Deloitte Consulting: A Universal Reporting Language - Dave van den Ende and Wim Scheper




XBRL has implications far beyond the IT department, Dave van den Ende and Wim Scheper of Deloitte Consulting tell Jim Banks. It is helping organisations to increase transparency, streamline the reporting process and, ultimately, improve their management of business information.

Extensible business reporting language (XBRL) is rapidly becoming a popular phrase in the financial lexicon. Tried and tested as the platform for more efficient reporting, it is enabling many organisations to lessen the burden of preparing, analysing and communicating their business information.

In essence, XBRL is an electronic language that supports different taxonomies to allow organisations to gather and prepare their data in a more accurate, reliable and streamlined way. It increases transparency in key value chains across industries and with a well-defined XBRL taxonomy there is a much lower need for explanation and clarification during the official reporting process.

Furthermore, XBRL enables organisations to rationalise the data stack that they have accumulated and focus more closely on the data that is meaningful and relevant to the reporting process. In the majority of cases the result is that an organisation need only report a much smaller, yet more relevant data set.

Consequently, the administrative burden of the reporting process is reduced and it becomes quicker and easier to create and file reports. The various data dictionaries and the taxonomies that define the data tags can also be directly linked to a company’s reporting system.

'Different taxonomies can be tailored to particular industry sectors, or can accommodate company-specific requirements. Once XBRL is set up, reporting can be done at the push of a button,' says Dave van den Ende, director at Deloitte Consulting.

'Standardisation moves the focus to the real value add of the data being reported, instead of the cumbersome process of handling, converting, interpreting and publishing,' he adds.

The benefits of XBRL have been well demonstrated in the Netherlands, which has been a frontrunner in its implementation. The Dutch Government adopted XBRL three years ago, introducing a taxonomy enabling small companies to file most reports with the Tax Office, the Chamber of Commerce and the Bureau of Statistics.

XBRL's successful implementation by large public organisations such as the Water Board is encouraging other businesses to follow suit.

'After the Netherlands Water Board moved to XBRL there was a 25% increase in the efficiency of its reporting process, and we see similar figures in other industries. In Australia, a pilot project for one company has seen efficiency gains of up to 70%,' notes Deloitte Consulting partner Wim Scheper, a professor at Utrecht University.

So convincing has XBRL been as an enabler of more robust and less erroneous business reporting, particularly as it has evolved to encompass different accounting standards like IFRS and US GAAP, that it has been mandated by the US Securities and Exchange Commission (SEC).

A surge of regulatory support

The SEC have a programme of XBRL compliance that commences in June 2009 for the largest US and non-US accelerated filers (reporting under US GAAP with a $5 billion public float). The mandate will extend to all US filers (reporting both in US GAAP and IFRS) by 2011.

'As of this quarter, 500 of the largest companies in the US, indeed the world, must use XBRL (or what the SEC call 'interactive data') because of the transparency it brings,' notes Scheper.

'The mandate is about financial reports for the governing body, so it may seem as though there is not much added value for a company. But many are using it for the consolidation of financial reports of organisations across many locations. That is what the frontrunners are looking at,' he adds.

For CFOs in Europe, particularly in dual-listed companies, the SEC mandate has a number of implications. Firstly, they face a choice of whether to outsource the preparation of their XBRL financials, or develop that capability in-house. In either case the company will be responsible for their accuracy.

Secondly, CFOs should recognise the strong currents in regulation that will drive more organisations towards XBRL.

'Following the credit crisis, a more coherent approach to regulation will be adopted across the EU and a better co-ordinated approach to the supervision of large cross-border groups will be taken. Existing differences in national legislation will be removed and far fewer national exemptions will be allowed in future. There will be more regulatory oversight, greater focus on risk management and the use of models, a need for more and better stress testing and enhanced reporting requirements,' observes van den Ende.

The European Commission is proposing a new European financial supervision framework based on recommendations in the de Larosière report. Two new structures are proposed: the European Systemic Risk Council, aimed at macro-prudential supervision, and the European System of Financial Supervisors, aimed at micro-prudential supervision.

Furthermore, three currently purely advisory committees would become legal entities with specific and extensive powers, and the bodies that make up the European Supervisory Authorities would be working to develop binding technical standards.

'Our view is that XBRL is a serious candidate to enable this process by defining clear and distinctive taxonomies for consistent and transparent information exchange,' adds van den Ende.

The future unfolds

Not only is XBRL attracting interest because of the SEC mandate in the US and its successful application to large organisations in countries like the Netherlands, but also through the development of new taxonomies that could make XBRL an indispensable tool for organisations of all kinds, regardless of size or industry sector.

For instance, XBRL Global Ledger (GL) is a developing taxonomy thatdelivers data for use in transactions as well as consolidated data for reporting.

While it has not yet been implemented in Europe, it is garnering great interest among corporates because of the online transparency of the organisation's administration that it delivers.

XBRL GL essentially enables continuous disclosure reporting directly linked to transaction systems. Once again, this opens up the opportunity to reduce reporting costs and simultaneously improve governance, especially for mature companies operating in a networked environment.

'GL is not competing with other transactional data standards, but is a bridge between transactional systems that enables continuous reporting. Companies need to disclose more regularly and focus on the quality of their data. GL is a good standard for that. It links reporting to transactions, so there is continuous disclosure, which brings down reporting costs,’ says van den Ende.

Banks are also fuelling innovation in XBRL taxonomies. In the Netherlands, for instance, a banking taxonomy has evolved that covers the credit information that banks request when making loans. Some major commercial banks are currently exploring ways to improve their corporate lending processes using this taxonomy.

'What started as the government trying to reduce the administrative burden, especially for SMEs, is now seen as banks taking the lead. They are developing new applications related to transparency to get a better view of the companies they lend to, they are experimenting with online lending facilities using XBRL,' notes Scheper.

'XBRL is an enabler for discussion along the value chain to define data requirements. There are clear taxonomies that can be understood by all stakeholders in the reporting chain, so there is an opportunity to rationalise the data stack to find a meaningfuland relevant reporting set and reduce the amount of reported data,’ adds van den Ende.

CFOs that are new to XBRL should not hesitate to engage with it. XBRL is here to stay, and there is no time like the present to begin exploring how it will affect compliance issues around the reporting process and how it can be used to improve the management of business information across an organisation and its partners in the value chain.

'There needs to be work on taxonomies, and greater understanding of what they mean. People need to know how it will be different when using XBRL, so they know how to accommodate it. But Oracle and SAP have now announced XBRL filing capability in their ERP systems, and Swift has joined XBRL in the US, so we will see many more real-life applications,' says Scheper.

Every CFO should know what XBRL is, not only in terms of its effect on reporting compliance, but also on internal and external reporting along the supply chain.

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