Tuesday, March 11, 2014

Top 10 Other Industries XBRL Can Impact, Pt 1

by: Paul C. Bevins, Account Executive

The United States Securities and Exchange Commission (SEC) has mandated that public companies file their quarterly 10-Q and annual 10-K reports in eXtensible Business Reporting Language (XBRL) since 2009. The SEC has also mandated the same from mutual fund managers for their risk/return summaries. And while there have been growing pains as the standard has evolved and the taxonomies have matured, many would agree that XBRL has powerful potential, especially as accuracy, usage, software solutions, and analysis become more integrated into everyday business practices.

The implementation of XBRL, both in the United States and worldwide, has led to discussions about what other industries would benefit from implementing a variation of the XML-based language. The list below was compiled to highlight possible additional applications for XBRL.

Here is one list of the Top 10 “industries” that XBRL can impact:

Environmental Disclosure – The general public has a great interest in knowing companies’ environmental policies and statistics associated with that (carbon footprint; wetlands used for company construction each year; recycling efforts; etc.). The government, the Environmental Protection Agency (EPA) in particular, has an interest in this information being easier to access to assess a company’s performance and compliance with laws and regulations. To that end, businesses have an interest in making that information available to maintain or improve public perception, especially as it pertains to current and potential future investors. Furthermore, adoption of environmental XBRL could streamline the overhead involved in government reporting. The Climate Disclosure Standards Board (CDSB) is one such organization promoting open-environmental data from companies. In part, they strive to make environmental information more accessible so that investors can better inform their investment decisions by utilizing that data. You can read more about the CDSB here.

Private Finance – With organizations like the Maryland Association of Certified Public Accountants (MACPA), and Tom Hood in particular, leading the charge, there is already a push to begin standardizing the private world in the same way as the publicly traded companies. The benefits would be realized with common reporting practices, industry comparability and compatibility, and more transparency to inform the private investment decision-making practices. Benefits could be further realized through comparable XBRL adoption by the IRS for tax forms (more on that to come in Part 2). With the private world’s adoption of XBRL, a new market for tagging and analysis would provide the tools to make sense of this data and use it for investment purposes. Additionally, as companies transition from private to public ownership, part of the difficulty with that transition would be alleviated if XBRL is already being used.

Construction – The construction industry realizes a substantial daily intake of data for materials tracking, labor hours expended, required equipment, and tools. All of this data can be “dimensionalized” in a sense, as you consider integration with schedules, time intervals allotted, time intervals realized, fuel usage by equipment, replacement time for tool and equipment parts. Labor and associated tools, equipment can all be tracked by specific work activity (such as excavation or rebar installation). The contractors can easily produce reports that show total amounts of concrete needed for a project in total, and then the concrete can also be viewed by activity (bridge deck, wall footings, etc.); this would assist contractors as they procure materials contracts. Additionally, these items can correlate to cost and billing rates, and allow for automation as it pertains to quantities (or percentages) completed for a particular billing period. The invoices could be automatically generated and schedules could be updated with just one staff member inputting daily production rates, rather than inputting that data three times into three systems. If the contractor is working on a government contract, the XBRL data could also seamlessly integrate into their review and payment systems, generate payment for the contractor, and populate required reports for the government to publish for the public (refer to the next two items for more on this). And should private business also adopt the standard (as discussed above), the same benefit could be realized for remaining contracts.

Federal Transparency – With the impending passage of the Digital Accountability and Transparency Act of 2013 (DATA Act), the Federal government is ready to adopt a system that requires its finances and spending to be reported in a machine-readable, searchable structured data format that the public can see and use. The allocation of all federal funds will be reported, and the Recovery Accountability and Transparency Board, with the Inspectors General, will be reviewing and enforcing the quality of the data. XBRL is the logical structured data format to adopt to meet these guidelines. You can read more about the DATA Act here.

MuniXBRL – Transparency is a key to public confidence in government, and this is the case at the local level as much as it is for the federal government. The adoption of a technology standard by which the municipal agencies can track and share financial data would be at the heart of the conversation about transparency. Furthermore, transparency at the local level can make strides to alleviate recent investor concerns about bond defaults, bankruptcies, and credit concerns. Dr. Marc Joffe states that “Just as greater disclosure by over-the-counter equity issuers in the 1960s resulted in a significant one time increase in their stock prices, improved disclosure by cities can produce a significant one time reduction in their spreads relative to Treasuries as fear and speculation give way to facts and figures.” XBRL could be the solution as municipalities begin to adopt comprehensive and more complete means of keeping their constituents informed. Note: Much of the information here was drawn from The Case for MuniXBRL by Dr. Marc Joffe and XBRL for Municpal Disclosure: Good or Bad? by David Vun Kannon.

This concludes part 1 of this two-part series on the top 10 industries that XBRL can impact. For now, let us consider more words from David Vun Kannon’s article on municipal XBRL, “The advantage of XBRL is not just that it is an incumbent technology, but that it became an incumbent technology by virtue of its benefits.”

Please also read part 2, where we explore XBRL use within banking, medical, intra-company, tax, and charitable organizations.

This is just one list. What are your thoughts? What should have made this list but did not? What do you disagree with?

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