When did the XBRL agenda get hijacked? That’s the question we should be asking ourselves right now because the original intention of XBRL was to improve the quality and delivery of financial reporting - not merely to serve the needs of regulators around the world. But now that the dust has settled, and large swathes of businesses around the world are filing, or about to file their results in XBRL to regulators attention is turning to the other stakeholders in the XBRL game – most notably the companies that furnish the data. Gary Simon, FSN managing editor, explains how the XBRL game could change.
When Charlie Hoffman, (widely recognised for his pioneering work in proposing and helping to develop the XBRL language) commenced work on XBRL in 1998 he was seeking to explore how the XML mark-up language could be used for the electronic reporting of financial information. The problem he recognised was that as soon as electronic information leaves someone’s spreadsheet or financial system it loses context and integrity. Added to which, the data is not readily amenable to further manipulation and analysis.
Since those early days, regulators have quickly latched onto the fact that they can standardise the high volumes of information that they receive and automate the processing of it in one fell swoop. So the advantages for regulators are compelling. But what about the other side of the house, i.e. the thousands of companies scrambling to tag financial information in XBRL? They have had to get to grips with a strange new language, (think taxonomies, tuples and instance documents) and hastily assemble solutions so that they can furnish XBRL output in the required format. To many, XBRL is seen as an extra burden, an additional process and an extra involuntary cost. So is there really a benefit in XBRL?
According to Robert Farrell, CEO of EDGAR Online regulators are still the biggest beneficiaries of XBRL data, primarily for the purposes of enforcement and comparability but he told FSN that investors and fund managers are also taking advantage of XBRL. Farrell adds that asset managers, sell-side and buy-side analysts are consuming XBRL information but concedes that XBRL is not widely being used by corporates for competitor analysis.
He told FSN, “XBRL is still an additional cost and requirement, but progressive companies are trying to use it to their advantage by for example building XBRL processes into their workflow – rather than as an appendage – and are actively looking at what value they can derive.”
“XBRL is becoming more deeply embedded and the ROI will come eventually,” he added. “Tier 1 and Tier 2 companies in the United States will benefit from a better understanding of information, more granular analysis and creating their own data sets. Financial services appear to be the early adopters believing that XBRL could give them an edge.”
But for others the emphasis is on process improvement rather than business intelligence. A hotly debated issue is whether XBRL should be an outsourced activity or brought in-house.
In the United States large corporates have a unique relationship with their printers. With digital reporting threatening to reduce printers’ influence the large players have been swift to offer XBRL tagging services – but with mixed results. For a number of corporates the outsourcing option has been costly and error prone. Added to which the outsourcing option can introduce delays and lack of control.
“It is what we call the ‘pencils down’ phase,” says Jerome Behar, Managing Director of WebFilings a cloud based vendor of XBRL collaboration software for regulatory compliance. Commenting to FSN he said, “The problem with the outsourcing model is that there comes a time when you have to hand over the output to the printer and no more changes are allowed. So what do you do if you need to make a change a few days before filing or even the day before the filing date? In-house solutions or cloud based solutions such as ours give you the flexibility. We have found that 75 percent of filings brought back in-house have one or more filing errors.”
Webfilings’ cloud based solution is one of a new generation of providers in the XBRL space, enabling companies to collaborate around the generation of all of its filings and reports from a centrally maintained repository of information.
Being web based, the solution benefits from all of the usual advantages of a cloud based solution so, for example, there is no need to maintain hardware, software or infrastructure in-house added to which there is of course 24/7 accessibility from anywhere in the world as well. Behar points out this doesn’t stop companies outsourcing part or all of its XBRL processing. “You can give a third party access to the system for example to tag information on your behalf,” he told FSN. Auditors too could have access to interrogate the system and review tagging and XBRL extensions.
By filing directly from the application, allowing collaboration and efficient workflow as well as simultaneous working on editing documents and XBRL, Webfilings claims to slice days off the reporting cycle. “eBay and Tivo saved 20 days on their 10-K process,” says Behar.
But according to some we are only beginning to see the start of the potential for XBRL to save organisations time and money in financial reporting. PwC’s Mike Willis, told FSN, “Manual processes in the final throes of financial reporting are common to most companies. Consolidation/ERP applications either do not contain all of the information relevant for company reporting and/or do not address the actual report assembly and review workflow and processes. This is commonly the situation for companies around the world; hence the 'manual last mile' moniker and related highly pervasive manual report assembly, validation and review process and control steps.”
“The other issue is the internal opacity that is common within company processes. Management can access the information resident in their consolidation engine, but when the level of data they are interested in is not contained in those applications (e.g. trial balance only content typically held at corporate level); the resulting management data mining tool looks a lot like an email or phone. This is a pervasive and common problem in companies today as few (read none) have all of the relevant information held within a single software application.”
Willis says that PwC is assisting companies with using XBRL to reduce the cost/time of internal and external reporting process, controls and workflows although much of this work is not public information.
Key to the process improvement, says Willis, is XBRL products that can ‘consume as well as generate XBRL. “These applications can function more like 'data browsers' and include other application features and capabilities that enhance company reporting processes,” he adds.
The software industry is also beginning to catch up with demand with niche products that are able to unify and embed XBRL deep inside the reporting cycle. Indeed, it appears that XBRL is now entering a new phase in which the technology will be driven through the organisation, streamlining processes and codifying data in a way that was previously unimaginable.