INDUSTRY VIEWPOINTS FOR THE U.S. FEDERAL GOVERNMENT
Extensible business reporting language: Applying XBRL as a strategic tool to improve federal financial management
The Extensible Business Reporting Language (XBRL) is the next inflection point in the evolution of technology. Adoption of XBRL, a standardized yet highly flexible way to communicate financial and regulatory information, is growing rapidly throughout Europe and Asia. In the United States, pilot programs in government and regulatory agencies are showing promise. Awareness of this emerging standard’s potential is increasing throughout the U.S. federal government as agencies recognize that XBRL offers a paradigm shift in the supply of financial and regulatory information that can benefit individual federal agencies as well as the federal government as a whole.
With any emerging technology, moving beyond the rhetoric to appreciate the key concepts and conceptual tools that aid in assessing and applying that technology is critical to realizing its greatest value. This issue of CGI’s Technology Spotlight explores CGI’s perspective on XBRL in the federal financial management environment and the potential benefits it holds. It provides an overview of the XBRL concept and touches upon usage trends within federal governments and regulatory agencies, including the relatively new concept of an information supply chain. Lastly, the issue describes how CGI views XBRL in the coming years as this emerging technology gains a foothold within the federal financial management community with a focus on the transformation of business strategy with the new “economics of information.”
This issue takes a look at four aspects of XBRL:
At its heart, XBRL is a new way of doing business
XBRL is a flexible framework for standardizing and automating the flow of financial and regulatory information. With XBRL, federal agencies, trading partners, regulatory bodies, and the public at large can share and reuse financial data to meet their specific needs without generating separately formatted reports for each user or purpose. XBRL allows agencies to contend with the challenges of communicating financial information without undermining data integrity.
XBRL employs a layered component framework as illustrated below.
As shown, XBRL is a complex syntax layered on top of XML and needs to be used with an XBRL tool or processor. The XBRL framework combines a basic infrastructure and tools with industry-specific layers or taxonomies that employ a broad base of intellectual capital and knowledge to define the required data and how it will be exchanged. This layered framework allows XBRL data to be platform independent.
The XBRL mantra: provide the data once, use it many times
Organizations in the public and private sectors are adopting XBRL to increase operational efficiency and improve comprehension of financial and other information. XBRL is well-suited to many business and reporting situations where information needs to be shared. The most common of these include:
- A number of organizations report the same information to a single agency or institution. This situation often occurs when private sector organizations report required information to government agencies or regulatory institutions.
- Many organizations share related information. In a government context, agencies package and disseminate similar information to other agencies (e.g., reimbursable activity), central regulatory agencies (e.g., OMB, Treasury), the Congress, and the public. Typically, each need requires the data to be reformed, reformatted, pruned, or augmented.
XBRL offers a common denominator or “canonical” for what can be a complex translation process, resulting in efficient reuse of information. With XBRL, the exchange of information transforms from the traditional many-to-many flow to a single information exchange of precisely defined, universally understood, self validated data as illustrated below.
A critical piece of logistical infrastructure: the information supply chain
In manufacturing, a supply chain is a logistics network or coordinated system of organizations, people, activities, information and resources involved in moving a product in physical or virtual manner from supplier to customer. Manufacturing supply chain activities transform raw materials and components into finished products that are delivered to end customers.
In the domain of information technology, a supply chain is a logistics network that coordinates the flow of information as it moves between organizations, people, activities and systems from one or more sources to requesters to information responders, back again (to requesters), and possibly on to other interested parties.
Unlike a manufacturing supply chain that delivers value through the transformation of raw materials into finished products, an information supply chain delivers value not through its end products, but through the dynamic and pliable medium that the information travels in. Using the information supply chain medium, recipients tailor or customize the data for their own specific uses and purposes.
An information supply chain, as illustrated in the diagram above, emphasizes the notion that information can be ‘reused’ by numerous interested parties for more than one purpose and in a diversity of ways. XBRL enables efficient information reuse because it
- Automatically provides a body of well-defined data for recipients’ consumption or further electronic distribution
- Allows users to view and manipulate a body of data for analytical purposes
- Ensures consistent interpretation of the information by all users
- Maintains the underlying integrity of the data.
Expect momentum as organizations adopt XBRL
Use of XBRL is growing. In fact, Financial Executives International (FEI), an association for chief financial officers and other senior finance executives, placed XBRL near the top of its list of financial reporting challenges for 2007, saying the standard would gain momentum with increasing voluntary adoption during the year. The Federal Financial Institutions Examination Council (FFIEC) recently introduced XBRL for U.S. banking regulation, and the Securities and Exchange Commission (SEC) is making XBRL a priority with significant investments to enable voluntary filing by U.S. corporations.
With increased emphasis on federal performance management and public accountability, the demand for useful information for decision-making can only increase. Federal agencies and regulatory bodies including the FFIEC, SEC and the Department of Housing and Urban Development (HUD) have had widely publicized successes with XBRL that will increase its momentum in the next several years.
Enticing prospects for cost savings and operational efficiencies
The FFIEC predicts a savings of $26 million over 10 years from its initial XBRL implementation. Beyond cost savings, however, error rates have fallen by 30 percentage points, and analyst productivity has increased by as much as 33 percent. Processing times shortened from weeks to days.
Results like these have strong appeal to federal agencies juggling tightly constrained budgets and ever-increasing information requirements. XBRL’s standardized way of communicating information avoids much of the cost associated with gathering, manipulating, substantiating, correcting, misinterpreting and re-entering information. Inherent benefits include:
- Accuracy
- Consistency
- Efficiency
- Reuse
- Flexibility
- Traceability
- Resiliency
- Visibility
These benefits can be seen through the application of a taxonomy for federal financial management that organizes the currently disjointed collection of federal financial reporting and information requirements.
Unlike other XML standards, XBRL was architected for agility. Users can determine how they wish to view and manipulate information. Information providers can add new information exchanges without undermining existing taxonomies or compatibility with existing tools. And taxonomy updates can be applied rapidly without programming changes.
The ease with which information can be accessed and manipulated for analytical purposes defines the degree of visibility into any organization, issue or subject of interest. XBRL dramatically enhances visibility into financial matters such as an agency’s performance.
Business strategy is being transformed through the new “economics of information”
“Economics of information” is a concept developed by Philip Evans and Thomas Wurster in a Harvard Business Review article and further developed in a subsequently published book, “Blown to Bits.” The principle of economics of information asserts that information is governed by a basic law of economics. Therefore, the extent to which information is embedded in a mode of delivery results in a universal trade-off between the richness and the reach of that information.
To explain:
- Richness refers to the quality of the information, as defined by the user and reflected in the characteristics of the information such as accuracy and timeliness.
- Reach refers to the number of people who share that same information.
The economics of information establishes that by using traditional modes of delivery, it is only possible to share extremely rich information with a few people while less rich information can be shared with larger numbers of people. The diagram below illustrates this point.
With the emergence of XBRL as a semantic technology (meaning in the context of information technology), both richness and reach of information is expanding. XBRL serves as a foundation upon which governments and commercial organizations can establish sound and efficient financial reporting. As the XBRL infrastructure continues to grow, its applicability to federal financial reporting can provide extremely rich and well understood information to diverse recipients from trading partners to the Congress to central agencies such as OMB and Treasury to the public at large.
XBRL as an infrastructure for the exchange of federal financial information
XBRL has many potential applications across the federal government. Its greatest potential lies in its use as the base infrastructure for exchanging financial management information. In a government reporting context, numerous agencies require the same information about elements of financial performance, often in different formats. XBRL is a potent tool to address these challenges, providing not only process improvements and cost savings, but real business transformation.
Opportunities abound
Opportunities for the use of XBRL abound—within individual agencies as well as throughout the federal government as a whole. XBRL could benefit areas from budget formulation to financial review to trading partner balances. For example, agencies regularly prepare standard external reports intended to provide a complete picture of the agency—financial position, performance objectives and achievements. Each of these reports entails a different set of reporting processes and reconciliation procedures, generating costs that add no value to the organization.
Application of XBRL to the federal reporting process would streamline the overall process, eliminate many reconciliation points, and enhance data consistency for potentially significant time and cost savings. More importantly, data quality and usefulness would increase.
XBRL provides the federal government with the means to develop an efficient information supply chain. Information can be reused, not just gathered and provided once. The information supply chain concept emphasizes the notion that information can be ‘reused’ by numerous interested parties for more than one purpose and in a diversity of ways.
A technology such as XBRL enables efficient reuse of information, not just through automatic provision and electronic distribution of a body of data, but also through the ability to view and manipulate that body of data for analytical purposes while ensuring consistency of interpretation and data integrity.
To learn more about XBRL, please contact us.
|
