While the adoption of standards for external business reporting is inevitable, by essence this process is a [4]dynamic road. Its original proposed structure will have to withstand the test of usage, while the standard itself changes over time to improve its usefulness. Most likely a series of problems will arise which include:
* Heterogeneous acceptance of the standard across countries and sectors.
* Some regional differences in the interpretation of the standard
* Some features of the standard will become entangled in local legislation and practice causing incompatibilities
* Some adoption will be statutory some voluntary
* A Babel tower of taxonomies will emerge before some simplification and mapping occurs
* The expansion of the standard to less specific (semantic) regions of business reports will be slow and confusing. For example the labeling of footnotes will evolve naturally.
* After some positive standardization of balance sheet, income statement and fund flow information is likely that there will be some progressive agreement on key disclosure items and performance indicators which will have specific tags. These agreements hopefully will be synchronized with the emergence of some consensus on EBRM[m9] . Furthermore, key elements of common footnotes and other non-financial data will be progressively tagged with specificity.[5]
Financial intermediaries will be in the cusp of this evolution adding structure to the evolving (and increasing) standard. For example, they will create databases of XBRL disclosures and add data integration with additional sources to decrease transaction cots to the users. Also, they will progressively incorporate the above mentioned key disclosure items and performance indicators into these databases, saving the users the need for data collection, manipulation, backward compatibility construction (creating time series) and model building. While the large financial shops will continue building their own models, smaller entities and committed investors will use templates provided by these financial intermediaries, increasing substantially the democratic nature of market information.
Furthermore, while the traditional domain of data will be expanded in search of transparency and made accessible and easily usable by XBRL, many sources of less traditional information will come to being. For example the FDIC is formalizing the usage of XBLR in the collection of call report data from banks and applying a large set of business rules during the collection process both to decrease the potential of errors, as well as to allow analytic technologies weed out fallacious reports.
US corporations are subject to many reporting regulations such as the FCC, PGC, NYSE, OSHA, etc.. These regulations will eventually require reporting along a type of XBRL taxonomy and substantive convergence towards common requirements in an attempt to decrease the compliance burden. Financial intermediators will lead in the creation of these integrated databases and serve as a bridge towards common taxonomies and the creation of data streams that are backwards compatible. (go back and prepare data for periods prior to regulatory requirements)
XBRL as well as many of the other XML derivative standards[MAV10] will create a much more fluid path for data exchange. Figure 5 displays the interchangeability of internal and external value chains and the free flow of transactions of different nature (say labor, material, purchases, and services). These relationships, which are structural, can be modeled and controlled by the use of real time adaptable relationship models (continuity equations). Companies will choose the processes where they have competitive advantage and will outsource (create alliances, partner) the ones where they cannot provide improved margins. As a result, an entire new set of data integrity and ownership concerns will emerge.
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Figure 5: Data transfer chains
The flow of this data will allow a new form of automatic corporate reporting and management to evolve. The transactions flowing through the pipe will be constantly measured and accumulated to have online-real-time balances of transaction flows that may or may not be disclosed[6] to the public. Figure 6 illustrates the arrival of three different types of transactions that are accumulated into continuous “income statement type” reports .
Ultimately twenty first century reporting will focus on the monitoring and control layer where measurements of corporate processes will be compared with process performance models for the determination of variances. If these variances turn to be too large some form of management reaction will be necessary. In a real-time society much of this comparison and following management reaction will be automated thru some simple management bots[m11] (automated management actions) while some unusual events will be relayed to real managers or audit action. Transactions will be accumulated into detailed general ledger accounts (following an XBRL/GL – more detailed – taxonomy) and will be available in the company’s Enterprise resource Planning System’s database for extraction. These extracts will typically be very numerous (in the form of tens of thousands of electronic reports) and standardized from the particular version of the ERPS. A small subset of these reports will be extracted and carefully staged to represent the corporate “official” business reports. These business reports will encompass the corporate Balance Sheet, Income Statement and Funds Flow that are currently easily tagged into XBRL but will also serve as the basis of a wide cadre of footnotes, body of the financial statement and information releases to many different entities and stakeholders.
Further into the future some degree of semantic processing technology as well as the issuance of standards[7] will allow for progressive business report content to be narrowly coded into XBRL tags. Consequently, and finally, an increase in transparency, such as clear comparability, will be possible in the footnotes such as pensions, compensation, accounting policies, extraordinary events, contingencies, options warranted, marketing plans, intellectual property assets, human resources deployed, intangible assets owned, etc.
Corporate Management Accounting is now the owner of a wide set of information. In the modern world, state-of-the-art companies have much online / real-time information. For example, no bank could live without their current daily financial balance closing as they would not be able to apply it overnight, no manufacturing concern could live without real time inventory information as they would not be able to practice just-in-time manufacturing, and most companies would have great competitive difficulties if they did not have real time payables and receivables information to collect or provide discounts based on time characteristics. [P12]
The monitoring and control process will eventually dominate corporate information processing with many of its components automated, as standards will evolve to provide interoperability. The next two decades will witness progressive development of management action algorithm using automatic (XML derived) data standards for accelerating the time delay (latency) of the performance of processes themselves and the transmission of data among processes. While current technology does not seem to be able to substantially accelerate trucks and airplanes to deliver goods between locations, to decrease lunch breaks of clerks, or increase/decrease [P13] the speed of consulting engagements, modeling and decision automation will accelerate dimensionally management action and bureaucratic information processing.
Figure 6: the reporting layer
The business reporting cycle will also suffer substantial acceleration. Recently Cisco and Motorola have announced their “virtual close.”[MAV14] This process brings the accounting closing to the daily cycle and allows for a substantial decrease in accounting adjustments and end-of-the-period earnings management. This process will also increase the volatility of results reflecting the realities of the real-life business process. While “continuous reporting” should be a process with NO CLOSINGS, and a constant set of balances, the “virtual close” has approximated its timing. Although in reality, real time reporting has its technological foundations available now for many companies, the business reporting, legal liability and management’s reticence for accountability at many dimensions, has effectively slowed down the adoption process.
The W3C consortium (Word Wide Web Consortium) has proposed not only a web infrastructure but also tool for Web development (SOAP) and the basic framework (XML) standards for data interchange. It has also formulated the philosophy of a progressive anonymity on the Web where data flows through the universal data bus (Internet) and applications can sniff it out and provide interoperable services. While this vision is still quite fuzzy it can be visualized in many domains and now is the venue of many starting commercial efforts.[m15]
An entire family of potential Financial Web Services that will cover the scope of many current services and prospective ones in represented in Figure 7. While today accounting functions are performed inside a series of software for large, medium and small companies, in the future many expensively updated functions (such as locality and state tax tables) will be served by Web Services. It is easy to envisage depreciation services, asset valuation services, intangible valuation services, option valuation services, transaction security and tracking services among many.
Today we already find many companies (say Boon) providing special reporting functions for example for the SEC and for the FDIC. Many layers of special reporting are possible and will eventually evolve to support business.
In the assurance arena we have currently a major standoff due to the emergence of the PCAOB (Public Company Audit Oversight Board) and the ensuing immobilization of the the AICPA, big accounting firms and other related market players. However the reality is that many different assurance needs are arising some of which are being satisfied by the accounting profession while many others are either being ignored or are being addressed by other professions. The AICPA[8] [9] [10]has reacted by creating the WebTrust and Systrust services which have not yet developed substantial traction. Eventually however, Web based assurance Services, more robust than the current Webtrust, Trust-E, etc will emerge to support Web site trust, transaction trust, valuation trust, data trust, etc.
Three other high potential financial services will involve analytic services (where the Web entity will provide models for the lower and middle markets), fraud detection services where transaction streams and balances will be continuously scrutinized and compared with fraud profiles, as well some form of data level assurance where each data will have a tag(s) indicating its level of reliability, its path, and the reliability of its underlying control processes.[P16]
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Figure 7: Web Services
