RAAS Consulting Ltd

Problem

Consolidated financial reporting within organizations frequently takes too long and delivers inadequate information for decision making. Multiple financial platforms and standards each running custom chart of accounts with different naming conventions, frequently for the same underlying data, can slow the process and inject doubt into the quality of the information provided.

Even where the process works, changes at consolidation level, or at any subsidiary level result in a ripple of changes and introduce time and cost to the process of updating reports and reporting processes.

The ability to link any piece of information to a common taxonomy of potential accounts and account types selected from an organization’s master taxonomy of reportable elements can significantly improve quality and speed of reporting, especially where there may be changes in subsidiary or consolidation reports.

What is XBRL

XBRL (eXtensible Business Reporting Language) is the standard for the tagging of business information to enable easier and faster transmission and electronic consumption of business information. Information is tagged against elements in a taxonomy (a dictionary of sorts), ensuring that the creator and consumer of the information know exactly what is being provided.

The SEC in the United States is introducing mandatory filing of financial statements tagged in the XBRL format, using the new XBRL US GAAP Taxonomy. When implementing XBRL for internal reporting, an organization could use an existing taxonomy, and extend that taxonomy to include their specific internal financial elements, or it could build a custom taxonomy understandable only within that organization.

Benefits

Creation of a common organizational financial language: Creation of a custom taxonomy (or extensions to an existing taxonomy) allows an organization to push a common set of financial reporting element names throughout the reporting structure, including the ability to pass the same reporting elements to and from subsidiaries, while allowing subsidiaries to continue to use their own nomenclature for all internal processing.

Reduced review time: As a participant in the SEC’s XBRL program, United Technologies (UTC) estimates that the use of XBRL in their financial consolidation for external reporting process has reduced their review time by approximately 20% per quarter.

Vendor independence: Growth through acquisition or local organic growth can result in the introduction of financial reporting systems from multiple vendors, each with their own structures and reporting protocols. Many ERP systems will now allow for the creation of XBRL as an export standard. This allows for the introduction of XBRL at minimal cost, while allowing subsidiaries to continue to exploit the investments already made in their existing systems and processes.