XBRL: Preparing for implementation
Over the past decade, regulators, investors and analysts have been unified by their shared desire for companies to provide more financial transparency. Following mega corporate crises like the infamous Enron and Worldcom accounting disasters, the need for added checks and balances came forth in the form of an acronym we're now all too familiar with – SOX. Some six years later, there's yet another significant acronym in the world of accounting: XBRL.
What is XBRL?
XBRL, which stands for Extensible Business Reporting Language, is a web-based language that allows companies to communicate business and financial data with one another regardless of each organization's technologies or software platforms, thus creating” interactive data.” While entirely different from SOX, there's a similar premise at hand as XBRL promises to provide further insight into a company's finances. It also requires the finance department to implement changes that could potentially require a sizable investment of both time and money in order to execute the data tagging process required for the XBRL implementation. With talk of the SEC coming closer to a mandated timeline for XBRL implementation by public companies, CFOs and finance executives must step back and ask themselves, “Are we ready? And, how can we fully prepare our people who will lead the charge to implement this process upgrade?”
Ready or not?
In a 2008 survey by the Institute of Management Accountants (IMA) and Ajilon Finance, 86 percent of accounting professionals polled reported that their organization was not prepared to implement XBRL. Surprisingly, the vast majority (68 percent) felt that finding and training their people to make the implementation successful was more of an obstacle than the IT component of the project.
While awareness of this interactive data-tagging process has increased over the past year, the confidence of those who will lead these implementation efforts has not. The reasons behind this are twofold:
- Expertise is limited. Asked about their expertise in XBRL, 84 percent of accountants described themselves as novices, while a staggering 0 percent of respondents labeled themselves as an expert. This underscores the fact that the lack of a comfort level around implementation largely extends from a lack of knowledge and mastery of XBRL.
- Companies aren't leading the charge. Only 8 percent of accountants reported that their companies are offering any sort of specialized training to prepare them and their teams for XBRL implementation. Without existing learning opportunities to shed light on the process, persistent hesitance and confusion around implementation is inevitable.
How to prepare.
Despite the fact that the level of understanding and preparedness amongst today's finance professionals around XBRL is limited, there is an increasing likelihood that XBRL is soon to be a mandated implementation for public companies. CFOs and finance executives need to take this information as a call to action to help their organizations get ready before the SEC determines that implementation is mandatory. Here are some tips:
- Implement your own perception audit. There's a general lack of information and knowledge around XBRL across the finance and accounting industry. Does that hold true for your organization? The only way to know is to ask. Whether through informal one-on-one meetings or through your own internal polling mechanism, find out from your staff what they know and what information they need to get more comfortable with XBRL. Then tailor your preparations to the needs of your organization.
- Spread the word. Implementation schedules and mandates continue to be a moving target. While the SEC continues to keep XBRL top of mind and on their strategic agenda for corporations, what's happening in this space is changing day to day. Make sure that you or someone on your team is dedicated to closely following what's happening with XBRL – give regular updates during staff meetings and in company newsletters, intranets or other communication vehicles. If your company has an online Learning Management System (LMS), create regularly updated e-learning modules to help people get up to speed at their own pace.
- Train your employees. As the SEC decides on implementation schedules, employers can act now by fully introducing XBRL to their finance teams so they're aware of what's happening in the industry and how it could impact their role. Bring in an external expert to train your staff or, if cost is an issue, send one high performer for some intensive training and have them lead a class or lunch-and-learn session at the office to educate their peers.
- Recruit for XBRL. When recruiting new staff, keep an eye out for individuals with implementation experience and those who have the right technical skill set. Not only will they be supportive on day-to-day work, they will also help your organization implement XBRL. Some organizations have been part of the early testing process and have already implemented XBRL – keep this in mind as you look through resumes and pay special attention to candidates with this sort of experience as it can be invaluable to your organization.
- Talk to your auditor and consultants. You may need to turn to your auditors for help in implementing XBRL, so it's never too early to start the dialogue on the process. As the SEC works out how and when implementation will be required, auditors and consultants who may be needed to assist with this process can begin to provide their counsel on timing and cost so your organization is fully prepared as soon as the SEC mandates implementation.
When it comes to XBRL, much is still unknown. This is true at the individual accounting and finance professional level, as well as among the very regulators who are leading this call to action. Regardless of the many variables involved, implementation is becoming inevitable. Rather than being reactive and scrambling once mandated, forward-looking and strategic finance executives and organizations will take proactive steps to ensure their employees are ready to implement the most time- and cost-effective implementation possible.
Download PDF.