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Accounting efficiency

Published: 28-JUL-04

Major recent developments in digital communication standards promise to yield improved managerial efficiencies while increasing the transparency and usability of financial information

Extensible Business Reporting Language (XBRL), is a dramatic development - a format that offers great opportunities for organisations in terms of potential cost reductions, efficiency gains, data analysis and transparent information.

By recording accounting information in a digital XBRL format, the technology can drastically reduce the effort and resources associated with the manipulation of the accounting data within key business processes. Most importantly, straight through reporting (STR) can become a reality.

Digitally enabled financial management

High-quality, timely and cost-effective financial information is essential - nonetheless it is frequently obscured by volumes of irrelevant and intricate data. Attempts to make the data useful is tedious and error-prone.

IA true digital data technology, such as Extensible Mark-up Language (XML) can provide a feasible way to solve many problems. It was designed to enable information exchange between applications through corporate intranets or the Internet, while XBRL has been designed to leverage XML to support the business and financial reporting supply chain.

New standards impact on the private sector

In the late 1990s, the G7 Finance Ministers and Central Bank Governors committed themselves to ensure that private sector institutions in their countries comply with internationally agreed accounting principles, as well as standards and codes of best practice.

The EU then required that all listed companies within the Union prepared their consolidated financial statements in accordance with International Accounting Standards by 2005. All European countries are gearing up to adopt these International Financial Reporting Standards (IFRS), and so are Russia, Australia, and a number of Middle Eastern and African countries.

Disclosed information should enable users to compare the financial position and performance of different companies, as well as compare with similar transactions in other industry sectors.

Public sector reporting to follow suit?

Government bodies are experiencing increased pressure for the adoption of stricter external reporting requirements, and will soon have to comply with stricter Generally Accepted Municipal Accounting Principles (GAMAP) requirements. GAMAP defines:

•the elements of the required financial statements

•the recognition and measurement criteria for elements

•the components of the financial statements

•the underlying assumptions of financial statements

•the characteristics of the financial statements.

These requirements mean that reporting structures have to be modified in order to comply, which includes having to re-engineer the chart of accounts and current reporting framework.

Digital solutions

Although XBRL was originally intended for private-sector applications, the public sector can benefit equally from XBRL, by improving financial operational efficiencies.

Preparing and reporting financial statements digitally in XBRL can make it easier for all users to analyse relevant data in a more efficient and transparent manner. Ultimately, the reporting of financial data becomes a standardised process with limited human manipulation of the accounting data.

A successful XRBL initiative was carried out by PricewaterhouseCoopers for one of its financial services clients, Alexander Forbes, which brought together top SA companies in the relevant industry sectors.

The primary objective was to create a standardised accounting process that enabled STR, which is an optimal processing environment for internal and external information management reporting. This environment is enabled by non-proprietary technologies such as XBRL. The objectives of such an STR (or automated) process are:

•to capture transactions once only, which can be re-used

•to manage the accounting information, rather than managing documentation

•to be able to use accounting numbers as information, and not merely raw, unimproved data

•to standardise all functions in the financial processes

•to achieve accurate, consistent, comparable financial reporting with minimal effort, time and cost.

As a large private sector retirement fund administrator, Alexander Forbes handles a multitude of retirement funds for a wide range of customers. The company was investigating ways to improve its business processes, one of which was the preparation of financial statements. It aimed to achieve STR, minimising manual intervention and manipulation of the data.

Several challenges face any new XBRL project or initiative, including the definition of the taxonomy, identifying the data points, and security issues.

Benefits

•XBRL technology enables the management information preparers to 'digitally tag' their accounting information.

•The user can re-use the information within his or her own environment, regardless of the type of system.

•There is no need to continuously recapture data for different purposes, resulting in fewer errors.

•Staff requirements are substantially reduced.

•Accounting processes are standardised and automated, reducing time involved to a few minutes per report.

The benefits of XBRL-enabled technology also apply to internal reporting and decision-making support.

An XBRL STR success story can be replicated by other regulators, and also in private and public sector organisations throughout the world.

Pieter Buys is a Senior Manager, Advisory Services, PriceWaterhouseCoopers, South Africa





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