In producing financial reports, for internal as well as external consumption, most companies face substantial inefficiencies, brought about by a combination of the organization's history in staff turn-over, corporate reorganization, mergers and acquisitions, and technology decisions. Most face one or more of the following issues:
- Multiple disparate systems and restricted system interfaces
- Re-keying of data between systems
- Large numbers of legal entities and business units - that don't necessarily line up
- Numerous manual steps and workarounds
- High volume of manual inter-company transfers and journal entries
- Changing reporting requirements
For many enterprises, the end-of-month or end-of-period reporting cycle is 'crunch time.' It's a race to get meaningful information to management and external stakeholders, with audit and other pressures for accuracy conflicting with the costs and complexity of redesigning processes and systems.
The sense of crisis and urgency arises not from the meaning of the information, but purely from the difficulty in gathering the information. The challenge for management is to have the time, resources, and technology to shift the focus in reporting from report production to report analysis.
XBRL can act as a standards-based facilitator for reporting reform, which is increasingly needed to meet new legislative and regulatory requirements, such as the Sarbanes-Oxley Act in the United States, and EU requirements for corporate governance. XBRL can act as the road map in the reporting puzzle. As organizations work to develop consistent definitions and processes, the technology aspects of these reforms should be made substantially simpler. As XBRL functionality becomes a built-in part of the next generation of consolidation and ERP systems (additionally, XBRL middleware should be a cheaper, standards-based alternative to developing custom interfaces into legacy systems), the process of implementing consistent financial systems architectures should be substantially simpler and therefore cheaper.
Since XBRL data can be extracted, aggregated, consolidated, analyzed and extrapolated with new levels of consistency, it will be possible to shift the focus of the finance function. Once confidence in processing is established, management should be able to work on electronically generated reports built on a consistent basis. It is easy to imagine that the focus of attention can be diverted to analysis of performance and, from there, to extrapolation and forecasting rather than reconciliation and data collection. For international groups, the ability to electronically review all of the group’s operations on a continual basis should provide a much greater degree of confidence.