It's time for larger and smaller businesses to consider the short term challenges and longer term benefits that extensible business reporting language could bring. By Audrey Besson Levine.
The UK is following the US lead in planning to make coding language XBRL obligatory for corporate filings by 2011. Many still question and debate the usefulness of the tool and the required learning curve might scare some. But finance functions in both larger and smaller companies should now be investigating the long term benefits of the tool for them.
Conceived in April 1998 by Charles Hoffman, XBRL, the Extensible Business Reporting Language, has been subsequently launched in several parts of the world and has even become mandatory for public company statutory fillings in countries such as the US and Japan.
From bookkeeper to business partner
Beyond regulatory compliance, the use of XBRL could prove to have a significant impact on the future of the finance function. It can enhance critical business processes from data integration to reporting, auditing and standardising data throughout the organisation. Indeed XBRL might turn out to be the tool that enables the transformation of the finance function.
In today's environment it is a challenge for most finance functions to keep up with everyday transaction work while also extracting business analytics to enable strategic recommendations. Many finance teams are in firedrill mode and fill in internal and external reporting requirements without having the time to step back and make the most of the prepared analysis.
XBRL could be the answer as its aim is not just to be regulatory compliant but to streamline the accounting workflow and to automate both internal and external reporting. It can also easily integrate disparate systems and, by a system of validation rules, standardise data across the business.
Benefits and challenges
Benefits range from increased data transparency to reduced processing costs, administrative burden and errors. If, as a result, the accounting team needs less time for data entry work and transaction processing activities they could spare extra time analysing key data and translating it into strategic actions.
Rather than being focused on historical data, more time could be allocated to forecasting. This could completely transform a finance function.
As well as standardisation, XBRL will also bring additional opportunities for analysis and benchmarking across companies if competitor information is publicly available in a standard format.
The main challenges companies will face in implementing XBRL by a deadline, include the typical reaction to change that comes with any new regulatory requirement. When Sarbanes Oxley was introduced and before companies could see the full benefits of such a measure, reactions were strongly against it. The same happened when Basel II came into place.
Businesses will have to overcome this reaction to change and demonstrate the future benefits of such a new tool. It should be looked at as a long term investment that will eventually benefit all. This does not mean that one should underestimate the efforts required to acclimatise to the XBRL language and its idiosyncrasies.
As XBRL will make it easier for investors to interpret companies' information they might challenge their statements and projections more in the future and this may add additional burden on the finance team in the short term.
The nomenclature and syntax can appear to be quite intimidating and XBRL skills are in short supply so organisations will have to invest in education. The learning curve might be steep at first but not more than it was for the implementation of SOX or Basel II.
Some of the tools for generating and using XBRL are still in development, so businesses might not have all the necessary latest information to choose the most appropriate applications.
Despite these challenges, in the long term, the tool will significantly streamline business processes and allow more time for value added tasks. Companies will have standardised information, which will be readily available for both internal and external purposes.
Increasing analysts' awareness of SMEs
XBRL can be as beneficial for small and medium sized companies as it is for larger ones. It will allow them to deliver better data control and enhance visibility for analysts and investors. There is a risk as a result that the company becomes more vulnerable to a take over but at the same time 'not being covered is the equivalent of lacking institutional reach which results in low liquidity'. Overall XBRL should help SMEs relay their story effectively and more cost efficiently.
The challenges SMEs will encounter are similar to those faced by larger companies. But they will have fewer resources to deal with them. The initial effort and investment in education required for a successful implementation might be a stretch for some.
But, by automating closing and reporting tasks, XBRL should free up time for the finance team of SMEs as well. The next issue they might face is that the skills required to handle the increase in scrutiny from analysts and investors might be different to those needed to manage transaction processing or data entry. SMEs might need to rethink the structure of their finance team and the capability of their finance professionals.
In the way that faxes, spreadsheets and email changed the way business was done, XBRL could be the next revolution in the finance function, although it might take a few years to get there. In the long term, XBRL could become a catalyst for accountants to move from bookkeepers to business partners.
Similarly XBRL might have a significant impact on SMEs in the way it gets their story to the outside world and increases investors' and analysts' awareness. Once companies overcome the initial reaction to change and climb the required learning curve they should be able to fully appreciate the long term benefits of the XBRL tool.
The UK is following the US lead in planning to make coding language XBRL obligatory for corporate filings by 2011. Many still question and debate the usefulness of the tool and the required learning curve might scare some. But finance functions in both larger and smaller companies should now be investigating the long term benefits of the tool for them.
Conceived in April 1998 by Charles Hoffman, XBRL, the Extensible Business Reporting Language, has been subsequently launched in several parts of the world and has even become mandatory for public company statutory fillings in countries such as the US and Japan.
From bookkeeper to business partner
Beyond regulatory compliance, the use of XBRL could prove to have a significant impact on the future of the finance function. It can enhance critical business processes from data integration to reporting, auditing and standardising data throughout the organisation. Indeed XBRL might turn out to be the tool that enables the transformation of the finance function.
In today's environment it is a challenge for most finance functions to keep up with everyday transaction work while also extracting business analytics to enable strategic recommendations. Many finance teams are in firedrill mode and fill in internal and external reporting requirements without having the time to step back and make the most of the prepared analysis.
XBRL could be the answer as its aim is not just to be regulatory compliant but to streamline the accounting workflow and to automate both internal and external reporting. It can also easily integrate disparate systems and, by a system of validation rules, standardise data across the business.
Benefits and challenges
Benefits range from increased data transparency to reduced processing costs, administrative burden and errors. If, as a result, the accounting team needs less time for data entry work and transaction processing activities they could spare extra time analysing key data and translating it into strategic actions.
Rather than being focused on historical data, more time could be allocated to forecasting. This could completely transform a finance function.
As well as standardisation, XBRL will also bring additional opportunities for analysis and benchmarking across companies if competitor information is publicly available in a standard format.
The main challenges companies will face in implementing XBRL by a deadline, include the typical reaction to change that comes with any new regulatory requirement. When Sarbanes Oxley was introduced and before companies could see the full benefits of such a measure, reactions were strongly against it. The same happened when Basel II came into place.
Businesses will have to overcome this reaction to change and demonstrate the future benefits of such a new tool. It should be looked at as a long term investment that will eventually benefit all. This does not mean that one should underestimate the efforts required to acclimatise to the XBRL language and its idiosyncrasies.
As XBRL will make it easier for investors to interpret companies' information they might challenge their statements and projections more in the future and this may add additional burden on the finance team in the short term.
The nomenclature and syntax can appear to be quite intimidating and XBRL skills are in short supply so organisations will have to invest in education. The learning curve might be steep at first but not more than it was for the implementation of SOX or Basel II.
Some of the tools for generating and using XBRL are still in development, so businesses might not have all the necessary latest information to choose the most appropriate applications.
Despite these challenges, in the long term, the tool will significantly streamline business processes and allow more time for value added tasks. Companies will have standardised information, which will be readily available for both internal and external purposes.
Increasing analysts' awareness of SMEs
XBRL can be as beneficial for small and medium sized companies as it is for larger ones. It will allow them to deliver better data control and enhance visibility for analysts and investors. There is a risk as a result that the company becomes more vulnerable to a take over but at the same time 'not being covered is the equivalent of lacking institutional reach which results in low liquidity'. Overall XBRL should help SMEs relay their story effectively and more cost efficiently.
The challenges SMEs will encounter are similar to those faced by larger companies. But they will have fewer resources to deal with them. The initial effort and investment in education required for a successful implementation might be a stretch for some.
But, by automating closing and reporting tasks, XBRL should free up time for the finance team of SMEs as well. The next issue they might face is that the skills required to handle the increase in scrutiny from analysts and investors might be different to those needed to manage transaction processing or data entry. SMEs might need to rethink the structure of their finance team and the capability of their finance professionals.
In the way that faxes, spreadsheets and email changed the way business was done, XBRL could be the next revolution in the finance function, although it might take a few years to get there. In the long term, XBRL could become a catalyst for accountants to move from bookkeepers to business partners.
Similarly XBRL might have a significant impact on SMEs in the way it gets their story to the outside world and increases investors' and analysts' awareness. Once companies overcome the initial reaction to change and climb the required learning curve they should be able to fully appreciate the long term benefits of the XBRL tool.
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