The current financial climate is replete with news of scandals, lay-offs, earnings restatements and a myriad of initiatives engaged in the quest for cost savings and improved efficiency. Some reports even question the ability of the financial services industry and its constituents to make the quantum leap in terms of information processing necessary to remain competitive and indeed to preserve market-share.
In the face of all these issues, there is an obvious solution that is making the somewhat tortured journey from accounting industry construct to defining industry standard.
That solution is: XBRL - eXtensible Business Reporting Language.
XBRL is a business function specification standard that allows members of the financial community and their technology, business and compliance professionals to create a structured, electronic (digital) version of business information based on the use and flexibility of the eXtensible Mark-up Language (XML). This enables clients to link business and technology more closely and provides significant cost savings and faster time to market with critical business information. It allows the global business information supply chain to rapidly create, exchange and analyze financial and business reporting information across systems and platforms. Recent examples include tax and regulatory filings, shareholder and analyst communication and risk management and compliance.
XBRL is based on proven XML technology, which has been in the industry for many years. XML is a common transport language that allows disparate organisations and systems to communicate more quickly, easily and accurately. Software, middleware, and data transformation vendors are all migrating towards XML at a minimum and many vendors have gone further and included XBRL in their product offerings.
From its origins within the accounting industry, this powerful reporting standard continues to expand into other communities. It has already, in the eyes of some, ceased to be just a standard and has become a technology solution in its own right. As the number of taxonomies mapping business definitions to technical requirements expands, the range of opportunities and applications for implementation will also expand. By using XBRL data formats, users will be able to automate significant portions of their paper and labour-intensive processes.
XBRL offers the industry cost savings, competitive advantage, risk management, and all that results from increased rates of straight through processing (STP) and more accurate information flows. As illustrated below, many of today's reporting and information requirements actually result in storing data multiple times throughout the enterprise, which results in duplicative work. Rather than a number of unique point-to-point transmissions, XML and XBRL facilitate the repurposing of data making it accessible to the entire enterprise via the Internet or middleware implementations. By capturing the data in a standardised, digital format with a defined message content structure, tasks that have historically been addressed with difficulty and at great cost and significant time delays can now be tackled in near real time. As examples, we only have to contemplate the significant manual effort around filing a Fortune 100 Company's annual tax return, or the dramatic increase in transparency derived from automating regulatory filings for the securities industry, to begin to appreciate what XBRL can do for the industry at large.
BearingPoint contends that XBRL offers the promise of greater transparency, speed and efficiency for the various constituencies it addresses. By digitising critical information which historically has been processed manually, that information is now available much faster and with greater accuracy. The results are outstanding, whether it is being used for regulatory filings, borrowers' reporting requirements, shareholder reporting, or dissemination of internal data.
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Spider-web of information: Current state information flows
By using a common language such as XBRL, we can eliminate bottlenecks in the information value chain, which results in the elimination of the need to reformat, massage and/or redistribute data. The consequences of better application of human capital, superior automation, and control is significant in terms of cost savings and more importantly service quality.
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Processing benefits: Lowering the cost of financial reporting
Data efficiency and accuracy
XBRL has proven its capabilities by the success of early uses of tax and securities related corporate filings. They are but the first offerings. Shareholder information, analyst support and the ultimate linkage of information in support of elimination of middle and back office distinctions are the next frontier.
Being able to sort and select different types of information on a browser-enabled basis certainly accelerates the degree of transparency and openness in a marketplace. Speed of information access and the ability to trace and audit information are critical elements of the XBRL success story.
Study in contrast: Business with and without XBRL
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Without common interface
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With XBRL as common interface standard
It is in the areas of regulatory reporting, processing filings and other types of corporate information that XBRL excels. Many routine, albeit complex, filings can run for thousands of pages. Capturing all the details of complex filings is a Herculean task in any event. Doing it right the first time on a fully automated basis with a high degree of accessibility, granularity and accuracy is even more important. The reduction or elimination of reconcilement risk is another significant advantage.
Cost savings
One of the real high value impacts of moving to XBRL is the potential for saving money. As is well known to every member of the financial services industry, identifying opportunities for cost savings is at the top of any executive action list. How better to fulfil this than by getting information right the first time, fast and accurately, to the audience that needs it? XBRL can provide the means to achieve this goal. It is consistent with the need to eliminate paper and expedite the flow of information.
The following chart depicts several of the audiences that can benefit from XBRL messaging today.
Benefits snapshot
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XBRL Regulatory Reporting Benefits |
Stakeholders |
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Company |
Regulators |
Service providers |
Analysts |
Investors |
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Reduce reporting burden: |
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Get it right the first time |
A |
A |
A |
A |
B |
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Automate data entry |
A |
A |
A |
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Reuse data for reports internal/external |
A |
A |
A |
A |
B |
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Integrate other regulatory reports |
A |
A |
A |
A |
B |
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Improve data timeliness: |
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Publish data promptly after receipt |
B |
B |
A |
B |
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Create and deploy event driven reports |
B |
B |
A |
B |
B |
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Improve data accuracy: |
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Validate prior to submissions |
B |
B |
A |
B |
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Unique set edits per set of companies |
B |
B |
A |
B |
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More accurate and less burden: |
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Provide consistent validation edits |
A |
B |
A |
B |
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Simplify programming effort: |
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Integrated and structured - forms, edits |
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A |
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Instructions, test/edit data, and code |
A |
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A |
A |
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Improve flexibility: |
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Easier updates reporting requirements |
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B |
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B |
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A = Reduced cost, B = Improved Decision Making
XBRL stakeholder advantages
When coupled with high performance enterprise automation and data transformation technologies, there are significant savings to be derived, specifically in terms of regulatory reporting, risk management and compliance. The savings in automating what have previously been highly manual tasks is extraordinary. Not only do the costs clustered around historic manual efforts with their attendant risks, errors, and endless rework and resubmission drop to the bottom line, but these savings also pay extra dividends in terms of quality and improved service levels.
By increasing rates of STP within an enterprise, higher degrees of productivity can be attained. Indeed, some preliminary evidence indicates that by properly aligning the investment in processing with the investment in analysis, organisations can increase their knowledge and risk management capability by ten fold. It is not just velocity of information but accuracy that is the unique dividend returned to an organisation derived by avoiding errors and duplication. Getting it right the first time, to the right audience is at the heart of self-service empowerment which has been proven time and again in various aspects of employee self-service in Human Resources (HR) and Procurement processing.
Over the next few years as the taxonomies around XBRL expand, we expect a new range of savings to be manifested and harnessed by the financial services industry. These will translate into how tactically nimble organisations work to respond to change and how they exploit knowledge capital in terms of better risk management and superior compliance and communication capabilities.
Emerging market utilisation
Emerging markets and their paper intensive processes are likely to be the stand-out winners with XBRL. They can eclipse more mature, less innovative markets, out-distance other providers and secure competitive advantages. In marketplaces of less maturity and proven regulatory infrastructure, moving to XBRL can provide the added security of speed of data and improved analytics that can mean more capital inflows and greater interconnectivity with other markets. In many ways, this is the equivalent of moving from fixed wire to wireless mobile telecommunications technology.
By providing the transparency that institutional investors demand, emerging markets can rapidly increase the volume and velocity of capital inflows. By being able to require marketplace participants to aim for a higher standard, emerging markets can move rapidly ahead of more mature markets that are also mired in paper-based processes. Equally important, since digital communication is faster and cheaper than the historic process, emerging markets benefit from the related cost savings.
What is next?
The next step in XBRL development and usage is to take what has been the province of the accounting industry and continue to accelerate the movement into technology. In order to more completely satisfy their business reporting needs, organisations need to participate in XBRL working groups to help drive development and adoption in their communities. As the demand for XBRL increases, more and more middleware and enterprise solution vendors will step up to the plate to include XBRL adapters and solutions as a part of their offerings.
Conclusion
XBRL continues to be an island in the stream in terms of current investment by members of the financial community. It is often one of a handful of initiatives that continues to receive funding in an environment typified by cutbacks and retrenchment. Increasingly, leading firms, mature markets and emerging markets are taking advantage of the productivity and cost savings that XBRL can help secure.
BearingPoint has been active in the XBRL initiative since its inception. Our professionals are involved in regional XBRL working groups worldwide. Equally important, we have made the jump to using XBRL as an integrated technology solution. As a leading integrator in this space, BearingPoint looks forward to leveraging its work in XBRL with our vendor partners to help further empower clients and create additional value.
