Tuesday, March 25, 2014

Top 10 Other Industries XBRL Can Impact, Pt 2

by: Paul C. Bevins, Account Executive

In part 1 of this series we discussed environmental disclosure, private finance, construction, federal transparency, and MuniXBRL. Now let us now consider the next five industries that XBRL could impact.

Banking – This one is sort-of a softball, given that the banking sector has had an XBRL mandate that predates the much-publicized public sector mandate in 2009; in fact, the banking sector has been filing in XBRL since October 2005. Additionally, many banks are publicly traded, so this may seem redundant. However, banks file XBRL with the Federal Deposit Insurance Corporation (FDIC); and credit unions file XBRL with the National Credit Union Administration (NCUA). As XBRL becomes more wide-spread and better understood by all industries, the practical value of the banking “industry’s” XBRL will increase, inspiring further integration and realizing efficiencies as Banking, SEC, and possible GL filings are prepared. All of this means more transparency and additional information will be available to the public for analysis. And as we consider this, we can look to the success of the European Banking Authority (EBA) and their EuroFiling project. It is also interesting to note that the adoption of XBRL in Spain was initially through their banking sector, “an early leader in the push for XBRL to enable consistent and efficient cross-border communications with its fellow European Union (EU) members”. Read more about this in “The State of XBRL- Europe”.

Medical – At the center of the complex world of healthcare is an abundance of information. If harnessed, this information could allow the World Health Organization (WHO) and other national and local health organizations to track health trends and identify possible epidemics, identify infectious disease strains, and reduce administrative overhead through process automation. For instance, the invoicing process could become streamlined with the automated processes, drawing upon the tagged data. ICD-10 is the first step toward standardized medical coding, and could serve as the foundation for a “MediXBRL” taxonomy. Read more about “Medical Coding and XBRL”.

Intra-Company – The XBRL Global Ledger Taxonomy Framework (XBRL GL) is a standard developed for intra-company usage, bridging “transactional standards to reporting standards”. The idea is to simplify the process of external reporting by recording everyday business transactions in XBRL so that generating the quarterly 10-Q or annual 10-K will be a seamless part of the business practice. XBRL GL “provides a way to transaction data from the general ledger as well as payables, receivables, inventory balances, and other assets/non-financial data to a format conducive to reporting.” Therefore, a benefit of GL would be in its ability to take data from one financial system and import it into another, streamlining the process and eliminating the need to rekey data entries. This would be of great use for both public and private finance internal processes. As such, though XBRL GL would be the focus of private finance (item 2), tax (item 9) and charitable organization (item 10) adoption of the standard, this merits individual mention here primarily as it pertains to how it could further affect and improve corporate finance from an internal perspective. From this perspective, the adoption of XBRL GL could also directly impact and streamline the process of preparing public XBRL for the SEC, as much of the filing would be ready-to-go in electronic format from internal use; it could then tie directly to the USGAAP concepts in the public filings.

Tax – To more fully integrate a company’s accounting systems with external reporting, a logical next step would include reporting internal business transactions in XBRL, as shown in the “XBRL GL” note above. Coupled with the existing external reporting mandate for public filers in XBRL, it would require little more integration to produce tax filings as well. A company that reports with XBRL GL, XBRL-Tax and SEC-mandated XBRL will begin to realize the benefits. Skip Falatko, CPA Director of Finance at MACPA, stated that “Ubiquitous XBRL could do for accounting/taxation what bar codes did for retail”. As one example, automating the process by mapping the XBRL GL tagging to the IRS Form 990 would save tax-exempt organizations many labor hours and overhead costs each year. The United Kingdom already requires the filing of company tax information to the federal government. While the tax preparation industry will initially require time to become acquainted with the new standard, XBRL could expedite the filing process for both filers and revenue agencies. And, just this past February, a draft tax reform proposal was released by House Republicans. This proposal included "a mandate for the Internal Revenue Service (IRS) to expand electronic filing to all nonprofits and publish the data in a structured format"; and the proposal reflects similar legislation introduced by Senate Democrats. More can be found on the Data Transparency Coalition website.

Charitable Organizations – This is a good segue to our last "industry", charitable organizations. It would make sense if charitable organizations adopted the use of XBRL as a means of disclosure to donors. This disclosure could serve as a means to drive additional donations by providing donors with increased transparency and a better understanding of how their donated resources will be utilized. Organizations can highlight 1) their percentages of donor funds used for the primary purposes versus overhead; 2) their “spending focus”; 3) their efficiencies; 4) measure themselves in a “peer comparison” manner against other similar organizations; and more. Charitable organizations could also use this data internally as a means to track donor trends to more accurately anticipate the likelihood of donor contributions and with the estimation of expected donation values. Nathan Summers* notes that, “XBRL can be used to more finely break out things that lie in the gray area between primary purpose and overhead, so that the donor can draw that line where they feel comfortable.” These internal activities would not violate privacy standards since most organizations have these tracking processes in place. However, XBRL would enhance these current practices by more fully integrating with the front-end transparency uses and would result in an overall reduction in administrative burden (reducing the need to re-key; reducing the probability of errors, and then requisite review processes; etc.). And again, this industry could also be served well by an automation of the Form 990 process (noted above). The Aspen Institute published the "Nonprofit Data Project of the Aspen Institute", which highlights the need for nonprofit open data.

The implementation of XBRL, both in the United States and worldwide, has led to discussions about what other industries would be benefited by implementing a variation of the XML-based language. Again borrowing the 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.”

Let’s begin to seriously consider the adoption of XBRL in more areas than corporate finance. And then you can also imagine the implications of standardizing the way that all organizations and companies speak finance, not just the public sector.

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

Nathan Summers serves on the XBRL Standards Working Group and is a CompSci software engineer. He also authored a popular article explaining XBRL Negation and is a co-author of patented XBRL technology.