After years of unfulfilled promise the eXtensible Business Reporting Language is finally making its way out of the wings and onto the centre of the financial reporting stage – or is it? Lesley Meall, FSN contributing editor investigates.
“The emphasis is very much on the regulatory framework,” says James Fisher, senior director of solution marketing at SAP. “It’s a bit like Sarbox,” he suggests. “People threw everything but the kitchen sink at it, to get compliance quickly,” he says, rather than think about how they could improve their processes and gain most value from their investment in the longer term.
“The worst thing the government could do now is to behave like an accountant,” was the recent pronouncement of one politician, who was discussing ways out of the global economic crisis. It doesn’t matter which political party he represents (they are all throwing rocks at each other) and it doesn’t matter which country he is from (they are all in the same leaky flotilla), because what’s most interesting about this declaration is the volumes that it speaks about perceptions of the finance profession.
The notion that an accountant could guide us out of the current financial crisis seems to have little or no traction at a macroeconomic level, despite being received wisdom at a microeconomic level. But while doubt about the profession’s capacity to extract us from the mire may be well founded, it could unarguably have done more to prevent the crisis (spot the elephant in the corner), particularly if it hadn’t turned XBRL from a brilliant and innovative idea into a time-consuming and confusing job creation scheme.
“If we had been further ahead than we are, if the level of granularity and access to XBRL provision had been on a much larger scale several years ago, then companies and individuals would have been able to model things differently and more effectively,” suggests Tony Fragnito, CEO, of XBRL International (the non-profit consortium behind the XBRL standard). There would have been more early warning signs: “Flags would have gone up in a lot of areas,” he adds, because it would have been easier to see what was going on inside the world’s biggest financial services companies.
Now it’s a moot point, of course: we are where we are. But we can take cold comfort from the knowledge that a crisis on this scale will be a lot less likely to occur in the future. Because even if the world’s governments don’t manage to (individually and collectively) police the banking system more effectively, the increasingly widespread uptake of both International Financial Reporting Standards and XBRL, should provide much improved levels of comparability and transparency – and if organisations look beyond the compliance capabilities of XBRL, it could bring numerous business benefits too (of which more later).
Meanwhile, the push for XBRL uptake is coming from regulatory authorities that are keen to streamline and simplify their compliance-related administrative processes, at the expense of businesses (so it’s fortuitous that they also have much to gain). Stock exchanges, revenue collection authorities and company regulators in China, Japan, the Netherlands, Spain, and the UK are among those that have been working - for some years - towards the mandatory use of XBRL for various statutory reporting functions. But it is the recent development in the United States that will do most to encourage XBRL use.
Sphere of influence
“There is absolutely no doubt that the SEC mandate will lead to the near ubiquitous adoption of XBRL for financial reporting by listed companies right around the world over the next several years,” declares John Turner, who sits on the standards board of XBRL International and is chief executive of CoreFiling, which provides XBRL consulting services. Public companies that file using US GAAP, and have a $5bn plus turnover, must provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15 2009, and other filers will follow over the next two years – with the help of software suppliers.
“Most organisations, especially those in Group 1 of the mandate, are well on their way to finalising their ‘state of readiness’ plans around mandated XBRL submission,” reports Rob Blake, senior director of interactive services for Bowne & Co, a provider of XBRL services and software. But this does not mean that they, or the companies that will follow them, are necessarily making the best of the opportunities that the compliance process can create.
So, although the SEC mandate is dragging the statutory financial reporting kicking and screaming into the 21st century, organisations are not rushing to exploit the wider potential of XBRL. “Compliance may be the biggest driver,” says Fragnito, “but XBRL has real potential for non-statutory reporting too.” The dynamic and varied nature of internal reporting means that it could benefit significantly from XBRL, as could transaction reporting, the management of all corporate documents and their content, and it could also bring reductions in publishing costs.
Wading through treacle
But these are the sorts of benefits that fans were advocating a decade ago, when XBRL was in its infancy. So why has its development and adoption taken so long? “XBRL may seem conceptually simple,” explains Chas Roy-Chowdhury, head of tax at the ACCA, “but complexity has been an issue,” and developing standards has been a challenge. It took XBRL International a couple of years just to get the experts together, and it was 2003 before it released the commercial specification that software developers needed to create XBRL-compliant products.
Since then, software developers have slowly but surely done their bit, despite being hampered by the lack of any usable presentation structure, and the incredible complexity of myriad taxonomies under simultaneous development. Numerous taxonomies have each been put together by a wide range of interested parties, that have all too often seemed “challenged” by the need to reach consensus in a timely fashion.
Education has also been an issue, because even the term of reference eXtensible Business Reporting Language is misleading, as XBRL is a standard for the distribution and exchange of financial information (that describes financial information using XML data tags), not a language. While some believe that the involvement of accountants may in some way be to blame for the long and complicated evolution of XBRL - yet another elephant in another corner.
“A lot of an accountant’s work is based around formats,” says Fragnito, “and all assurance work is based on the representation of the company as a whole.” This makes XBRL and its potential to allow all and sundry to cherry-pick their way through financial data anathema. “Talk to accountants about data and if they can’t see it on paper they can’t comprehend it,” he says. But even if the CEO of XBRL International seems unsure about the profession’s willingness to put the future of financial reporting before its own bureaucracy, software developers are feeling bullish.
“Once XBRL is deployed for compliance purposes, they will start to see its advantages,” asserts Fisher, but don’t expect to get trampled in the stampede, because Blake sees this recognition of the potential of XBRL taking some time. “Over the next three to five years Bowne expects to see large and more complex mid-size organisations begin to embrace XBRL internally,” he says. But if past experience is anything to go by, these may turn out to be wildly over-optimistic estimates; so maybe that politician had a point about accountants after all.
