XBRL makes progress globally
Extensible Business Reporting Language, the data-tagging code now required by the Securities and Exchange Commission for filing financial statements, has been making headway not only in the U.S., but in other parts of the world.
“XBRL has been around for a long time,” said XBRL International CEO John Turner. “Although in the U.S. it’s best known because of the SEC’s implementation, and some people are aware of what’s happened in the banking sphere, many parts of the world have moved to XBRL.”
He sees the biggest uptake of XBRL globally among financial regulators in the banking, insurance and pension industries, particularly in Asia and Europe. “Post-crisis there was the Basel III framework for banks,” said Turner. “That means there are enormous and pretty onerous reporting obligations imposed on banks, and through the Solvency II framework on insurance companies. They provide tens of thousands of data points every quarter to their regulators.”
XBRL International provides the specifications to make it all work. “The way we tend to describe it is we are the alphabet and the grammar that allow regulators and standard-setters to define their own dictionaries, and then people can produce their reports using the words in those dictionaries that must conform to the grammar and the alphabet,” said Turner. “We’re the technical layer, but we have an explicit public policy objective to improve the way that businesses can enhance their accountability and transparency and thereby improve their own performance. We’re interested in the end result that better information means better performance and we’re helping people move from paper to data.”
Specifically that means moving from formats such as PDF and HTML to XBRL, which can be consumed in a structured way. “There’s about 140 regulators around the world in 70 countries that use this stuff,” said Turner. “It’s mandated in just over 100 of those, and there are tens of millions of companies that file in XBRL around the world. The macro trend that we see at the moment is one that we have been waiting quite a long time for, and that is really that the securities regulators are beginning to come in a new wave.”
One reason why is because of the proliferation of vast amounts of data that are difficult to process, even by sophisticated data analytics software and artificial intelligence, unless it has been organized ahead of time.
“This is in effect a response to the bigger societal and technological changes that we’re seeing everywhere else. Big Data means that there are extraordinary quantities of information that were never previously available,” said Turner. “Even if they were available, you couldn’t use them very well. As a result of that, we’re also seeing more and more AI in huge numbers of areas. We have all kinds of people that use structured data in all kinds of forms relying on those technologies now. As a result, there’s an increasing understanding. It’s a slow thing, and we’re kind of glad that the accounting world and the regulatory world are conservative because they’re the people that deal with other people’s money. But that process is now really moving so there is a recognition that company information, if it’s to be useful, needs to be structured. It needs to come from the company so that there’s veracity associated with that company, and it needs to cover entire populations.”
XBRL technology has been progressing, with the SEC now mulling the use of Inline XBRL, which allows users to view the XBRL tags side by side with the documents.
“We think of it as sort of like a windshield,” said Turner. “This is like a laminated document. There’s a human readable part of the document, and there’s a machine readable part. They’re intertwined in the same thing.”
In the European Union, the European Securities and Markets Authority is mandating that beginning in 2020, consolidated annual reports prepared in accordance with International Financial Reporting Standards be filed in XBRL (see XBRL makes steady advances). XBRL has also been spreading beyond the U.S. and Europe.
“We have a lot of other securities regulators aware of what ESMA is doing,” said Turner. “At different levels of maturity, there are many securities regulators in the Middle East and in Asia—places like Korea, the Emirates, and a number of other places—that have templated reporting for their public companies.”
Japan and China have also been using XBRL in their financial markets. Financial markets in several Central and South American countries have also been using the technology, including Chile, Columbia, Mexico, Panama and Peru. Brazil is also moving toward using XBRL, and Turner recently heard from Argentina expressing interest.
XBRL enables investors to access the information in their native language. “Investors mostly want it in English, or increasingly they want it in Chinese or something else,” said Turner. “Where there’s a caption and some data, then XBRL allows you to translate that automatically. For those kinds of environments, that’s very, very attractive.”
There has been progress in other countries as well in areas beyond financial reporting. Turner pointed to the increasing popularity of Standardized Business Reporting, which ties in with XBRL.
“SBR is an effort in about five countries, but the flagship country is the Netherlands, and this is forcing government agencies to work together to reduce red tape,” said Turner. “Not by reducing regulation necessarily, but recognizing that multiple agencies deal with individual businesses and they all require information from those businesses, and the definitions that they all use are different. The poster child for that is there were 17 different definitions for the term ‘full-time employee’ across the Netherlands. It took a long time, but now there is only one. They moved to simplify their definitions and thereby lower the cost of production of that data in a business-to-government context. What that led to is an ecosystem in that country where every company has got the ability to produce XBRL, pretty much at the push of a button. It’s sitting there in their accounting packages.”
Banks are beginning to leverage those capabilities, he noted. “It’s like a network effect, so they are now able to use the taxonomies and definitions prepared for government use, make a few small changes, and ask their small to medium size business customers to give their information in XBRL,” said Turner. “When they first started doing that two years ago, they said we’ll give you a discount on your loan application fee if you do that because it saves us some time. They’re two years in, they’ve got increasing uptake and now they say if you don’t give it to us in XBRL, it will cost you more.”
The solar industry is also beginning to leverage XBRL. “The solar industry is essentially a project finance industry,” said Turner. “If you’re going to invest millions of dollars in building out a solar energy facility, do you want to do it here or do you want to do it there? There’s all kinds of data that you need to be able to understand that. Then, because you want to be able to securitize that lending, you also need feeds of information from those facilities when they’re up in production. That industry, working through the Energy Department, is working to produce XBRL taxonomies and XBRL definitions for all of that data. That reduces soft costs, which are real. If you talk to anybody involved in project finance, the pain is trying to find out all of the specifications and details of every element of the project, and whether you can actually put some numbers against it. That’s sort of an Excel and manual paper process. This project finance function for the solar industry is a very nice example of the fact that when you have structured information, you can lower costs.”
Another recent initiative is extending XBRL to the JSON programming language, a variation of Java that has been growing more popular. XBRL is built around older XML technology.
XBRL International met with the Financial Accounting Standards Board last week to discuss developing XBRL extensions to the U.S. GAAP Taxonomy to help investors analyze financial information without the need for specialized software. “It’s just a slight change to the way the taxonomy works to say when you create an extension, you can create as many extensions as you like, as long as you anchor it back to a first-class GAAP concept, so that will make that process simpler,” said Turner. “That, combined with things like the JSON syntax, means that the analysis of that information will be much simpler for many more people.”
However, there are still some gaps. Turner would like to see the SEC require companies to use machine readable business rules in their filings, such as ensuring that the balance sheet actually balances. “The SEC is more or less an isolated case in not obliging companies to run a set of machine executable business rules in their filings before they come to the SEC, and for the SEC to run them themselves,” he said. “Most regulatory environments oblige people to do that.”