Financial Reporting in Flux
by Gerald Trites, FCA

Financial reporting has been undergoing a process of change for several years. At one time, the focus was on the financial statements, and much else that was reported was an offshoot of the statements. Accountants spent much of their time preparing these financial statements for "general use" in accordance with "generally accepted accounting principles." That still happens of course, but there has been a lot more going on as well.

Companies have been expanding the types of data they present to stakeholders. A research study published by the CICA last year identified more than 50 types of information presented by companies, of which the financial statements is only one type. The rest of it consists of major items like the MD&A and less extensive items like the President's Report.

What's more, the data is being presented much more often. Where it was originally presented annually, then quarterly, now there is a constant flow of information. The central vehicle for presenting this information has become the corporate website.

Add to this the idea that companies have been organizing their data through the use of ERP systems and integration software and you have a scenario that is going to evolve more quickly than many of us imagine.

Companies will be called upon the make available increasing quantities of their data to the public directly from their systems on a real time basis. That is the trend. companies will deny it and resist it, but it is bound to happen through the demands of stakeholders.

The implications of this are tremendous, not the least of which are issues around establishing data integrity and obtaining independent assurance. But it does mean that there will be a need for a standard with which the data can be presented and used. Filling this need is when XBRL will achieve a new level of usefulness. Indeed, that is a role in which XBRL will be able to achieve its full potential.

Why XBRL?
by Gerald Trites, FCA

There are still questions being raised by knowledgable people asking why we are getting into XBRL and what the value is of it. A vast quantity of material has been written about this topic, and yet it seems that there is still a need for more. This post is a modest attempt to explain why XBRL is not only desirable, but necessary.

Data is at the core of business activity. Everyone in or connected to business activity understands this fully. Managements spend much of their time digesting and acting on data. Investors need relevant and accurate data in order to make their decisions. Regulators need data to enable them to understand whether their charges are behaving within the ambit of the applicable rules and regulations.

Also, it is no secret that in recent years, the volume of data that these people need to cope with has expanded tremendously. Annual reports, for example, which once were a couple dozen or so pages have grown to hundreds of pages. And the Annual Reports have become only a small part of the data that is made available to investors. Notes to financial statements are becoming legendary in terms of their volume and complexity.

Investors, managements, analysts and regulators all need to try to understand all this data. They certainly have their work cut out for them.

It was this growing volume of data, combined with the effects of the Sarbanes Oxley act that prompted the SEC to require XBRL. They knew that to do a proper job of handling and analyzing all this data would require hiring large numbers of people, and they didn’t have the budget for that. Their only alternative was to find a technology solution.

XBRL was a solution because it enables data to be transferred from a source system to a destination system without human intervention. What’s more, the XBRL tags contain a lot of data about that data (metadata) which enables the receiving system to perform a lot of analysis, again, without human intervention. That leaves the humans with the ability to budget their time to spend on the most important areas, the ones that need the most attention. In addition – a real bonus, the XBRL data is formatted in accordance with internationally recognized standards, which make it easy to ensure the sending and receiving systems are compatible.

For investors and analysts, the present system involves obtaining data and inputting or importing it into spreadsheets and then trying to format it into some form that might be useful. Everyone knows that manually inputting data is inefficient and error prone. Then they need to call the company and ask questions about the numbers they have laboured on, many of which would have been answered automatically by the XBRL metadata.

With XBRL, they can save a great deal of time even with conventional spreadsheets. The software industry has been working on some tools that they can use that will be even better, although they have been slow. But they are coming. Better analyst coverage means better investment decisions, and lower cost of capital.

So why XBRL? It automates many things that are presently being done manually, but that are no longer feasible with the vast amount of data that must be handled. That’s not just something that is nice to have, it’s something that is absolutely essential.

XBRL and IFRS
A Missed Opportunity?

One of the big reasons Canadian companies say they are holding off on XBRL is because they are caught in the throes of IFRS implementation. This is understandable, since IFRS implementation for most companies is a huge undertaking. However, the reason may also be somewhat fallacious in that there can be economies in implementing both simultaneously, even though this may not be intuitively obvious.

The thing is, when implementing IFRS, companies need to dig into the IFRS standards, and understand how it affects individual items in their financial statements as compared to Canadian GAAP.

In implementing XBRL, a roadmap showing the impact of IFRS on individual items is provided through the IFRS taxonomy. All major taxonomies contain reference linkbases, that contain references to the standards underlying particular elements in the taxonomy. The reference linkbase in the IFRS taxonomy contains the name, number and date of issue for the standards relevant to each particular financial statement item.

Those who are implementing IFRS may gain valuable insight into the effects of IFRS by using the IFRS taxonomy as a helpful aid.

Of course, the Canadian GAAP taxonomies also contain reference linkbases that refer to the relevant Canadian standards. Therefore, using both the Canadian and IFRS taxonomies, there is a cross referencing roadmap available for IFRS implementation enabling reference to the Canadian standards and comparison to the IFRS standards.

XBRL Canada is in process of building a convergence tool that is soon to go into testing phase. The prototype is available on the web, and will soon contain mappings from a common point (the giffe) to both the IFRS and Canadian GAAP taxonomies, and can be used to produce preliminary instance documents in both sets of standards for comparison.

Companies that defer XBRL implementation until after IFRS implementation may be missing an opportunity to achieve some real efficiencies for both projects.

BRAG

A very interesting and well developed site has been launched by the Business Reporting Advisory Group. This is a consultancy that originated in Europe but operates around the world. It's worth a look.

Tracking Companies Filing Interactive Data with the US

The best way to track companies filing xbrl data with the SEC is by using the RSS feed they have made available. Unfortunately it only provides the last 100 filings. The inability to search for all xbrl filings is an amazing shortcoming in the SEC's new search interface called the Next Generation System. Why the SEC did not provide the ability to search out all xbrl filings is a complete mystery. They could have done it easily, just like SEDAR does. Here's a link to the RSS Feed.

There is an expectation that a number of cross-listed Canadian companies will be filing. Some are required to since they meet the first round requirements of market cap of $5 billion or more and the use of US GAAP. So far, we have noticed Tim Hortons and CN Rail.

History of XBRL

The AICPA has published a History of XBRL, which contains extensive commentary by Charles Hoffman, the inventor of XBRL. It's a good read, and informative and can be downloaded free of charge from this site.