The Institute of Chartered Accountants of Nigeria (ICAN)

EMCPE 2014

DEPLOYING XBRL FOR ENHANCED FINANCIAL REPORTING

Akintola OwolabiLagos Business SchoolPan-Atlantic University

Lagosaowolabi@lbs.edu.ng

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DEPLOYING XBRL FOR ENHANCED FINANCIAL REPORTING

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Objectives

• At the end of this seminar, participants should be able to:

• Discuss the nature and role of XBRL in Financial Reporting

• Highlight the Role of XBRL in Web Based and Regulatory

Reporting

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Content

• The Nature, Mechanisms, Uses and Benefits of

XBRLs• Framework for National Deployment of IFRS• Challenges in XBRL Adoption in Nigeria• XBRL and Accountants: Opportunities and

Implications• Recommendations

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THE NATURE, MECHANISMS, USES

AND BENEFITS OF XBRLS

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Introduction

• For company management, it is critical to be able to quickly – spot problems and opportunities– to know what is going on in the company and

to know it in time to make a difference• Getting the right information in a timely and

consolidated way is often difficult, as data typically is stored in many different places throughout the organization

• This is where XBRL comes in. 6

Introduction

• Extensible Business Reporting Language, or XBRL, is an Internet language for the corporate reporting supply chain

• For accountants, business information is business.

• XBRL was developed by the accounting industry, and it is the language of accounting business.

• That's why every accountant needs to understand what it is and what it does for him and his clients

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Introduction

• It is not enough for an accountant to be aware of XBRL – he must understand how to use it. It's an all-

or-nothing proposition: • The rewards for accountants who are ready to

operate in an XBRL-enabled world will be – continued competitiveness and expanded

service capabilities• The penalty for not adapting will be

obsolescence.8

The Nature of XBRLs

• XBRL (eXtensible Business Reporting Language) is a freely available and global standard for exchanging business information

• The language is XML-based and uses the XML syntax and related XML technologies such as XML Schema, XLink, XPath, and Namespaces.

• One use of XBRL is to define and exchange financial information, such as a financial statement.

• The XBRL Specification is developed and published by XBRL International, Inc

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The Nature of XBRLs

• XBRL is a standards-based way to communicate and exchange business information between business systems.

• These communications are defined by metadata set out in taxonomies, which capture the definition of individual reporting concepts as well as the relationships between concepts and other semantic meaning.

• Information being communicated or exchanged is provided within an XBRL instance.

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The Nature of XBRLs

• Early users of XBRL included regulators such as the – U.S. Federal Deposit Insurance Corporation and – the Committee of European Banking Supervisors

(CEBS). • Common functions in many countries that make use of

XBRL include – regulators of stock exchanges and securities, – banking regulators, – business registrars, – revenue reporting and tax-filing agencies, and – national statistical agencies.

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The Nature of XBRLs

• For vendors in the financial reporting chain that serve as intermediaries between the regulatory bodies and listed companies—such as – filing companies and – accounting firms

• the current XBRL momentum provides a significant market opportunity.

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The Mechanisms of XBRLs

• XBRL’s impact on financial reporting and data exchange has been compared to the impact of barcodes on merchandising.

• Like the barcode, XBRL is a system for coding and decoding information. Instead of treating financial information as a block of text – as in a standard Internet page or a printed document – XBRL provides an identifying tag for each individual item of data and permits automatic checking of information.

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The Mechanisms of XBRLs

• The introduction of XBRL tags enable automated processing of business information by computer software, allowing the data to be treated “intelligently”.

• This greatly – increases the speed of handling financial

data, – reduces the chance of error and – permits automatic checking of information.

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The Mechanisms of XBRLs

• CFOs, CEOs, Audit Committees, and Boards of Directors should consider the following in an effort to understand the impact of XBRL on their company: – Assess how the organization is currently exposed to

their Country and global initiatives to adopt XBRL for regulatory and external reporting purposes

– Develop an implementation roadmap to be compliant with SEC and international XBRL reporting mandates

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The Mechanisms of XBRLs

– Evaluate the potential benefit of deploying XBRL beyond the requirements of regulatory mandates.

• The requirements of XBRL regulatory mandates will likely be limited to external reporting.

• While limiting implementation only to external reporting will likely carry the lowest direct cost to the company, it will limit the benefits of moving to XBRL

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The Mechanisms of XBRLs

• Key questions to consider:• Does the organization currently have multiple

GAAP or statutory reporting requirements? • Does the use of disparate accounting

systems and reporting platforms drive challenges in consolidation and other internal reporting processes?

• How frequently do acquisitions, divestitures, or other business events drive a need for extensive reporting and systems integration efforts?

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The Mechanisms of XBRLs

• Companies must ask themselves: Can we afford not to investigate the power of XBRL?

• Accountants spend too much time moving data from one financial reporting spreadsheet to another, leaving less time for analyzing information to enhance reporting integrity and improve management’s decision making.

• XBRL can reduce time spent manually finding and preparing information and improve data quality through fully automated information exchanges among disparate software applications

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The Mechanisms of XBRLs

• CAs can support the widespread adoption of XBRL, by working to – Understand XBRL. Accountants should expand their

knowledge of XBRL and other information and Internet standards that improve reporting processes.

– Make XBRL tools more accessible. CAs should encourage software vendors to embed XBRL capabilities as standard features in their products.

– Move XBRL into the supply chain. CAs must understand the extent of human intervention in the data access, validation and analysis aspects of their clients’ and companies’ reporting processes so they can make informed recommendations on deploying XBRL in accounting software and information processing systems.

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The Mechanisms of XBRLs

• Ask the following questions to assess your organization’s dependence on manual steps in reporting processes: – How many spreadsheets are involved in company

reporting processes? – How are changes in those spreadsheets managed?– How many staff members are involved in producing

company reports? – Do reports and analyses appear with sufficient

frequency and contain adequate data? – Are there sufficient controls over current manual data

transfer processes?

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Uses and Benefits of XBRLs

• What XBRL is used for– XBRL, at least at first, will be used to digitally

publish financial statements of companies that are issued to external users.

– An XBRL-based financial statement is a digitally enhanced version of paper-based financial statements, which include the balance sheet, income statement, statement of equity, statement of cash flows, and the notes to the financial statements as well as the accountant’s report.

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Uses and Benefits of XBRLs

• Potential XBRL applications:– XBRL for Accounting and Business Reports -

management and accounting reporting such as all the reports that are created by your accounting system rendered in XML to make re-using them possible

– XBRL for Authoritative Literature - a standard way for describing accounting related authoritative literature published by the AICPA, FASB, ASB, and others to make using these resources easier, "drill downs" into literature from financials possible

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Uses and Benefits of XBRLs

• Potential XBRL applications:– XBRL for Financial Statements - financial

statements of all sorts used to exchange financial information

– XBRL for Taxes -specification for tax returns which are filed and information exchanged for items which end up on tax returns

– XBRL for Regulatory Filings – specifications for the large number of filings required by government and regulatory bodies

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Uses and Benefits of XBRLs

• The benefits of XBRL for Financial Statements– XBRL solves two significant problems through efficient

preparation of financial statements in many forms and reliable extraction of specific detailed information from the different forms of financial statements.

• The first problem is that preparing a financial statement for printing, for a Web site, and for filing today means that a company could typically enter information three times.

• The second problem is that today, extracting specified detailed information from a financial statement, even an electronic financial statement like an EDGAR filing, is a manual process.

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Uses and Benefits of XBRLs

• Those who benefit from using XBRL? – The following is a list of various participants in

the financial information supply chain: • Companies who prepare financial

statements • Analysts, Investors, and Regulators• Financial publishers and data aggregators• Independent Software Vendors

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FRAMEWORK FOR NATIONAL

DEPLOYMENT OF XBRL and IFRS

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Framework

• The XBRL story will not end with regulatory financial reporting.

• As the trend toward common information standards continues to take hold, adoption of XBRL by companies will be driven by

• growing demand in the capital markets for data, and

• by companies discovering XBRL’s utility and value in more efficient and effective management of their businesses

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Framework- USA Experience

• The United States Securities and Exchange Commission (SEC)– adopted a final rule, “Interactive Data to Improve

Financial Reporting”, to mandate the use of XBRL by U.S. registrants.

– The SEC also adopted a final rule that requires mutual funds to provide risk/return summary information in XBRL format beginning in January 2011.

– In addition, the SEChas drawn links between its XBRL and IFRS initiatives, noting XBRL as an enabler on the path toward convergence of global reporting standards. 28

Framework- IASB/IFRS Experience

• The International Accounting Standards Board (IASB) released – an expanded IFRS XBRL Taxonomy in June

2008 to support the broad adoption of XBRL for IFRS-based reporting.

– This taxonomy has been leveraged as the basis for other XBRL reporting taxonomies.

– The IFRS Taxonomy has been updated in 2009 to reflect recent changes and developments in IFRS standards.

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Framework- Japanese Experience

• The Japanese Financial Service Agency (JFSA) has mandated the use of XBRL for electronic filing of financial statements.

• The mandate affected all listed domestic companies and investment funds in Japan beginning with reports for the first fiscal quarter ended June 2008

• The SEC, IASB, and JFSA have established a program to align their XBRL initiatives and taxonomy development efforts going forward.

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Framework- Australia ans Netherlands Experience

• High profile projects such as Australia’s Standard Business Reporting (SBR) project and

• the Netherlands National Taxonomy Project (NTP) are being viewed by other countries as a template for the use of XBRL for improving efficiency and reducing costs borne by companies and governments associated with financial reporting.

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Framework- Others

• Exchanges, regulators, and government agencies in other countries have pilots or mandates in place for the use of XBRL in public company filings.

• These include, among others, Canada, Korea, the United Kingdom, and China.

• The bottom line: XBRL adoption will continue to accelerate. • As adoption increases, data that is more easily

consumable becomes more widely available. • As a result, greater transparency will likely be required in

order for companies to stay competitive in the global marketplace as well as to manage their businesses effectively.

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CHALLENGES IN XBRL ADOPTION IN

NIGERIA

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Challenges

• The challenges confronting the adoption of XBRL in Nigeria could be viewed from technical, funding, infrastructure, institutional and ethical perspectives– From the technical perspective, there is the

dearth of accountants that are prepared to expand their knowledge. • To understand XBRL accountants should

expand their knowledge of XBRL and other information and Internet standards that improve reporting processes.

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Challenges

• Challenges– Making XBRL tools more accessible require

funding. CPAs should encourage software vendors to embed XBRL capabilities as standard features in their products.

– The broadband width required at the National level to accommodate this internet-enabled resource poses infrastructural challenge not to mention constant power supply that is not guaranteed.

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Challenges

• Challenges – Moving XBRL into the supply chain poses an ethical challenge to

the accountant. Accountants must understand the extent of human intervention in the data access, validation and analysis aspects of their clients’ and companies’ reporting processes so they can make informed recommendations on deploying XBRL in accounting software and information processing systems.

– Much of the power of the XBRL standard comes from the ability to publish reporting requirements in a standard format, known as a taxonomy. Taxonomies allow the publication of reporting requirements in a manner that can be consumed by compliant software. That software, in turn, can use those requirements to, for example, produce reports (instance documents) which meet the stated requirements

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XBRL AND THE ACCOUNTANTS:

OPPORTUNITIES AND IMPLICATIONS

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Opportunities

• With industry leaders in nearly every sector beginning to deploy XBRL, and with nearly every software company embedding XBRL capabilities in its software, clients who are not yet aware of this technology soon will be.

• That's why it's not enough for CAs to be aware of XBRL - they must understand how to use it. It's an all-or-nothing proposition.

• The rewards for accountants who are ready to operate in an XBRL-enabled world will be continued competitiveness and expanded service capabilities; the penalty for not adapting will be obsolescence

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Opportunities

• Why is ICAN involved in XBRL?• In addition, all businesses, large and small, are undergoing

fundamental change. • ICAN like its counterpart, AICPA in the United States, see

the CA as the person who can help businesses change to fit into this new digital world.

• CAs have been the creators and managers of the accounting language or the underlying language of business.

• We view this as a natural next step in the clarification and development of this fundamental business language.

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Opportunities

• CPAs/CAs have been changing over the past years, and we expect to see more change.

• Additionally, it is the core purpose of the Institute to enhance the access and breadth of financial information available to the investing public.

• The vision is for CPAs/CAs to be the “Premier Knowledge Professionals” and to help companies understand and take advantage of technologies like XML and the Internet.

• We believe that CPAs/CAs are the premier knowledge professionals who leverage electronic business and information to solve business issues and capitalize on opportunities.

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Opportunities

• Leveraging the Internet XBRL's capabilities dramatically alter the way information is exchanged on the Internet. To get an idea of how different XBRL-enabled information is from current Internet information, ask yourself these questions:  

• How do you use the information your audit clients provide today? – Can you automatically download it into your applications

such that it's immediately summarized and analyzed? • How do other stakeholders use the information your audit

clients provide today? – Are they manually tinkering with it, cutting and pasting it

into worksheets for analysis?

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Opportunities

• How does your own staff gather and disseminate client information for analysis within your firm? Can your staff exchange and immediately begin analyzing information regardless of the disparate applications in which they are working?

• The issue is this: With so much information available to CAs electronically, it is astounding that CAs expend so much time and energy manually obtaining, assembling and assessing the data they use to do their jobs.

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Opportunities

• Benefits– A short list of the benefits to CAs and their

clients from XBRL adoption: – Lower operating costs..  – The XBRL-enabled reporting environment

also provides a more efficient reporting process, as data is published just once and can be used again and again to create any type of report 

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Opportunities

• Benefits – Finally, the efficiencies of handling data within a firm for

analysis and comparative purposes will both increase efficiency of firm operations, and reduce risks associated with variances that otherwise may go undetected.

– Increased revenue opportunities. – Enhanced service opportunities.

• These service offerings are based upon value added to accounting firms and to their clients. These services are not dependent upon accountants becoming technology experts.

• As previously noted, XBRL capabilities already are latent in many software applications because the industry agreed to adopt the standard

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RECOMMENDATIONS

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Recommendation

• For vendors in the financial reporting chain that serve as intermediaries between the regulatory bodies and listed companies—such as filing companies and accounting firms—the current XBRL momentum provides a significant market opportunity. Intermediaries can help customers meet SEC compliance while advancing corporate performance management goals and reporting accuracy

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Recommendation

• While the current need for XBRL is primarily being viewed with respect to the mandate, XBRL can deliver long-term benefits such as: – Lowered cost of data handling – Improved reporting speed – Improved data accuracy and reliability – Focus on analysis, forecasting and decision-

making rather than data processing

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Recommendation

• By helping customers with XBRL implementations, intermediaries can aid with more than compliance—they can create a meaningful relationship with clients based on longer-term strategic goals.

• The momentum around XBRL is part of a broader trend toward convergence and the adoption of universal standards, such as IFRS, to improve the effectiveness of global business reporting.

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Recommendation

• For accountants, business information is business. XBRL was developed by the accounting industry, and it is the language of our business. That's why every CA needs to understand what it is and what it does for us and for clients.

• With industry leaders in nearly every sector beginning to deploy XBRL, and with nearly every software company embedding XBRL capabilities in its software, clients who are not yet aware of this technology soon will be.

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Recommendation

• That's why it's not enough for CPAs to be aware of XBRL– they must understand how to use it.

• It's an all-or-nothing proposition: – the rewards for accountants who are ready to

operate in an XBRL-enabled world will be continued competitiveness and expanded service capabilities;

– the penalty for not adapting will be obsolescence.

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THANK YOU FOR LISTENING

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