The New Focus on Corporate Reporting Initiatives
George Marinos wishes to thank Tim Mueller for his contributions to this month's column. Tim Mueller is a director in PricewaterhouseCoopers' Technology and Data Services Practice, focusing primarily on developing corporate reporting solutions for private and public-sector clients.
"One more thing," the CEO said, "give me a quick update on what steps we're taking now so we don't have to encounter these difficulties in meeting this filing deadline next quarter ..." It was a fair request - especially coming from the CEO of a leading commercial credit card issuer.
"Quite a few," the CFO said. "When that problem came up six weeks ago, we took a hard look at three areas: 1) where our multiple systems come together, 2) where our financial and non-financial data is combined, and 3) where we were using either manual processes or an abundance of spreadsheets to support our consolidations."
It had been a very effective exercise. "We actually uncovered a wide window of opportunity to improve the efficiency, timeliness and integrity around our non-standard reporting - on our MD&A, on our footnotes, on our analyst queries ..." The CEO's eyebrows went up.1
"Actually, through a combination of process improvements, data quality measures and XML-based technologies, we dropped our time-to-process from days and weeks to minutes and seconds - at a savings of approximately 33 percent." The CFO paused.
"Elapsed time? Three weeks, end to end. We're already seeing significant cost savings and reduced error rates. And, our controls and auditability are measurably better."
For today anyway, the CFO preferred to leave it at that. It had been a successful tactical initiative with a clear, measurable ROI. But he knew that there was more work ahead - in fact, from a strategic perspective, they needed to be doing much more to improve their corporate reporting.
Barriers and Impacts to Efficient Reporting
Much of the investment by companies in improving reporting over the past five years has been focused on ERP systems, data warehouses and business intelligence tools. However, in spite of this investment, most companies are still "spinning their wheels" in corporate reporting.
As Sarbanes-Oxley readiness assessments have revealed, restatement and error rates are still high, and manually based processes are still prevalent. Companies can't drill down to detail fast enough, personnel costs have ballooned, and CFOs are confronting regular and significant differences between budget and actual numbers far too frequently.
What does it cost corporations to tolerate these inefficiencies? One estimated price tag is approximately $400 billion per year to pay workers to retrieve, rekey and search for information within their organization and from others in the information supply chain.
What factors are driving this state of affairs? One of the main culprits is the proliferation of disparate information systems that cannot easily or effectively share data across and between organizations. Another factor is the large volume of unstructured data that simply cannot flow between systems. A third factor is the marked absence of standard data definitions within and across organizations.
The result? High costs and elevated levels of risk with respect to regulatory compliance and corporate reputation. However, that shouldn't be surprising given the acute absence of visibility on the part of so many companies into the end-to-end processes that support corporate reporting.
Better Corporate Reporting
Forward-looking companies are now migrating toward a more standards-based, automated environment for financial and non-financial information. Precipitating this migration are technologies that improve cost efficiencies, data integrity, data flexibility, controls and access. These include:
- Data tagging technologies such as extensible markup language (XML) and/or extensible business reporting language (XBRL), which allow a single source of reliable data supporting multiple reporting requirements;
- Non-proprietary technologies that enable interoperability and automated data sharing across applications and platforms; and
- Automated, persistent and embedded data controls that are integrated with enterprise reporting processes.
Particularly attractive to so many organizations is the fact that, in many cases, these improvements do not necessarily require platform changes, new software or an ERP-scale implementation.
Most corporate initiatives are now focused on one or more of the following areas: the financial close process (especially MD&A and footnotes); regulatory reporting; tax provisioning and reporting; financial budgeting; business segment reporting; spreadsheet management and remediation; business intelligence; and the SEC's voluntary XBRL supplemental filing program.
Strategic initiatives typically involve extensive implementation and use of technology (such as Web services) and standards (such as XBRL). Examples include initiatives focused on 1) establishing metrics-driven operational models and related governance; 2) automating the production, validation and consumption of data; 3) instituting an effective data quality program; and 4) standardizing enterprise level reporting data definitions.
The Alluring Benefits of XBRL
Standards? The CFO was thinking about XBRL. He knew that as a financial services firm that processed large volumes of financial reports, his organization was a prime candidate for early adoption of this standard. They could create information once in XBRL format. Thereafter, many of their users could share and reuse the information both inside and outside of the company. In effect, XBRL would enable automation of their entire business reporting process, in great part because it provided a common format and a classification of descriptive names that would be usable and reusable by all participants in their particular corporate reporting information supply chain.
As he scanned the business headlines in the daily paper, one article in particular caught his interest. The SEC had just announced that they had accepted a staff proposal to accept "... voluntary supplemental filings of financial data using extensible business reporting language (XBRL) ... beginning with the 2004 calendar year-end reporting season." Now that, he thought, might be a very good idea.
1. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in periodic reports and registration statements filed with the SEC.
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