A universal financial reporting format makes sense to regulators. But so far, when it comes to volunteer take up, it’s largely had a thumbs down from business. UQ Business School’s Peter Green, Alastair Robb and Fiona Rohde ask why.
Despite heavy marketing by the world’s biggest regulators, the idea of a universal financial reporting format has not been embraced voluntarily by the corporate world. In fact, efforts to make XBRL (eXtensible Business Reporting Language) a universal electronic language have fallen short of expectations. The same is true in Australia where XBRL underlies a system called Standard Business Reporting, designed to help businesses report from their accounting systems to regulators and others, in a uniform, readily comparable format.
For regulators, the advantages of XBRL are clear. Receiving information in one format from the hundreds of thousands of businesses who must report their activities makes life easier. It cuts down processing time, is more comparable, and so more useful, and saves heaps of money.
For more than a decade, companies have pretty much ignored XBRL. But more and more they are being forced to deal with it as regulators push for its mandatory use in financial reporting. Securities regulators in the US, Singapore, China and Japan have mandated its use. In Australia, SBR is voluntary, except for SuperStream, a government initiative to clean up the back office of the superannuation industry.
The big end of town is praying it stays that way. Many companies see the standard as costly, complicated and without benefits.
Bevan McLeod, Director of Deloitte Digital, says companies can’t see what is in it for them. “Companies never believed it was anything more than an extra step in the compliance process,” he said. Geoff Miller of the Markets Group, Treasury agrees: “Right now, many large companies don’t see a big enough business. We’re making inroads at the small end of the market, but at the big end of town we need the software developers to comefully on board.”
PROFESSOR PETER GREEN
Peter is an authority on ecommerce and business information systems. Before entering academic life, he held senior positions with a regional electricity board, a chartered accountancy firm and a Queensland government department.
DR ALASTAIR ROBB
Alastair is a specialist in business information systems and has published numerous research papers on topics such as ensuring the accuracy of data and how businesses can best improve their IT governance.
In essence, XBRL/SBR makes sense out of numbers by tagging and clearly specifying what each item of data actually means. It, in effect, standardises the format of figures contained in company accounts. By allocating precise definitions, or tags, to ‘revenue’, ‘short-term debt’ and ‘receivables’ items, it allows computers to accurately read and report the figures in the exact same way regardless of where they came from.
The real issue is whether there is anything in the switch to SBR for the more sophisticated companies, their lenders and the investment community.
Or does government benefit the most?
SBR fans tout the efficiency gains: it speeds up processes, improves data quality and massively cuts the time it takes to produce and send accounts to the correct government department, they claim.
Certainly, SBR looks to be a good thing for smaller companies. As Alastair Robb says, Australia has more small businesses compared to other markets, and government recognises this. Dr Robb, Lecturer in Business Information Systems at UQ Business School, says Canberra was keen to complete Australia’s taxonomy in 2010 so software developers like QuickBooks could integrate SBR into their products.
Clearly SBR has won some converts. Deloitte is a user and McLeod says it definitely has value. “It provides a structure for organising client data. If Deloitte’s clients also switch to the standard it saves everyone time and money, since it gets rid of duplication and manual data inputting.”
A big gain, say the regulators, and our treasury, is for investors. The more SBR users, the bigger the pool of useful data.
Kerry Hicks is Head of Reporting for the Institute of Chartered Accountants. She agrees there is huge value in investors having access to all company data sourced through an identical process and available in an identical format, making it strictly comparable. “Today, every company is reporting differently. “With SBR, analysts can compare sectors more easily and could, at the press of a button, source cash flow numbers for all the telcos in the sector from a consistent public data pool, for example.”
Yet companies have long been proficient at organising and mining data for competitive advantage, helped by the software giants.
Interestingly, says Peter Green, Professor of Electronic Commerce and Business Information Systems at UQ Business School, many companies have chosen to stick to their existing methods and simply outsource conversion to the new format.
PROFESSOR FIONA ROHDE
Fiona worked for an international accountancy firm before becoming an academic. Her specialist areas include information management and its effect on accountancy techniques. She is also Deputy Head of UQ Business School.
To Professor Green, if the benefits to business were clear and more than speeding up reporting alone, there would be more user uptake.
Analysts, he says, must see the benefit too.
“There’s been lack of take-up by analysts. SBR might generate information morequickly, but it doesn’t help if it’s not compliant with analysts’ systems. They have already configured their valuation models to make sense of the financial information from company accounts.”
THERE’S A BIGGER REASON
The biggest problem for companies (and analysts), he says, is that SBR just doesn’t fix the myriad of accounting issues they have been struggling with. Just because the tags are based on the international accounting standards, doesn’t fix the problem of accounting interpretations – how numbers derived under different interpretations differ from jurisdiction to jurisdiction. This is the issue that the business and the investment community needs addressed as a priority. On this, SBR has failed to deliver.
According to Hicks, take-up of SBR has increased in the last six months, but mainly by small business. She says the accelerated take-up is due to a higher number of accounting software products for small businesses. “No listed company has lodged their financial report with ASIC using SBR technology which tells you the bigger end of town doesn’t see any great benefits at this stage.” As she points out though, the use of SBR is not mandated in Australia, the Australian Stock Exchange is not yet on board with it and the right technology is not yet available to make the information useful to investors.
To Peter J Meehan, CEO, The Group of 100, the organisation representing the CFOs of Australia’s top 100 companies, major corporates view SBR as a major expense. “Executives would be quite comfortable adopting SBR if they were completely upgrading their systems.” And he echoes Professor Green when he warns that SBR will not solve the problem of people disclosing a variety of financial information under the same tag.
HARDLY A TESTIMONIAL
Three researchers at the National University of Singapore, however, have found that “XBRL has lowered the cost of equity capital for companies and given a boost in analyst coverage and forecast accuracy.” Professor Green is unconvinced. “It may be that the adopters will achieve a one-off benefit due to the efficiency benefits of analysts and investors being able to integrate the information faster into their evaluation and analysis systems. However, the benefits are not ongoing as there is no ‘new’ information that the analysts can use to improve forecasts into the future.
Also, the claim of ‘more accurate’ forecasts applies in the most part to smaller firms, which the analysts were probably not following previously anyway.
Peter Green says there has been plenty of work done to create SBR, but not enough to convince business to put it on the priority list. “SBR is competing with a lot of other regulatory change. We’re a long way from achieving a system that works for the investment community.”
The next question for Australia will be to mandate or not. SuperStream has mandated SBR and rumour has it that the Tax Office is keen to see it taken up. As Geoff Miller sees it, the increasing take-up at the bottom end of the market should flow up to larger companies’ investment in new technology. “We will reach a tipping point as word gets around.”
LEARN MORE
If you would like to learn more about the topic in this article, then take a look at:
The Standard Business Reporting site of the Federal Treasury
The FAQ site for SuperStream and SBR provided by the ATO
“Does XBRL Adoption reduce the Cost of Equity Capital?”