X-Factor Fast: Speeding Up Financial Reporting: A Quiet Revolution Is Transforming Global Financial Reporting. It Could Put New Zealand Companies and Financial Institutions Ahead of the Competition. If Ignored, However, It Could Leave Them Floundering Behind the Rest of the World. What Is It All about? (Corporate Governance)
Hucklesby, Mark, New Zealand Management
The future of global financial reporting depends on the X-factor--or how quickly New Zealand corporates adopt a new computer language called XBRL (eXtensible Business Reporting Language). It is a global digital language that will allow the worldwide financial community to exchange and reliably summarise financial information, regardless of how it is prepared.
Directors in New Zealand should now be tracking this emerging technology because of the speed, cost saving and accuracy that it can deliver to management teams working under their direction.
Why do we need the X-factor?
Before examining what XBRL is and what it does, consider recent developments here and overseas and the following statement made about how important the X-factor will become in the global economy:
"Over the last decade or so, this country's vaunted system of disclosure, financial reporting, corporate governance and accounting practices has shown serious signs of failing to keep up with the needs of today's investors, our economy, and new technology makes rapid communication not only possible but essential." Harvey Pitt, former chairman of the Securities and Exchange Commission in the US commenting on the demise of Enron.
Clearly Enron, HIH, WorldCom, and other financial reporting embarrassments have resulted in a global need for more timely and accurate financial reporting. XBRL facilitates this need.
Who's behind the X-factor?
XBRL now has the backing of 200 of some the world's biggest multinationals like JP Morgan, IBM, Reuters, Morgan Stanley and Standard & Poor's. The not-for-profit consortium, XBRL International, is focused on making XBRL a universal standard by creating awareness among societies of accountants, key businesses and governments worldwide.
Microsoft is backing XML and XBRL to the hilt with its upcoming release of Office 11. Similarly Oracle, SAP, Peoplesoft, Hyperion and many others, are committed to making XBRL-enabled products.
Why are these software giants around the world so interested in this particular technology? Because XBRL has been designed to allow data generated by their proprietary systems to be shared seamlessly between other systems and businesses, and because the web-based medium to do so is free--yes free!
Corporate deployment strategies seem no longer to be focusing on "should we have XBRL capabilities?" but rather "when should we deploying it and who should be involved?"
What makes XBRL so appealing?
XBRL's non-proprietary exchange features are not limited solely to accounting systems. XBRL allows business data of any kind to be shared between word processing packages, spreadsheets, web pages, databases and analyst interpretation tools.
Clearly companies and countries that are quick to learn and then use the language of XBRL will be key competitors in the global economy. This is one of the reasons why professional accounting institutes and standard setters worldwide (including the International Accounting Standards Board, the American Institute of Certified Public Accountants and New Zealand's Institute of Chartered Accountants) together with the "Big 4" accounting firms, and others have contributed significantly to XBRL's development and deployment over the past three years.
International Financial Reporting Standards (IFRS) are viewed by many directors as increasingly important because they are seen by many as providing a passport to accessing funds on global capital markets.
When this development is linked with XBRL--effectively a universal translator of financial information data, a whole new set of possibilities emerges. …