Many articles and presentations on the importance of XBRL for the banking and analyst communities have been published over the last few years. A range of pilot programs within commercial banks suggests that, with stability in the standard and accelerating adoption by accounting system vendors, the process of improving credit analysis by banks and corporate bondholders will move forward fairly rapidly.
In this section we argue that credit and investment decisions will gradually evolve to depend on ready access to financial information in XBRL form. Initially, companies providing data to capital markets in this format will stand out. Over time, it will become a business necessity.
Why do banks and other large-scale users of financial performance reports want to acquire their information in XBRL format? For the same reasons as everyone else in the information supply chain: The ability to acquire financial statements and specialist reports directly from client systems, which can be consumed electronically, accurately and instantly helps users make quicker and more reliable decisions. As an added incentive, it can significantly reduce costs associated with handling this information manually.
Manual processing (i.e., re-keying and data handling) accounts for the majority of time and effort expended in the commercial credit cycle. Each time information is re-keyed the process is slowed down and, inevitably, errors occur. Reducing manual effort is the top priority when examining the efficiency and effectiveness of credit scoring. Banks that can shave even a small proportion of this cost out of their business processes can also realize improved levels of analysis because they will spend less time on data processing. Better information, benchmarking, and more frequent review of a client’s financial performance should benefit banker and customer alike. Banks seeking more detail on implementation strategies in this area should contact us.
In today’s tough business environment and as cross-subsidization between investment banks and their research functions ceases, the ability of investment firms on both the buy side and sell side to cover the performance of companies decreases. For all but the very largest players, this means it is getting harder for listed entities to gain new market coverage or retain existing levels of coverage.
As referenced elsewhere on this site, the process of building custom models of the relative performance of companies within investment firms takes time, and much of that time involves manual effort. Again, obtaining XBRL versions of financial reports will automate manual processes and allow analysts to cover more companies.
Companies seeking investment and market attention will find that it is easier for investment firms to conduct analysis on them if they publish financial statements in XBRL. We expect XBRL will figure prominently in the investor relations plans of listed enterprises.
Over the next several years we expect to see increasing pressure from market participants on the reporting function of companies seeking debt and equity. Much of that pressure relates purely to regulatory and market reform concerning disclosure rules and practices. But some will relate to the seemingly mundane issue of information supply.
Eventually, a new equilibrium will be reached. Providing performance information in XBRL form will be the norm, and those that fail to do so will be penalized by the market via reduced visibility and other barriers, including handling and administration charges.
And until that time there will be increasing incentives for companies seeking capital to embrace XBRL in their reporting strategy.
Organizations seeking to publish their financials in XBRL format need to:
- Identify the appropriate accounting taxonomy
- Determine whether they need to produce their own extensions
- Develop processes and procedures for accurately tagging their data
- Decide on their data assurance strategy
KPMG member firm professionals can help.