الخميس، 4 ديسمبر 2014

Change Report: What's Your XBRL Readiness?

Change Report: What's Your XBRL Readiness?
By Michael Ohata | Dec 1, 2008 12:00 PM
Late this year, the SEC will likely finalize a rule that will require U.S. public companies to file their financial statements in extensible business reporting language, or XBRL. Under the proposed rule, some SEC filers could be required to begin reporting their financials in XBRL early next year. Because the SEC initiative to use XBRL, or “interactive data,” focuses on technology adoption, executives might be tempted to think that preparing financial statements in XBRL entails only selecting software tools. However, conversion to the XBRL data format requires considerably more attention from finance than do most software conversions.
Finance and IT organizations should already be jointly planning for XBRL to ensure that it is integrated into their financial reporting processes in advance of the SEC's deadline for their organization. (The SEC proposal takes a phased approach in which large, accelerated filers will be required to use XBRL before smaller companies are.) Yet many companies haven't begun preparing in a meaningful way, according to the results of a recent survey conducted by BPM Magazine and sponsored by TITAN-Pinnacle. In it, 43 percent of respondents claimed to be beginners with XBRL, and 38 percent claimed to have no knowledge about the data format. Among respondents in the second category, 81 percent work in public companies and 43 percent work in companies with more than $1 billion in annual revenue. They include finance managers, finance and business systems analysts, vice presidents of finance, and project managers for performance management software implementations.
XBRL is coming, whether companies like it or not. Fortunately, even organizations that currently have a limited understanding of the technology's workings — and objectives — can become prepared by keeping in mind a few simple tips.
First, Understand What XBRL Is
An Internet-based technology standard, XBRL requires companies to label their financial and business information in a way that reflects the context of each piece of data. This makes data easier to access in large and complex organizations and easier to compare across company lines. Companies “tag” a financial statement by associating pieces of information in the financial statement (its numbers and text) with the elements in a standard “taxonomy,” which is an XBRL dictionary, of sorts. For example, U.S. companies will be using the U.S. GAAP XBRL taxonomies, which contain thousands of elements organized by industry, statement type, and disclosures. The GAAP taxonomies are available at the Web site of XBRL US (www.xbrl.us/taxonomies).
Today, most financial statement information is filed with the SEC in HTML or ASCII (text) format. This means that analysis of the data typically requires extensive re-keying of information and interpretation of the assumptions underlying — and comparability among — different pieces of data. But information coded in XBRL can be instantly and accurately exchanged between systems. Because XBRL is based on core Internet technologies, it simplifies searches across multiple financial statements and conversion of XBRL reports into other formats, such as HTML and PDF. As a result, XBRL makes it easier for investors to access companies' performance information and compare their financials.
Some respondents to the BPM Magazine survey worry about this increased visibility. One even stated vehemently that XBRL will add to the effort that his company must regularly expend to correct analysts' misunderstanding of the organization's financial data. Currently, the market's focus around XBRL has been on its benefits for those outside an organization. For companies, XBRL implementations have mostly been about complying with SEC reporting requirements. However, as businesses embrace the concept as a matter of necessity, they may want to step back and look at XBRL in the context of data standards and the optimization of their own reporting systems and processes. (See also Prepare Today for the Reporting Language of the Future in the May 2007 issue of BPM Magazine and Standardized Data: XBRL's Benefits for BPM Benchmarking in the magazine's November 2005 issue.)
Getting Started
Although CFOs and other finance executives don't need to be XBRL experts, they should understand XBRL's potential impact on their organization's financial reporting processes, including what XBRL reporting looks like and how it differs from current filings. Finance executives who continue to characterize themselves as having no knowledge of XBRL are taking an untenable position. They need to learn the basics so that they can lead — or at least provide adequate support for — their organization's change effort.
To start its move toward XBRL, a company must identify the individuals who will have responsibility for managing the XBRL preparation process. The team should include a corporate reporting representative, an accountant with external reporting knowledge, and a technologist with experience in extensible markup language (XML, the underlying Internet technology on which XBRL is based). The team can get started by reading the Preparers Guide that is available at www.xbrl.us and reviewing the U.S. GAAP XBRL taxonomies.
The next step is to develop a sustainable process with appropriate controls, so that the company can apply appropriate standards of quality assurance around the preparation of XBRL-formatted filings. More than half of the 725 respondents in a recent KPMG 404 Institute poll believe that developing a sustainable, well-integrated process will be their biggest XBRL challenge. One key consideration in developing a solid process is the presentation of information in the XBRL format. Because the proposed rule includes a requirement for concurrent filing of XBRL submissions, the new process for preparing XBRL filings will have to be integrated with the company's current financial reporting processes. Quality assurance will require an understanding of XBRL instance documents (i.e., XBRL-tagged financial statements), along with how the documents are constructed and how they differ from the HTML and ASCII versions.
Another key consideration involves decisions around when and how the company should extend the standard U.S. GAAP taxonomy, adding data tags that are unique to the organization or its industry. While XBRL is based on standards, some pieces of an organization's reporting data will not be found in the GAAP taxonomy. Both finance and IT will need to understand taxonomy extensions — custom tags that represent reporting concepts not found in the standard taxonomy — and have a set of guidelines for when and how to define these extensions. In addition, the XBRL team should look at how the company will document the mapping of a particular type of data to a specific XBRL tag, and should think about what validation entails. The validation process determines whether an XBRL document is compliant with the XBRL technical standards and whether calculations within an XBRL-based financial report are accurate. The SEC's proposed rule does not include an attestation requirement, but companies should manage XBRL filings in the same way that they manage other filings, ensuring that appropriate quality assurance is in place.
Companies also need to decide whether they will prepare their XBRL submissions internally or outsource the work to a third party. If an organization decides to prepare its XBRL submissions internally, the first step typically is selecting a commercial software package. Choosing XBRL Software, lists several factors that a company should consider as it shops for this important component of its reporting regime. Managing the software purchase process requires a baseline knowledge of XBRL and, ideally, some hands-on experience. Fortunately, coming up to speed quickly is possible.
Outsourcing can be a good option if a company is hesitant to tackle XBRL tagging itself, but even outsourced XBRL reporting requires the company to have a defined process for overall management of the preparation of its various financial reports. Organizations that choose to outsource need to look for a service provider whose offerings integrate well with their financial-report preparation process. Questions that can help determine whether a particular outsourcer is a good fit include: Will the service provider create taxonomy extensions specific to our organization? What software will the service provider be using? What type of automated validation tools does the service provider use? And how much of its service will entail manual efforts? Regardless of whether XBRL documents are prepared internally or externally, managers remain responsible for the accuracy of their company's financial data. Executives must include an appropriate amount of review throughout their XBRL report preparation process to ensure accuracy.
Moving Forward
Although the SEC's proposed rule involves a phased-in approach to implementation of XBRL, it is not too early for any public company to get started with preparations. In fact, management should not underestimate the steep learning curve that comes with any new technology; executives of businesses that file with the SEC would be well-advised to begin educating themselves and to start planning their new reporting process immediately.
When planning for implementation of the reporting format, XBRL team leaders will need to factor four major required activities into the budget and the timeline. First, the company must provide adequate time for training, process development, and quality assurance checks. Second, the organization needs to analyze how concepts in its financial statements in Forms 10-Q and 10-K align with elements in the U.S. GAAP XBRL taxonomy (i.e., it needs to sort out the data mapping). Third, the company needs to identify where it requires custom tags or data extensions to capture those elements of its financial reports that are not found in the standard GAAP taxonomy. And fourth, a company must make sure that its executives and key decision-makers understand the differences between the organization's ASCII/HTML filings and its XBRL submissions.
Adopting XBRL will require the same discipline from companies as that which surrounds their current financial reporting process. They must institute quality assurance procedures and develop controls over the new process, especially since the proposed rule requires concurrent filing of XBRL-formatted submissions along with the HTML and ASCII versions. The XBRL process is certainly manageable; companies that take the proper steps and allow adequate time to prepare should have a reasonably smooth transition.
Michael Ohata is managing director of advisory services for KPMG LLP and chairman of XBRL International. Previously, as the senior director of finance, he led Microsoft's voluntary XBRL filing project.
Choosing XBRL Software
Factors to consider in the evaluation of XBRL software include:
  • Ensuring that the tool is compatible with the latest version of the U.S. GAAP XBRL taxonomy.
  • Determining different tools' ease of use for users at all levels of experience. For example, consider whether the software's user interface is intuitive, and whether it supports simple tasks.
  • Determining how easy to use the tool's validation functions are, both in terms of identifying problems and in terms of resolving them.
  • Assessing the quality of technical support for the team that will be using the software.
  • Obtaining the training and support necessary for users to accurately tag financial statements and reliably produce XBRL submissions for the SEC.
  • Deciding which software functionality the company will need, including extension creation, instance document creation, and validation features. Will a select few software modules suffice, or does the company require an integrated solution?


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