Great article from the Chartered Financial Analyst (CFA Institute) on the benefits of using structured data (like XBRL) to make disclosed information by companies to regulators and to the capital markets machine-readable for instant analysis and how structured data can be used inside an organization as well to review critical data driving the accounting and auditing functions.
Their key observations from the CFA Institute include:
- Bringing structured data initiatives in-house instead of using outside vendors to prepare their regulatory filings
- Implementing Inline XBRL (iXBRL) — a form of XBRL that is both human and machine readable
- Curtailing the use of company-specific tags or “extensions” for disclosure of external financial information for better use by the investment community
The CFA Institute has more than 120,000 members in 140 countries and they support the build-out of XBRL around the world for both financial and non-financial information because it is in a machine-readable format that can be accessed by analytical tools that supports transparency and accountability.
Wall Street & Banks Significantly Reducing Equity Research
With MiFID II going into compliance around the world – Wall Street and US Banks are making significant cuts in equity research according to Reuters. Much of the data analytics the equity research conducts must be extracted from reports manually and entered into spreadsheets for analysis. Having structured data in a machine-readable format for immediate extraction and analysis into business models can automate many of the functions being cut by efforts related to MiFID II. In addition – many of these key data elements are entering into the public domain for direct investor analysis.
The US SEC has created a Website investors can use directly that not only includes financial statement data but also detailed information related to footnotes from public companies. Detail in footnotes contains far much more information important to the capital markets than in some cases financial statement info.
Public Companies Increasing Disclosing Non-Financial Data to the Capital Markets
Now as companies around the world begin to disclose non-financial information such as environmental, social, governance, diversity, inclusion data to the capital markets beyond just financial data to attract capital it will become increasing important for companies and organizations (like non-profits) to also include this information in a machine-readable format so Wall Street and other interested stakeholders can consume this information in a better, faster, cheaper method.
Some companies are beginning to post non-financial data on their Website for various stakeholders to create their own reports to meet their interests and by doing so demonstrate both their transparency and accountability to the capital markets and public they serve building greater loyalty and brand support.
Reporting data standards like XBRL allow companies to disclose information that is also linked to reference information such as accounting standards/definitions, currencies and languages to transact with global audiences. For example, XBRL allows a user to translate information disclosed from dollars to the Euro or English to Spanish language, and map certain data elements from US GAAP to IFRS accounting standards with the click of the keyboard.
Examples of companies creating these interactive business reports on their websites that stakeholder can create include Eni.com.
Using interactive corporate reporting websites allow a company to present “one report” and allow individual stakeholders to create multiple reports based on the information they require which can also include sustainability information or non-financial information. Data tagging this information and disclosing using structured data like XBRL helps stakeholders sort through stacks of PDF disclosed information and obtain the specific information they need within a report instead of using human to locate and find and extract. It also helps companies from not having to create hundreds of hand-tinkered individual reports and consequently reduce regulatory or stakeholder communication burden. Companies in multiple supply chains are using XBRL reports to produce one report that can also be shared with supply chain partners.
For sustainability reporting by public companies around the world this is a main pain-point – having to create hundreds of reports to interested stakeholders from a common set of data elelments:
“If you consider that there are currently at least 249 different products that rate, rank or index these companies, it is not difficult to imagine that this becomes burdensome. If 60% of those contact companies directly, this translates to 149 questionnaires and often opaque methods of assessment. Companies need a staff member who is at least half-time to full-time to respond to the many requests that come in. This is on top of the work they already put into their sustainability reporting, answering ESG-related investor enquiries and applications for ESG awards. BOARD AGENDA
Creating one standard ESG report that a regulators and stakeholders can use to create their own reports using structured data like XBRL can reduce reporting burden and confusion.
Two presentations have been created related to this concept for Environmental, social and governance (ESG) reporting using XBRL:
Japanese XBRL based ESG Reporting Project
http://archive.xbrl.org/25th/sites/25thconference.xbrl.org/files/NONF4DaisukeIkadai.pdf
Development of Standard Business Reporting and the use of Structured Data (XBRL) to Automate Reporting Functions & Communicate Better to Stakeholders:
Standard Business Reporting using XBRL can help a company report to multiple regulators and stakeholders using one report that can help reduce regulatory reporting burdens and improve communication and assurance. This white paper from the Data Coalition and PwC explains very clearly this concept. Legislation has been introduced in the US Congress (Financial Transparency Act) to actually move in this direction for US financial institutions reporting to eight regulators using a Standard Business Report to be shared across them. This same principle can be extended for ESG reporting by organizations to external stakeholders by reporting data is in a structured format that various stakeholders can extract and use for instant analysis using structured data (XBRL) in one report.
Taking this further – companies will ultimately report both financial and non-financial information in “One Report” using structured data so that both financial and non-financial data can be compared in what is called: “Integrated Reporting.”
Growth of Digital Reporting Assurance and New Business Areas for the Accountant/Auditor:
Assuring these individual data elements via the accounting profession like they do for paper reports could also be an opportunity in helping increase stakeholder confidence in the information that is reported to stakeholders. Right now – the accounting/audit profession needs to create standards/best practices in this area as more and more organizations move to digital reporting to specific data KPIs that are extracted from reports and utilized in new reports. This could open-up a huge opportunity to both internal and external accountants preparing and consuming data driving capital market investment and creating jobs in new industries relying on both the financial and non-financial reporting information produced by companies.
Underpinning all this development is the trend of organizations disclosing structured data (like XBRL) so that vast amounts of data disclosed can be in a machine-readable format linked to important financial and non-financial definitions or references that follow the data elements that allow for smarter analysis. Paper is going away and accounting and auditing profession must evolve.
Can the profession move forward into the age of digital reporting?
The question is – can the accounting profession adapt and evolve into the world of digital reporting? The public has given the profession the opportunity to move into this space and transition -especially as blockchain, distributed ledgers and smart contracts come into being and used extensively by the capital markets for reporting purposes. Or will other players move into the digital assurance space?
Stay tuned and please join the IMA’s Technology Solutions & Practices Committee to get involved in XBRL, digital reporting, integrated reporting, Big Data, data analytics, and data assurance efforts to support the management accountant…