As statutory reporting compliance increases uptake of the eXtensible Business Reporting Language so does its potential to improve the relevance, reliability and reusability of all sorts of business information, FSN contributing writer Lesley Meall reports.
It is the nature of both beasts for governments to get bad press from the media, so reporting something positive about our political rulers is a novel experience. But here I go: it may not feel like it, when you are struggling to implement, manage and fund your mandatory XBRL compliance efforts, but your government has done you a big (if largely unintentional) favour, and one day in the dim and distant future, a voice in your head may surprise you by saying a quiet and understated little ‘Thank you’.
Without pressure from governments and their various regulators the business world would not be as close as it now is to a brave new world where XBRL can help to unlock the information that’s hidden away in so much data. It’s had the potential to do this for some time, by making data easier to electronically publish, exchange and re-use, but it has been impeded for a range of reasons so vast and internecine that you could write a library of books about them, or a relatively brief overview, as FSN previously did here: the road to Hell is, as ever, paved with good intentions.
So the journey from the conceptually simple idea of one accountant (back in 1998) to the myriad interpretations and applications of today, has been a long, complicated and costly one. However, the regulatory drive towards XBRL’s (increasingly mandatory) use has had a positive influence on the wider global development and uptake of XBRL-compatible software, and its use is growing in areas including benchmarking, competitor analysis, credit assessment, company valuation, financial analysis, financial reporting, and more – even if compliance tends to be the starting point.
Between February and March 2010, when Aberdeen Group researched XBRL use among large organisations, 55 per cent indicated that the Securities and Exchange Commission regulatory mandate was their main reason for adopting XBRL. This partly reflects a ‘global’ research sample in which 52 per cent of the respondents were North American. But participants came from a range of countries, and when they were asked to identify the top two pressures prompting them to implement XBRL, not all of the reasons they gave related to the SEC or any other regulator.
‘One of the key motivations behind using XBRL technology to standardise businessreporting is to expedite financial reporting processes and to limit erroneous reporting,’ says Ankita Tyagi, a research associate with the Aberdeen Group, and co-author of the report (which you can read free here). Around 20 per cent of respondents listed inaccurate and erroneous financial reporting as one of the main drivers behind their XBRL adoption, but a whopping third were hoping to improve the productivity of financial and accounting staff, and 25 per cent wanted to reduce operational costs.
Compliance isn’t the only reason that commercial organisations are increasing their use of XBRL; as Aberdeen notes in its research, competitive pressures, labour costs and productivity are among the many drivers prompting companies to explore new ways to leverage XBRL. ‘As companies become more aware of the benefits of implementing XBRL in their internal systems, an increasing number will adopt and consume XBRL for benchmarking, performance improvement, internal process improvements and analytics,’ predicts Tony Fragnito, CEO of XBRL International.
But for this to happen, other things must happen too. ‘To encourage widespread development of software tools and solutions that will meet the needs of XBRL data users, we must make it easier for software architects and their development teams to create XBRL applications,’ admits Fragnito. So XBRL International is developing a ‘standard abstract model’ that will ‘lower the barriers to accommodating the XBRL specification within software tools’ and provide a ‘blueprint’ for creating XBRL applications with ‘more efficiency and greater consistency of outputs’.
In the past, there have been a number of barriers to widespread adoption of XBRL, and one of the most significant has been the lack of developers prepared to embed it in their software. ‘It’s costly and technically complex,’ reports David Routley, technical product manager at CCH, one of the developers that recently ‘invested heavily’ in preparing products for mandatory XBRL corporation tax filing in the UK. John Turner CEO of XBRL specialist CoreFiling is prepared to be more precise: ‘We have spent in excess of £1M in developing our innovative software in this field.’
Without the ‘standard abstract model’ that XBRL International is currently having developed (by No Magic Inc), when software architects, engineers and developers want to use XBRL in existing or new products, they must create their own proprietary models. This makes the process so costly, and it’s prone to interoperability problems too, because other vendors models are not always in complete agreement. The standard abstract model for XBRL is expected to remove these barriers, lower development costs, and Fragnito says, ‘attract more independent software developers’.
Meanwhile, we can glimpse what will eventually be possible, by looking at some of the innovative ways in which specialist developers such as CoreFiling, Fujitsu, Longview, SAP BusinessObjects, and UBmatrix (a subsidiary of EDGAR Online), are already helping businesses to exploit all of the XBRL-tagged data out there. For example, a strategic relationship between SAP BusinessObjects and EDGAR Online, means that users of BusinessObjects Extended Analytics can use it to analyse their actual and forecast data and benchmark it against comparative data.
EDGAR has been collecting electronic filings for more than eight years, and it can now provide access to more than 7m SEC filings, with XBRL-tagged data available for structured disclosures from more than 10,000 public companies. Because the BusinessObjects system can take these external financial performance metrics and automate their integration with internal performance metrics, business users have the potential to undertake genuine apples-to-apples comparisons against peers, rivals, potential partners, and merger and acquisition targets.
Because these XBRL filings are sourced primarily (though not exclusively) from the world’s listed companies, and the development of XBRL software has so far been complex and costly, the software and systems being used have a tendency to be ‘big ticket’ items. But the growth in mandatory XBRL filing of regulatory information means that XBRL-tagged data is already available for lots of much smaller companies (from Australia, the Netherlands, and the UK, to name just a few jurisdictions) and this is likely to increase in terms of detail and magnitude.
It remains to be seen if the ‘standard abstract model’ currently being developed by XBRL International and No Magic Inc has the intended consequence of removing some of the barriers to the creation of more XBRL software. But if it does, then we may be able to look forward to the widespread availability of all sorts of new and enhanced software applications, and these just might enable the world’s small and medium sized organisations to exploit XBRL-tagged data as easily and effectively as many of the world’s largest – and the regulators we have to thank for it, of course.
