CFO Briefing Provides Practical Tips for XBRL Implementation
As you may recall, we blogged about a NIRI session we attended “Understanding IR Strategies Behind XBRL – IROs Evolving Role”. In this post we provided a broad overview of why XBRL is relevant to IROs and the requirements for adoption, a broad definition and the implications of using it to help improve processes.
Recently a report was published by The Canadian Institute of Chartered Accountants (CICA) targeted to CFO’s entitled “Transition to XBRL”. In spite of this being issued in Canada, the report provides a balanced review of what is required for U.S. companies and foreign private issuers under the SEC’s implementation schedule for XBRL as well as highlighting significant developments in the implementation of XBRL as it pertains to Canadian preparers.
It also explores the benefits and downfalls of implementation and offers some practical tips that are applicable and easily adaptable to issuers in both the U.S. and Canada. I do recommend that you read the report in its entirety and keep it handy for reference, but wanted to provide some of its highlights.
CURRENT STATE of XBRL in the U.S. and CANADA
In January 2009, the SEC introduced a phased mandate for filing in XBRL starting with the largest companies in 2009 and then extending to all sizes of companies by the end of 2011, which means at that time, all SEC filers, including some 451 Canadian companies listed on U.S. exchanges will have implemented XBRL. This three-year phase-in will impact ten percent of Canada’s public companies.
The rules require companies to provide their financial statements on their corporate websites in an interactive data format using XBRL at the same time their financial statements are submitted to the SEC.
BENEFITS OF XBRL
- Universal language for business reporting
a. Serves as a data channel for information across all languages and accounting standards.
b. XBRL is compatible with off the shelf-software and investment models for comparative and analytical uses by investors, analysts and journalists.
c. XBRL data can be converted into various formats, including spreadsheet, database and HTML files. - Adaptable to other applications
a. Crosses over into other financial statement reporting including earnings press releases, corporate tax filings, and the disclosure of non-financial data such as oil reserves.
b. The technology also offers tremendous potential in terms of internal business reporting, and will allow full integration of reporting systems which will enable management to more readily reuse tagged data and, thereby, achieve greater efficiency. - Multi-stakeholder appeal
a. Will save data collectors such as analysts, stock exchanges and regulators a lot of time and resources needed to punch in the data and convert it for their needs.
b. The errors associated with rekeying the data will be eliminated as third-party intermediaries will not be enlisted to transfer the data – this will also reduce the lag time between the reporting and use of data.
c. Potential to streamline preparers’ data collection and reporting processes by uniting legacy systems.
There is one additional point under #3 that I found very interesting and one I hadn’t thought of before……“The elimination of tedious data entry and conversion steps will allow analysts to compare a broader range of industry participants in less time. Expanded peer analyses could be positive news for small companies, which often go overlooked in such comparisons. This reasoning holds true beyond our national borders; as XBRL continues to gain acceptance in global jurisdictions, Canadian companies, large and small, could achieve greater international exposure”.
In providing a fair and unbiased review of XBRL, the report also outlined some of the drawbacks of XBRL.
IMPLEMENTATION HURDLES
- Associated Costs – there will be a financial and human capital cost to implementation and most Canadian companies that file in the U.S. will face the dual task of adopting XBRL and IFRS in 2011.
- Potential for error – the tagging process involves inherent judgement to the extent that preparers must decide which taxonomy elements should be mapped to particular financial statement items.
- Customized Tags – preparers may rely on self-defined extensions to capture the unique aspects of their business. This may undermine the reliability and comparability as many believe that extensions are acceptable only when they are applied consistently across industries.
- Misrepresentation – some feel that customization could allow companies to paint a rosier picture of financial performance. In addition, some feel that this will also allow analysts to influence how a company is perceived as XBRL will simplify the practice of extracting specific information such as single lines from the financial statements.
- Real-time Disclosure – some feel that because the data will be reported in virtually real-time, it will emphasize short-term performance at the expense of long-term planning. For example, one unfavourable month might start a sell-off by investors.
The report then provides practical tips for planning and implementing an XBRL strategy:
PLANNING STAGE
- Evaluate the range of available options within the context of the company and its operations.
- Consider how the potential pitfalls examined in this briefing can be minimized or avoided.
- Integrate XBRL into IFRS conversion strategy.
- Involve the accounting, finance, and IT departments.
- Weigh long-term costs and benefits of self-tagging versus outsourcing.
- Encourage consistent use of extensions among industry participants. Support industry associations in the development of standardized tagging methodologies, which can then be incorporated into the IFRS taxonomy through the joint project of XBRL Canada and the IASB Foundation.
IMPLEMENTATION STAGE
- Consider voluntary filing in XBRL.
- Simplify first-time tagging with a less complex filing such as a quarterly filing.
- Address outstanding questions with software vendor or outsourcing partners.
- Thoroughly review the tagged document prior to filing.
- Be prepared to receive questions and provide explanations much sooner.
I like the practical tips provided in this report – from an IRO perspective it should be viewed the same way as integrating any new tool into your IR program. Which means you should:
- Be educated and well versed in the pros and cons so you can have an intelligent conversation with the executive team.
- Assess how it will fit in with the company’s current environment including talking with other departments who will be affected by its implementation such as accounting, finance and IT.
- Talk to outside vendors and get the complete picture of the cost and time associated with either outsourcing or taking it internally.
- Test it out for yourself – as time goes by quickly and before you know it, it will be mandatory for for all U.S. issuers by the end of 2011 and in Canada it is likely to become mandatory after Canada transitions to International Financial Reporting Standards (IFRS) also in 2011.
Related posts:
- XBRL mandate is coming
- Canadian securities regulators launch XBRL voluntary filing program
- SEC goes ahead with mandating XBRL
- CSA Launches XBRL Voluntary Filing Program
- NIRI ’09 Session: Understanding IR Strategies Behind XBRL – IROs Evolving Role
Related posts brought to you by Yet Another Related Posts Plugin.
