"It would be a mistake to see XBRL simply as an additional regulatory burden."
As SA's journey towards implementing the XBRL standard begins, it's critical that companies look beyond compliance to understand how the effort to adopt XBRL can benefit them.
Currently, 120 companies have embarked on a six-week pilot to help the Companies and Intellectual Property Commission (CIPC) develop an XBRL taxonomy for SA. If everything goes as planned, the standard will be finalised by 1 July, and companies that meet the minimum criteria as mandated by the CIPC will have to produce their annual financial statements using XBRL, beginning with the latest signed-off set of financial accounts.
Clearly, the CIPC's ostensible motive for mandating XBRL is to build efficiencies in companies in order to speed up the process of reviewing financials, improve on accuracy and build capacity for humans to focus on tasks that require insights and analytical review.
This move will also ensure SA remains aligned to global reporting trends. However, it would be a mistake to see XBRL simply as an additional regulatory burden; it has gained worldwide traction because it offers many benefits to numerous stakeholders across the whole financial sector.
What is XBRL?
XBRL, or Extensible Business Reporting Language, is a global standard for exchanging business information, based on XML (Extensible Mark-up Language) that is used to encode financial documents. iXBRL (Inline XBRL) is a development of XBRL that both humans and computers are able to read and analyse. Many countries are putting XBRL to practical use, with the number of implementations growing rapidly around the world.
At present, most companies transmit their financial information in one or other digital format; for example, PDF, which facilitates easy distribution and storage. However, anyone wanting to analyse data or to aggregate it with financial, or non-financial, data from their own or other companies, would have to transfer the data manually into their own or third-party systems. This process is laborious, technically challenging and introduces the possibility of error.
XBRL tags can be read by any XBRL-enabled software and the tagged information (financial and non-financial) extracted automatically. This means the data can be passed between computer systems, with human intervention needed only in the case of exceptions. This process reduces the cost of communicating and maintaining data, while improving its usability, integrity and compliance. In addition, if XBRL is used as the standard, data can be retransmitted without specially transforming it to other formats or languages required by further recipients.
It's all about big data
Perhaps these benefits could best be summed up under the heading of big data. XBRL for companies' financial data can be compared to an older retail technology, namely bar codes. There is so much more to be learned from viewing a bar code than just price - companies are able to discern consumer buying habits and identify products that sell well together.
XBRL tagging will create a standardised financial view of companies' financial data. Investors, regulators, revenue services and companies themselves will be able to pick up on revenue trends, plus identify gaps and strategies to exploit in the future.
As data volumes multiply, so the ability to create high quality, accurate analysis requires the data input be standardised. XBRL tagging provides a format that can be used in analytical programmes easily. XBRL enables standardised line items to be tagged, allowing the comparison of company data quickly, regardless of industry, country or even the language of the company report.
Now, imagine how a company could use this data. Firstly, it could identify financial trends in its own accounts over the years; it could also compare its own figures with those of its peers, locally and internationally. This could be of huge value in pinpointing both risks and opportunities.
In the European Union, the first wave of XBRL was implemented 15 years ago.
Currently, it is using XBRL to develop an array of cross-border applications, including the creation of the European Financial Transparency Gateway (EFTG). Using blockchain technology, the EFTG will provide a way to publicly share standardised financial information for companies across the European Union.
Another application of XBRL by the Single Resolution Board, in Europe, is to use XBRL data to identify banks at risk of defaulting, in advance.
The use of big data will enable companies to reflect a standardised view of their data, which will highlight companies whose financials are out of sync with their peers. This kind of information could help boards, investors and regulators identify potential problems early on.
Ensuring the right data is used
The move to XBRL will also have benefits in the social media age. Activists of various persuasions are starting to use social media to comment on companies' financial performances. While there is little businesses can do to control this, at least if companies apply a common data standard in the format they publish and share data externally, it will create a level of transparency, ensuring comparisons being made are using the right data, with less scope for data interpretation.
The significance of implementing XBRL in SA in 2018 is that the country could begin to lead fellow members of the Southern African Development Community on the same path of digitising financial data. This will enable African countries to apply learnings from other XBRL regions, and adopt best practices relating to taxonomies and application benefits of big data to drive better policies, build stronger companies and encourage global investment in the region.
So, when it comes to XBRL, look beyond mere compliance to see the value in the future analytical power coming from standardising financial reports across industries and within a company's own financial reporting.
At CaseWare, we provide a full range of professional services and “best of breed” software solutions to thousands of customers. Our solutions automate financial statements and assurance engagements, streamline tax management processes, enable simplified times and billing, and also takes care of secretarial duties. To find out more about how we can help you on your XBRL reporting journey, get in touch.