XBRL: One Standard – Many Applications

XBRL: One standard – many applications

by Bruno Tesnière, Richard Smith and Mike Willis

the journal • Tackling the key issues in banking and capital markets Bruno Tesnière Richard Smith Mike Willis Partner, Global XBRL Co-leader Director, Global Risk Global XBRL Co-leader and Founding Management Solutions, UK Chairman XBRL International

Tel: 32 2 710 72 26 Tel: 44 20 7213 4705 Tel: 1 813 351 2795 Email: [email protected] Email: [email protected] Email: [email protected]

XBRL is a universal information format and formatting of the information needed in these formats (html, pdf, doc, etc). which offers tremendous opportunities for for running the business can be slow, The link between format and content can the financial services industry in terms of prone to error and extremely costly. only be broken by manual parsing (search cost reduction, efficiency gains and data and retrieval) processes, which are labour- analysis. XBRL can be used by banks to Proprietary data standards are often put intensive, time-consuming and prone to radically reduce the time and costs in place for internal purposes but they inputting errors. These factors can drive associated with key business processes require proprietary data translation the cost of producing information up to such as credit analysis and monitoring, schemes so that back-end systems are able a level where, although the information and streamline their own business to retrieve that information. Even less is available, it is effectively redundant. reporting processes. XBRL also allows efficient, electronically delivered disparate information systems to information on the web is today just a XBRL provides a solution to many of communicate seamlessly with each other digital duplicate of a paper report; it is not these problems by making the reported over the internet. This is something banks possible to identify directly and therefore information more flexible for interested have aimed at for a long time; with the retrieve the information that is embedded parties to use. advent of XBRL they are finally able to achieve it. Figure 1 XBRL : One standard – many applications

Financial information: Fuel for the financial services industry One standard Many applications

Business reporting There have been dramatic changes in how Accounting systems TM (ValueReporting , balanced scorecard) companies communicate with investors, customers and suppliers. The financial Credit analysis services industry is dependent on the quality and timeliness of business Preparation of regulatory information Other sources of information XBRL information, perhaps more than any other (Basel II) industry, as it is both a user and producer of such information. Today, in many banks Financial consolidation process management information is buried under a mountain of irrelevant figures or is Specific banking information system Management reporting presented as complex raw data, whilst external sources are rarely available in Source: PricewaterhouseCoopers reusable formats. The collection, collation

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So what exactly is XBRL? Figure 2 What XBRL is not:

Extensible Business Reporting Language, You may already have heard about XBRL. The word is certainly getting out and, or XBRL, is a derivation of Extensible unfortunately, so are the misconceptions. Below is a list of what, exactly, XBRL is not: Mark-up Language (XML). XML, a platform-independent communication • XBRL is not a detailed universal chart of accounts, but rather a standard, has been designed to facilitate GAAP/industry-sector oriented tagging scheme or language; the exchange of information between applications through corporate networks • XBRL is not a new accounting or auditing standard; or the internet. Supported by virtually all software vendors, XML is gradually • XBRL is not designed only for US GAAP financial reports but rather imposing itself as the primary facilitator for oriented to a range of territories as well as IFRS (International Financial transferring data over the internet and is Reporting Standards formerly IAS) business reporting; and now entrenching itself in enterprise applications. XBRL has been specifically • XBRL is not a requirement to conform to a specific financial designed to leverage XML technology to reporting template. support the business reporting supply chain.

XBRL International

XBRL International is a non-profit international consortium consisting of approximately 170 leading companies, associations and government agencies around the world and fulfilling several roles such as development, liaison and education. The consortium has built an XML based specification for business reporting as well as standardised data definitions for different financial reporting frameworks, for use in ledger entry reporting (XBRL General Ledger), credit reporting, performance press releases, risk reporting, regulatory filings and tax filings.

PricewaterhouseCoopers has recognised the benefits that XBRL could bring to its clients and to the financial markets and has dedicated resources supporting the efforts of the XBRL consortium. Since the inception of XBRL, PricewaterhouseCoopers has taken a leading role in its development1.

1 For more information, visit www.xbrl.org

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Fujitsu, Moody’s, Reuters Group, Figure 3 XML/XBRL architecture PricewaterhouseCoopers and many others. Members of XBRL International are Printed Regulatory Tax Bank currently developing taxonomies for financial Website filings returns filings statements different accounting standards such as IFRS (IAS) and US-GAAP, and where industries, such as financial services, are Organisation’s data Instance significant these taxonomies are also document expected to be tailored to meet the Organisation’s data specific requirements of that industry. definitions

Standardised data definitions Taxonomy XBRL for the Financial Services Industry Common basis of XBRL XBRL Specification Because of the high volume of financial XML Schema information prepared and processed by the XML financial services industry, it is in a unique

Source: PricewaterhouseCoopers position to leverage XBRL technology. While there are numerous applications XBRL provides tags (context) that describe reports. As a result, banks are able to where XBRL can support business each element of data (content) in greater generate complex data queries and processes, in this article we will take the detail so that information can be comparative and up to date analyses on a opportunity to focus on three specific understood and used by different borrower’s credit application information applications where XBRL can greatly information systems. For example, the package at the touch of a button, something support financial institutions in particular. turnover for a specific company, and that that is almost unimaginable today. from its corresponding reporting period, Credit analysis will be included in tags, along with further The tags are based on standard and Credit is the most fundamental risk that information such as company name, uniform taxonomies defined and agreed many financial institutions take and country of origin, industry sector, year and through collaborative efforts of XBRL manage. Traditionally, credit processes so on. The tagging of data instructs the consortium members. XBRL International within different business units are receiving system about the information is made up of many of the world’s leading supported by stand-alone information being transferred and so the user, with the accounting, technology, government and systems and reporting sub-systems. help of a software application, can locate financial services bodies, including These systems assist management in credit the necessary information without leafing Morgan Stanley, Hitachi, General Electric, analysis, credit decision-making and limit through numerous pages of financial Microsoft, Deutsche Bank, Bundesbank,

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monitoring (see Figures 4 and 5). Figure 4 XBRL and Credit Analysis Transferring information from counterparties to in-house systems as well as from one Without XBRL stand-alone system to another normally Receiving financial Inputting data into a requires inefficient, tedious and time- Credit analysis information from client financial analysis tool consuming re-keying and re-formatting of information. Such mechanical processes Time consuming mechanics increase the risk of inputting errors and reduce the efficiency of credit assessment With XBRL and monitoring. In many cases 80% of Receiving financial Automatic transfer into Credit analysis process time is allocated to data information in XBRL a financial analysis tool management with 20% left for analysis. Automatic, consistent process XBRL can reverse this ratio, allowing

greater time for valuable decision making. Result XBRL provides banks with a structure and • Reduction in lead time for credit decision procedure, allowing consistent analysis and • Analysis is based on more meaningful data reporting. It also helps ensure better data • More time for credit analysis • Improved risk management quality and data integrity, leading to clearer and more accurate business reporting.

Information received from borrowers can be directly recognised, manipulated and Figure 5 formatted, leaving credit risk managers to concentrate on credit risk analysis and Many banking institutions in the US and Europe have adopted, or are planning the management, not on collection of data. adoption of, XBRL data in their credit analysis process. The process re-design focuses on the transfer of financial data from the customer to the bank’s financial Operational risk management statement analysis tool. Without XBRL the process requires manual inputting of financial information. By employing XBRL the banks are expecting better Many banks are currently in the process of decisions and significant cost savings. The lead time for credit decisions could also developing operational risk management be drastically reduced to even a couple of hours by eliminating the manual methodologies for both internal economic mechanical steps. capital evaluation purposes and meeting the New Basel Capital Accord requirements. For both, banks will need to lines defined by the Basel Committee as that data is collected consistently across collect detailed operational loss data. This well as contain further information about the organisation in areas such as date, data needs to correspond to the business the underlying loss events. It is important description, event category, amount,

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contributing causes and business line. these circumstances, establishing integrity assurance. Within most banks the Such consistent data collection is also key in external reporting is a key priority for reporting environment is complex and for external data sharing initiatives, which banks2, and management needs to be data is provided by many different are currently being established. confident as to the validity and accuracy systems. XBRL allows the implementation of such data, much of which would not of a more streamlined and efficient Banks have also recognised the challenge have been subject to independent reporting environment. of operational risk quantification in financial risk management. The main XBRL can support banks to enhance their obstacle for the development of Case Study: APRA reporting processes needs in several ways. sophisticated risk quantification By reporting their financial statements in methodologies is the lack of detailed and Australian Prudential Regulatory XBRL, banks make it easier for the high-quality data. A taxonomy using XBRL Authority (APRA) has implemented investment community to analyse could offer a practical solution to allow XBRL arrangements in collecting company data in a more efficient and consistent and structured collection and data from the entities that it transparent manner. Regulatory reporting exchange of data by business areas and regulates. XBRL has helped APRA to arrangements can also benefit from the periods. Publishing operational risk reports overcome challenges in an use of XBRL, as has been recognised leveraging common XBRL taxonomies environment comprising six different by APRA (see Case Study). enables consistency and re-use. XRBL has technology platforms and four many of the facilities and advantages different databases with diverse data XBRL will also support banks in preparing invaluable in supporting the development collection philosophies. XBRL their financial statements. As different of operational risk management functions. improved the efficiency and integrity taxonomies are created for different of the data collection process and accounting standards it will be easier to Corporate reporting equipped APRA with powerful web- transform the financial statements from enabled analysis tools. The banking one accounting standard to another Financial institutions are also under community also benefits from the providing that in-depth data is present. increasing pressure to fulfil more stringent introduction of XBRL in regulatory This benefit is especially appealing to external reporting requirements, as reporting as APRA passes submitted large financial institutions that have to markets and regulators demand greater information onto other regulatory comply with several standards. corporate disclosure and transparency. organisations for re-use. In this way, A key promoter of enhanced disclosure is the regulated entities only have to The New Basel Capital Accord will lead to the Basel Committee, which published its submit data to one authority. In greater reporting requirements for banks. proposals in the New Basel Capital addition, the data quality and XBRL International has already formed an Accord under Pillar 3: ‘Market Discipline’. comparability has resulted in XBRL Basel Working Group with the goal In addition, IFRS implementation will also increased availability and quality of to foster collaborative efforts for the introduce greater transparency through aggregate and benchmarking data. development of a taxonomy suitable for enhanced disclosure requirements. Under the new reporting and disclosure needs.

2 For more on this see http://www.buildingpublictrust.com

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XBRL and the financial markets financial information and to compare it on a proprietary reporting standard which with that provided by similar companies. means effectively that XBRL can be As mentioned earlier, XBRL will play an integrated more easily into different essential role in enhancing the integrity of Key success factors applications by a wider range of users. corporate reports because of its ability to Ultimately, the success of any of these tag individual pieces of information with a XBRL is a relatively new initiative and its activities is dependent on the number of precise contextual description. XBRL will ultimate success will depend on a critical companies and financial institutions using also improve investor access and mass committing to jointly develop and it and the continued pro-active dramatically increase the speed at which use the technology on which it is based. involvement and cooperation between management, investors, creditors and Banks can only use XBRL to its full companies, jurisdictional reporting bodies, other users can obtain information. potential if data is delivered to them in accounting standard setters, regulators and Adopted on a broad scale, XBRL will XBRL. This in turn is dependent on other governmental entities. To date the greatly simplify how information is software applications allowing easy XBRL initiative has created a far greater produced and consumed. Every member preparation of XBRL data. At the moment, awareness and support and appears the of the corporate reporting supply chain early adopters are implementing XBRL more likely of these initiatives to achieve a will benefit through: pilots and some have already experienced critical mass. significant benefits. • Enhanced quality and usability Looking ahead of information; XBRL is receiving a further boost as regulatory authorities, such as APRA, XBRL is revolutionary but has to become a • Information being obtained more recognise its benefits and encourage its de facto industry standard with a critical efficiently; and use by a broader range of companies. mass using its technology before the The FDIC in the US and the Inland financial services sector can experience the • More comprehensive and Revenue in the UK have announced plans full benefits. streamlined information. to re-engineer their regulatory processes in the near future with XBRL playing a key Enthusiasm and momentum are clearly For those institutions which have yet to role. Many other regulators around the building. Leading organisations including experience the benefits of XBRL first hand, world are following suit. Microsoft, Reuters and Morgan Stanley, NASDAQ, in conjunction with Microsoft have begun to use XBRL in the preparation and PricewaterhouseCoopers, is providing However, XBRL is not the only initiative and publication of their financial XBRL data on a group of companies in a in this area. There are other initiatives in statements. Systems and software suppliers 1 web-enabled pilot demonstration . the Netherlands and France to develop are beginning to release XBRL-enabled Through the XBRL demonstration tool, information reporting standards. In tools and regulatory authorities such as interested investors can discover the contrast to XBRL, which uses a free APRA are requesting XBRL based filings. benefits of using XBRL to analyse standard, these initiatives are based

1 www.nasdaq.com/xbrl

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Management should be assessing whether there are business areas or processes that The winners with XBRL might benefit from introducing XBRL- enabled tools, or whether using XBRL to All participants in the corporate reporting supply chain win: enhance its own external reporting arrangements could be turned into Companies that publish financial statements competitive advantage. • XBRL allows more efficient preparation of financial statements

Although XBRL is a relatively new • Increased integrity of financial statements technology, its application is broad ranging • Consolidation of internal information stores is facilitated via the XBRL and the financial services industry, as a General Ledger key user and producer of financial information, is likely to benefit more Analysts, Investors and Regulators than most other sectors from the • XBRL allows better distribution and usability of existing financial information development and implementation of XBRL-enabled processes. • Speeds up analysis time and makes information retrieval easier • Formatting versatility means financial information can be tailored to suit specific analysis and regulatory requirements

Financial data publishers and Data aggregators:

• XBRL information supply chains are streamlined and efficient

• Operating costs associated with data collection and aggregation (i.e. unreliable or erroneous data feeds) are reduced

• Financial data publishers and data aggregators add value to the data and increase their transactions

Software vendors

• XBRL creates exciting opportunities for interoperability with existing and developing financial and analytical applications

• Software products that manage financial information can use XBRL for data export and import formats

the journal • Tackling the key issues in banking and capital markets