Tagged Economy - XBRL - Emerging Opportunity
Author: Sanjay Mehta, CEO, MAIA Intelligence
I see a range of emerging opportunity for Software and IT services companies to enhance their existing products, develop new ones or provide services around XBRL – eXtensible business reporting language.
What is XBRL?
XBRL is a language for the electronic communication of business and financial data which is revolutionizing business reporting around the world. It provides major benefits in the preparation, analysis and communication of business information. It offers cost savings, greater efficiency and improved accuracy and reliability to all those involved in supplying or using financial data. In the next 5 years, all worldwide electronic business reporting and exchange of financial information between machines, applications and people will be made using XBRL. It is set to become the standard for business reporting. The idea behind XBRL, eXtensible Business Reporting Language, is simple. Instead of treating financial information as a block of text - as in a standard internet page or a printed document - it provides an identifying tag for each individual item of data. This is computer readable. Companies can use XBRL to save costs and streamline their processes for collecting and reporting financial information. Consumers of financial data, including investors, analysts, financial institutions and regulators, can receive, find, compare and analyse data much more rapidly and efficiently if it is in XBRL format.
XBRL is NOT a proprietary technology. XBRL is freely licensed and available to the public. XBRL is XML-based and therefore is expected to be widely available in software applications.
XBRL and Business
All types of organizations can use XBRL to save costs and improve efficiency in handling business and financial information. Because XBRL is extensible and flexible, it can be adapted to a wide variety of different requirements. All participants in the financial information supply chain can benefit, whether they are preparers, transmitters or users of business data.
Data Collection and Reporting
By using XBRL, companies and other producers of financial data and business reports can automate the processes of data collection. For example, data from different company divisions with different accounting systems can be assembled quickly, cheaply and efficiently if the sources of information have been upgraded to using XBRL. Once data is gathered in XBRL, different types of reports using varying subsets of the data can be produced with minimum effort. A company finance division, for example, could quickly and reliably generate internal management reports, financial statements for publication, tax and other regulatory filings, as well as credit reports for lenders. Not only can data handling be automated, removing time-consuming, error-prone processes, but the data can be checked by software for accuracy. Small businesses can benefit alongside large ones by standardizing and simplifying their assembly and filing of information to the authorities.
Data Consumption and Analysis
Users of data which is received electronically in XBRL can automate its handling, cutting out timeconsuming and costly collation and re-entry of information. Software can also immediately validate the data, highlighting errors and gaps which can immediately be addressed. It can also help in analyzing, selecting, and processing the data for re-use. Human effort can switch to higher, more value-added aspects of analysis, review, reporting and decision-making. In this way, investment analysts can save effort, greatly simplify the selection and comparison of data, and deepen their company analysis. Lenders can save costs and speed up their dealings with borrowers. Regulators and government departments can assemble, validate and review data much more efficiently and usefully.
We really are on the threshold of a “Revolution in Corporate Reporting”, which is why I strongly feel software companies should start looking at XBRL seriously for expaning their business with new revenue lines.
An example of how XBRL can seamlessly incorporate the control system with the financial system is when a particular control is over-ridden. An approval or notification can be routed to the appropriate manager or executive. If a control activity has deficiencies that need correction or additional controls to mitigate risk, the tracking and linkage of the issue from identification through resolution can be easily reported. Companies can also tightly link policies and procedures to their control activities.
With XBRL, software developers can build tools that can be installed into a wide variety of systems, without the need to customize the interface to the company. Installation may require custom configuration based on how a company will want to deploy its internal control systems, however, that would likely be at a much lower cost. Additionally, because XBRL is an external standard that supports financial reporting based on U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), companies will have the ability to respond to rapid changes in regulatory reporting requirements.
The ability to consolidate acquisitions and integrate business systems has historically been challenging due to differences in data and account structures. XBRL has the potential to significantly reduce the time and effort required to integrate new acquisitions if both companies are using the standard. Integration would simply be a matter of consistently classifying the already tagged information. There would be little need for a large information gathering and consolidation effort that exists with acquisitions today.
A unique opportunity is available for consulting executives who want to take part in shaping XBRL. By understanding and implementing XBRL today, participants provide valuable feedback to XBRL International for building the standards, as well as to software vendors for developing products that make implementation more efficient. Today we are on the verge of a new era in financial reporting with interactive data that will make the process more efficient.
In end I would say that world will be moving towards a “Tagged Economy”
Cross posted on NASSCOM’s EMERGE blog.
Posted on January 7th, 2008 by Sanjay Mehta
Filed under: Business Intelligence, Emerging Trends
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