XBRL to Sharpen Banks' Biz Reports
Systems integration and professional services companies such as PricewaterhouseCoopers LLC are urging their banking and financial services clients to use emerging Extensible Business Reporting Language-enabled software not just for reporting to external agencies but to sharpen internal business reports as well.
The Federal Financial Institutions Examination Council is requiring that U.S. banks by the end of this year submit their quarterly reports tagged using XBRL metadata taxonomies. It joins more than two dozen regulators and other public authorities worldwide that have adopted such policies.
Less than four years old, XBRL describes a standard way for reporting business information so that when companies aggregate data from a variety of data warehouses to create reports, the information can be automatically integrated and validated as correct without human manipulation.
Without this automatic integration and validation, the flow of vital information through a business is slowed down at every step by clerks and managers trying to get numbers laid out in different formats to line up.
"Aggregating information is a core competency of financial services companies; it is very important to have the correct aggregated information to assess the risk on borrowers and policy holders," said Mike Willis, a partner at New York-based PricewaterhouseCoopers and the founding chairman of XBRL International, the governing body overseeing the development of the XBRL specification. "Without XBRL, you go back to the pre-Henry Ford type of supply chain."
Willis, who has been involved in the deployment of XBRL-enabled general ledger and other applications, said regulatory compliance is a big reason banks are interested in the specification.
But once they really understand the power of XBRL, banks will use it for internal reporting to make their businesses more nimble, he said.
To take advantage of the possibilities that XBRL offers, however, financial services companies have to do a little software development and a lot of business process re-engineering. Because of this, PwC does not have a separate XBRL practice but includes XBRL experts in its audit, tax, risk management and other practices.
"When you look at a project, it is 5 percent XBRL, 15 percent other technology and 80 percent process re-engineering," Willis said.
In addition to a chief financial officer and a controller, participants in planning for XBRL pilot projects should include the CIO and the information architect.
Banks and other financial services companies would be well-served in initiating their XBRL deployment by infusing the technology into Sarbanes-Oxley compliance efforts, Willis said. This is because SarbOx is focused on managing financial reporting controls, which XBRL aims to improve.
Next Page: Automating the manual manipulation of data.
That process works great for information that is simple, numbers-based data such as debits and credits. But a lot of the information stored in the primary data warehouses, such as lease constraints or cash reserve calculations, can't be automatically meshed in a master file if it has not been tagged with XBRL, he said.
"That [aggregation] is all done in what I affectionately call 'Excel spreadsheet hell,'" Willis said.
SarbOx rules allow a company to have manual processes like that, but it must assign a higher level of risk because manual processes can be prone to error and thus cost the company in the end.
XBRL, particularly in Version 2.1 of the specification, automates that manual manipulation of data and not only helps with SarbOx compliance but also improves a company's overall control of their business, Willis said.
"Focus on manual data exchange" in XBRL pilot projects, he said.
Dan Bellerue has been on the front lines in preparation for the new XBRL reporting requirements. His company, DBI Financial Systems Inc., of Bradenton, Fla., helps banks automate the submission of the quarterly reports, known as call reports.
The company's software collates data from a bank's general ledger and other systems and performs more than 800 validations on it before routing it to the FFIEC.
With XBRL, Bellerue sees fewer hands touching the data before it is submitted to the authorities, which means they have an easier time analyzing the reports.
"That's a big deal to regulators because they want to make sure the report has been validated before they see it," Bellerue said. "They have to be confident that the data has been validated in the way they want it to be."
Because XBRL is an XML variant, deployments generally don't require a heavy rewrite of applications, but programmers do get involved to rewrite interfaces, Bellerue said.
The business process re-engineering that Willis advocates will take awhile to trickle down to his customers, most of which are small and midsize banks, Bellerue said. But even now, he suspects a few large banks are starting to require their large borrowers to submit quarterly reports in XBRL.
All the major ERP (enterprise resource planning) software makers have XBRL-enabled their applications. Other software, including Microsoft Corp.'s Office applications, are also gaining XBRL support.
"In the next six months, as people have the tools and understand what this is, XBRL will get more traction," Willis said. "This will be pervasive in three to five years."