Oxley and similar regulatory compliance — adhering to the increasingly complex rules and regulations for public companies — can be facilitated by using XBRL to move internal controls closer to the actual data they are designed to test. Also, using one core set of reusable data that can be repurposed for multiple reporting audiences reduces the costs of reporting.
XBRL can reduce or eliminate the manual processes of entering company results into financial models. This frees up analysts to ask more searching questions on earnings calls.
If you're looking for ways to achieve efficiency in effectiveness around the way you access and report information, perhaps now is the time to look closely at XBRL.
For more information on how XBRL is enabling the automation of the business information supply chain, visit www.xbrl.org, www.xbrl.ca or www.pwc.com/xbrl.
XBRL ADVANTAGES
The XBRL reporting process has advantages over the way reports are assembled and distributed today because XBRL allows for:
- Lower preparation cost
- Reduced preparation time
- Broader information availability
- Adaptability to changing reporting requirements
- Enhanced analytical capabilities
- Increased transparency
Alastair Nimmons is a senior manager with the finance and operational effectiveness practice of PricewaterhouseCoopers LLP.
Reproduced by permission from CAmagazine, published by the Canadian Institute of Chartered Accountants, Toronto, Canada.
