Reporting | Technology |
XBRL, Blockchain, and New TechnologiesBy
A focus on innovative solutions and core competencies in technology and analytics is a must for management accountants.
On November 6-8, 2017, delegates from around the world convened in Paris for the annual Data Amplified Conference to discuss the future of business reporting in the digital world and the growing importance of data analytics. IMA® (Institute of Management Accountants) is one of the global association partners supporting the conference presented by XBRL International, Inc., a nonprofit responsible for providing the open data exchange standard for business reporting used by more than 130 regulators in 70 countries to collect high-quality, reliable, and timely digital business information from millions of companies around the world. IMA is one of the founding members of the XBRL consortium.
“Innovation in technology solutions brings advanced analytical capabilities to oversight bodies to better monitor—and predict—risks across their regulated entities,” said John Turner, CEO of XBRL International, Inc. “It also helps issuers and regulated institutions gain more insight into the drivers and outcomes of their businesses. XBRL plays an important role in the mix of those solutions.”
Topics discussed at the conference included digital reporting, RegTech, FinTech, emerging blockchain technologies, and integrated reporting driving modern business reporting.
Important announcements at the conference included the European Commission developing a proof of concept for the European Financial Transparency Gateway (EFTG), a centralized index using blockchain technology that will provide distributed access to public company financial statement filings from across the European Union. The EFTG would simplify access to this vital information, according to Alain Deckers, head of the Accounting and Financial Reporting Unit at DG FISMA at the European Commission. Deckers’s keynote speech on the EU policy framework that underpins the shift to digital financial statements—to be prepared in Inline XBRL (iXBRL) for public companies operating in the EU from 2020—highlighted, from an investor protection perspective, the logical need for digital financial statements to be covered by external audit.
Richard Howitt, CEO of the International Integrated Reporting Council (IIRC), shared his vision for integrated reporting in the digital age, which included the use of XBRL structured data to connect financial and nonfinancial information more directly in company annual reports. Howitt also emphasized the need to define more guidance around the “hidden capitals”—human, intellectual, and social/relationship capitals—to help issuers account for, measure, and analyze the stocks and flows of those capitals along with financial, natural, and manufactured capitals.
Dominique Laboureix, board member of the Single Resolution Board (SRB), outlined the manner in which the risk of bank failure is being shifted from government to the markets through the use of bail-in mechanisms and other linked powers to deal with banks that appear likely to pose unacceptable risks to depositors and taxpayers. He described the use of XBRL to streamline the collection of the large quantities of risk data needed by the SRB to monitor the European banking sector and to improve the quality of that information. The mission of the SRB is to ensure an orderly resolution of failing banks with minimum impact on the real economy and the public finances of the participating EU member states of the banking union.
One of the main drivers in the use of XBRL data discussed at the conference is the global trend of moving away from formats such as PDF and HTML so that data reported by companies can be consumed in a structured way that enhances data analytics. Data would then be in a machine-readable format and wouldn’t require normalization by humans; therefore, the quality of the data would be better and more discoverable from the internet.
NEW REPORTING CULTURE
Today, the business reporting ecosystem is in a struggle between older, closed systems and the new, freely available, open culture of the internet. Stakeholders are demanding more transparency and accountability from both government and corporations using data extracted from the internet in a machine-readable format (structured data). In addition, social media is replacing journalism and, as an information force targeting corporate irresponsibility, demanding transparency and accountability. Organizations can be either proactive and be more transparent and accountable with the data they share or sit back and let activists use social media and new, freely available Big Data analytic tools to conduct forensic examination of topics related to their cause associated with the company. We have seen the power of what one or a few “citizen regulators” can do to significantly damage the reputation of a company or government. As a result, regardless of regulatory mandates, leading companies are disclosing additional information relevant to their stakeholders and using technologies like XBRL to communicate more effectively with their audiences. In addition, governments are requiring structured data for regulatory reporting and also making this data available to the public to access and use for decision making.
Today, 60% of financial statement data is already being consumed electronically (http://bit.ly/2k77JMX), and this figure will continue to grow, according to International Accounting Standards Board Chairman Hans Hoogervorst. As more and more companies disclose information in formats like XBRL—especially if utilized in blockchain—the need for assurance services on this reported data will continue to grow in importance.
We are fundamentally moving away from PDF and paper reporting to extraction of data elements used in other reports. Stakeholders are also beginning to demand that these data elements contain independent assurance, especially on financially reported information. This is also being extended to nonfinancial reported data like sustainability or human trafficking or child labor.
In spring 2015, Stephanie Farewell and Robert Pinsker published “Does Assurance on XBRL-Derived Financial Statements Impact the Decisions of Nonprofessional Investors?” This study in IMA’s Management Accounting Quarterly (http://bit.ly/2iFAYWV) answered the question with a high-level answer: “Overall, we find that there is a significant relationship between the type of assurance and the likelihood of investing.”
In addition to this independent assurance provided by external auditors, management accountants have an opportunity to build trust and confidence in information—a type of “assurance”—necessary to meet the needs of today’s information supply chain.
What we’re seeing is that decision-useful information is becoming more automated—reported, exchanged, and analyzed without much human intervention. Systems are delivering information in a continuous manner, allowing real-time reporting. Business-to-business reporting software is communicating automatically entity to entity. This also requires continuous monitoring and controls, which is where management accountants play a central role. The question arises: Beyond the confidence that effective controls around data builds among users of the information, what additional levels of assurance can management accountants provide in this paradigm? In a business market where decisions are increasingly being made by machines using cognitive artificial intelligence and deep learning, the need for credible data is an absolute must. Where will management accountants be able to insert this assurance?
As decision makers require reliable, timely, relevant, and reusable digital information to enable analytics and drive decisions, knowledge of XBRL and other new technologies like blockchain will be critical for management accountants and finance professionals.