XBRL: The Future is Now - Colleen Cunningham, FEI

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  • Moment In History PC - Networks -Internet - Wireless NOW - The Supernova Empowerment & Richness New Devices Billion Wireless Devices -> Rich Client Peer-to-peer Each A Full Citizen On The Internet 25 Yrs Gates, Jobs, 10 Ago Bezos Who TODAY?
  • Moment In History PC - Networks -Internet - Wireless NOW - The Supernova Empowerment & Richness New Devices Billion Wireless Devices -> Rich Client Peer-to-peer Each A Full Citizen On The Internet 25 Yrs Gates, Jobs, 10 Ago Bezos Who TODAY?
  • This is a slide for the FEI to stake out a market leadership role here around a market collaboration. This sort of ties directly into the EBR effort and sets up ‘market ownership’ of standards. Need to say this without being blunt.

Transcript

  • 1. XBRL & FEI What, Why and How Colleen Cunningham President and CEO Financial Executives International
  • 2. Who Is FEI?
    • The professional association of choice for senior-level corporate financial executives
      • Over 15,000 members from companies both public and private, crossing all industry sectors
      • CFOs, VPs of Finance, Controllers, Treasurers and Tax Executives
    • The definitive voice of corporate finance
      • Advocating for the interests of our members before the SEC, FASB, IASB, PCAOB and Congress
    • A member-service-oriented organization
      • Dedicated to the professional development of our members
      • Peer networking, information, career planning, conferences, publications, research
  • 3. FEI Membership
    • FEI’s membership includes some of the leading CFOs in corporate finance.
      • Kerrii Anderson Wendy’s International
      • Susan Decker Yahoo!
      • Gary Fayard Coca-Cola Company
      • Robert Lumpkins Cargill, Inc.
      • Pedro Reinhard Dow Chemical
      • Jim Schneider Dell Computer
      • Tom Schoewe Wal-Mart Stores
      • David Sidwell Morgan Stanley
  • 4. FEI National Technical Committees
    • Benefits Finance (CBF)
    • Corporate Finance (CCF)
    • Corporate Reporting (CCR)
    • Finance & Information Technology (CFIT)
    • Government Business (CGB)
    • Private Companies (CPC)
    • Taxation (COT)
  • 5. Transformation of Financial Reporting
    • Verge of a fundamental transformation of financial reporting practices
    • Trend towards transparency driven by increased public scrutiny, increased regulatory oversight and the emergence of new technology
    • Driving a need for new standards for information integrity, reporting transparency and system integration
  • 6. What is XBRL?
    • Non-techie’s point of view
      • eXtensible Business Reporting Language
      • An open global electronic standard for defining financial terms consistently allowing for the exchange and dissemination of corporate reporting information
      • Each piece of data is assigned a unique, predefined data tag (like a barcode) identifying the information’s content and structure
  • 7. What is XBRL?
      • Through tagging of data, XBRL will enable
        • Streamlining of financial reporting processes
        • Enhanced analysis of financial reports
        • Can facilitate the acquistion and integration of related financial information within a company’s financial reports
        • Communication of financial performance more effectively to analysts and investors
      • Tags give data an identity and context that can be understood by various software applications that allow the data to interface with databases, financial reporting systems and spreadsheets
  • 8. What is XBRL?
    • Taxonomies
      • A Standard description and classification system for business reporting and financial data
      • Tags consist of specific financial data (eg, line items in financial statements) and words or labels (eg, headers in the notes to financial statements)
      • Taxonomy may, therefore, include a tag for the balance sheet line item “inventory” as well as tags for components (“raw materials”, etc.) disclosed in the notes
  • 9. What XBRL is not
    • NOT a set of accounting standards
    • NOT a detailed chart of accounts
    • NOT a GAAP translator
  • 10. Who is interested in XBRL?
    • Preparers – Financial Executives
    • Standard setters
    • Regulators
    • Users
  • 11. Financial Executives
    • Have a critical responsibility to communicate operational results to stakeholders
    • Growing demand for efficient delivery in an interactive medium
    • Better decision making
    • Internal control environment enhanced through less retyping, more system integration, etc.
  • 12. Standard Setters
    • FASB established an XBRL fellow position in 2003
    • FASB created the XBRL fellowship to investigate ways XBRL and related technologies can be used to improve corporate financial reporting and to develop policy recommendations on XBRL's role in FASB's standards-setting activities.
    • IASB also a supporter of XBRL – in fact, it seems to be getting more traction internationally
  • 13. Regulators
    • SEC announced in July 2004 an initiative to assess the benefits of tagged data and its potential for improving the timeliness, accuracy and analysis
    • SEC adopts Final Rule in March, 2005
  • 14. Users
    • Reduces research costs
    • Enables improved modeling and comparison
  • 15. SEC Voluntary XBRL Proposal
    • 2 documents issued September, 2004
    • Proposed Rule that would establish Voluntary XBRL reporting
    • Concept Release on XBRL
    • Final Rule released effective March 16, 2005
  • 16. SEC Voluntary Reporting Program
    • Establish a voluntary program allowing registrants to file supplemental financial information using XBRL
    • Filed via an exhibit to specified SEC filings
    • Effective March 16, 2005 – but delayed until April 4, 2005
  • 17. SEC Voluntary Reporting Program
    • SEC would like to study:
      • Search capability of EDGAR database
      • Capability to perform financial comparisons amongst registrants
      • Ability to perform financial analysis (ratios, etc.)
      • Impact on staff’s ability to review filings more timely and efficiently
      • Use of tagged data for risk assessment
      • Compatibility of XBRL with other Commission requirements
  • 18. SEC Concept Release on XBRL
    • Public comment was requested on:
      • Benefits of tagging data to improve reporting quality and efficiency
      • Implications of tagging data for filers, investors, the Commission and other market participants
      • Adequacy and efficacy of XBRL as a format for reporting financial information
      • Comment deadline was November 15 th , 2004
  • 19. SEC Concept Release on XBRL
    • Essential Elements of Data Tagging
      • Technology to administer the tags
      • Standard definitions to describe the tages
      • A means of presenting and analyzing the tagged data – software, etc.
  • 20. [Release Nos. 33-8496, 34-50453, 35-27894, 39-2498, IC-26622; File Number S7-35-04] XBRL VOLUNTARY FINANCIAL REPORTING PROGRAM ON THE EDGAR SYSTEM AGENCY:   Securities and Exchange Commission. ACTION:   Proposed rule. SUMMARY:   We are proposing rule amendments to enable registrants to submit voluntarily supplemental tagged financial information using the eXtensible Business Reporting Language (XBRL) format as exhibits to specified EDGAR filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940. Registrants choosing to participate in the voluntary program, expected to begin in early 2005, also would continue to file their financial information in HTML or ASCII format, as currently required. The voluntary program is intended to help us evaluate the usefulness of data tagging in general, and XBRL in particular, to registrants, investors, the Commission and the marketplace generally. A companion concept release also being issued today provides additional information on tagged data and solicits comment on the development of data tagging. BACKGROUND:   All registrants who file with the Commission are now generally required to file electronically on the Commission's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR")…… As discussed in the accompanying concept release, we are evaluating whether tagged data in Commission filings would provide a better means to provide and obtain necessary information and, if so, whether we should permit or require XBRL tagged data in Commission filings.22 The Division of Corporation Finance, Office of the Chief Accountant, Division of Investment Management, and Office of Information Technology have formed a task force to assess the implications of tagged data for filers, investors, the Commission and other market participants.23 In order to test and evaluate data tagging, we propose to allow registrants to supplement their Commission filings by furnishing financial data on EDGAR as an exhibit using eXtensible Business Reporting Language ("XBRL"), beginning with the 2004 calendar year-end reporting season. We currently expect to permit participation by any registrant without pre-approval merely by submitting the exhibit in the required manner. … “ we are evaluating whether tagged data in Commission filings would provide a better means to provide and obtain necessary information and, if so, whether we should permit or require XBRL tagged data in Commission filings”.…
  • 21. XBRL: Cheaper, Better, Faster
    • Reduces the cost of preparing, publishing and analyzing information (CHEAPER)
    • Increases efficiency of business decisions, real-time reporting, deeper analysis capability, reduces margin for human error, more accessible and easier to use, enhances comparability (BETTER)
    • Automates the migration of information from systems to financial statements, increases the speed of data use and related decisions, easier to transfer data (FASTER)
  • 22. Current Issues impacting financial reporting
    • Transparency
    • Timeliness of reporting
    • Section 404/Internal controls
    • Fair value accounting
    • Convergence
    • Principles-based accounting standard setting
  • 23. How linked to XBRL initiative?
    • Move towards transparency
      • If items were tagged and identified more information could be made available for investors and analysts to analyze in the manner that chose to do so
        • Enhances information acquisition, evaluation and combination
      • Improves transparency without additional disclosures
      • Newfound discovery capabilities
      • Can benefit nonprofessional users
  • 24. “ The annual report of the 21 st century will not be annual and it will not be a report: it will be an up to date, informative dialogue” - Alan Benjamin in the 21 st Century Annual Report (2000)
  • 25. How linked to XBRL initiative?
    • Timeliness
      • Capital markets rely on timely and reliable information for the allocation of capital resources
      • Access information more quickly
      • Faster processing
      • Accelerated filing deadlines can be easier to accomplish
  • 26. How linked to XBRL?
    • Section 404/internal controls
      • A reporting format such as XBRL could enable easier documentation of internal controls – less manual intervention and massaging
      • Can enable the integration of disparate systems to optimize the internal control process
      • Can be a critical tool for enabling compliance with 404 – monitoring can occur real time
  • 27. How linked to XBRL?
    • Fair value accounting
      • A lot of concern regarding the reliability (verifiability) of determining appropriate fair value – if assumption disclosures were tagged – management’s choices would be more transparent to users and easily compared with others
  • 28. How linked to XBRL?
    • Convergence
      • May be less important in an XBRL environment. Could adapt to country reporting regimes much more easily.
      • Comparability is enhanced
      • Complimentary toward objective of a single set of high quality, understandable and enforceable global accounting standards
  • 29. How linked to XBRL?
    • Principles-based accounting standards
      • If information is tagged – much easier to determine judgments made by management – analysts could easily adjust for their own analysis
      • Comparability is enhanced across companies – makes management’s financial reporting choices more transparent – search facilitating technology
  • 30. Now is the time for us to fundamentally enhance Business Reporting using XBRL XBRL benefits all members of the financial information supply chain.
  • 31. What needs to change?
    • Manual processes for moving business information through to reporting
    • Need for greater accuracy, efficiency and timeliness
    • Lack of focus on reusability of external reporting
    • Deeper analysis hindered
    • Transparency is only as good as the content (information) provided
    • Opacity level remains high
    • Uninformed decisions are the status quo
    We all need to change…for the better of the capital markets
  • 32. Achieving standards & regulatory compliance ERP Mgmt Reports Investors Banks SEC IRS ERP CRM External Reports Suppliers XML & Web Services Consolidation
    • Common structure
    • Auditable trail
    • Keys to financial & business information
    • Information service providers
    • Industry-based supply chain (XML + XBRL)
    XBRL XBRL Back Office Integrated with XBRL Financial statement consumers
    • Internal control system ‘glue’
    • Accounts
    • Policies
    • Issues Mgmt
    • Real-time auditing
    • Monitoring
    Common Standard Reporting Internal Control Docs
  • 33. Internal Considerations
      • Awareness and implementations of XBRL is limited, but growing
      • Confusion over XBRL as an internal and/or external reporting solution
      • Enabled software – many vendors have enabled software, but others are in development
      • Implementing will impact the internal business rules governing data and the people who use/process it
      • Existing business process will have to be re-examined as part of implementation for efficiencies and risk considerations
      • Managing and maintaining XBRL taxonomies for internal/external reporting will require an ongoing effort
  • 34. External Considerations
    • Approach to collaboration
    • Information requirements (vs. Forms approach to date)
    • Structured filings
    • Common vocabularies (taxonomies)
      • Development strategy (collaborative)
      • Extensions, tools, archiving
    • Diverse e-filing methods
    • Crisp transitions
    • Communications
    • Other - Legal record; signatures; security; etc.
  • 35.
    • Increased disclosure and transparency requirements
      • Need for programmable, efficient and reliable processing – not manual
      • Companies & auditors seek solutions that automate and reduce the cost of compliance & reporting
      • Industry expects effective throughput that improves analysis & comprehension of company financial statements
      • Regulators need similar efficiencies to better understand disclosures, compliance and “results”
    We are at the turning point!
  • 36.
    • Key enablers: Standards, technology & connectivity
      • XBRL embodies both accounting and technology standard: US Financial Reporting Taxonomy
      • SEC concept release builds momentum for XBRL adoption
      • Software vendors will soon deliver XBRL-enabled applications
      • Service providers are converting historical financials into XBRL stores
      • XML and other technologies are ubiquitous
      • Widely available inexpensive connectivity
    We are at the turning point!
  • 37. A Call to Action
    • SEC Program
      • Identify participation candidates
      • Establish a coordinated project plan, identify participant companies, coordinate resources and communicate progress
    • Market Adoption
      • Evolve the business cases for companies to improve their reporting supply chain with XBRL
      • Establish a technical sub-committee within XBRL to drive market enablement
      • Evolve MD&A taxonomy to reflect “Interpretive Guidance” that will address SEC issues
    • Corporate Reporting Standards
      • Leading the discussion on who is responsible for corporate reporting standards
      • Create a methodology to update standards & policies
  • 38. Questions?