Before the introduction of radio, most people received the news by way of newspapers. One of radio’s most early practices was to read the newspaper over the radio. This was because the people using the new medium did not yet understand how to use the new features of radio. Subsequently, producers of radio programmes learned to use it to its full potential. With the launch of its proof of concept hub for the collection of financial information in an interactive data format, hereafter referred to as the pilot project, the JSE Limited (JSE) is on its path to provide a “radio” for the collection and exchange of business information. This radio will use eXtensible Business Reporting Language (XBRL) as the backbone for exchanging the information in an interactive format.
XBRL is rapidly emerging as the global standard for electronic communication of business and financial data. In his article Transparency is more powerful than regulation published on 30 March 2009, L. Gordon Crovitz 1 made the following comment: “It didn’t get much attention, but earlier this month Congress got a lesson on the potential of better disclosure. Today’s financial crisis was driven in part by a lack of accurate, easily usable information to give investors what they need to make informed, responsible decisions, testified Mark Bolgiano, chief executive of a non-profit technology and accounting consortium called XBRL US. “The value of toxic asset-backed securities remains a mystery because information on the underlying loans and ongoing viability of those loans and the securities themselves was not collected consistently and even if it had been, it would not have been in a usable, portable form.”
XBRL sounds complicated, but eXtensible Business Reporting Language is simply a new technology language that allows data to be easily extracted, searched and analyzed. XBRL is already being used for some equity disclosures, tagging financial information into a globally consistent, computer-readable format.
Regulators are normally first to see and understand the benefits of collecting and exchanging information in an interactive data format. Various regulators around the world have already mandated the use of XBRL as the primary means for collecting business information. The most recent and eminent of these being the United States Securities and Exchange Commission (SEC), which announced during December 2008 that they will be phasing in the adoption over a period of three years. To this end, the JSE is no different and initiated a pilot project towards the end of 2008 in order to explore the possibility of having a centralised data hub where companies can submit information in an XBRL format. As Freda Evans (CFO of the JSE Limited), a passionate evangelist in the world of XBRL, explained: “The information in this hub will then be available for further consumption by relevant stakeholders”.
What were the objectives of the pilot project?
The objectives of this pilot project were mainly to provide an electronic tool:
• to automate the compliance testing of regulatory filings (the JSE Listings Requirements in this case); and
• to investors, potential investors and analysts to be able to search and extract information for further analysis and consumption.
What was the scope for the pilot project?
Eight South African companies from the following industries participated in this pilot project:
• Banking (4 companies);
• Mining (2 companies); and
• Financial Services (2 companies).
This involved tagging/mapping their financial information into an XBRL format using a mapping tool and relevant digital data tags. Information that already existed in the public domain for a period of three years (both interim and final financial information) was tagged to the IFRS list of tags (taxonomy), with certain extensions to the IFRS taxonomy.
What is an extension?
The IFRS taxonomy was developed by the International Accounting Standards Board (IASB), which contains tags or placeholders for all possible reporting facts in terms of its published IFRS Bound Volume. This taxonomy currently contains approximately 2,700 tags, but does not cater for 100% of the needs of today’s financial reporting practices. Financial reporting facts (elements) can normally be arranged in the following four categories:
• Accounting literature requirements (for example Revenue in terms of IAS 18).
• Regulatory reporting requirements (for example Headline earnings per share in terms of the JSE Listings Requirements).
• Industry specific requirements (for example Metric tonnes mined disclosed by the mining industry).
• Company or reporting entity specific requirements (for example, Commission income where this amount is considered to be material to justify disclosure).
In order to provide tags for the information to be disclosed in financial reports as a result of bullets 2 to 4 above, the IFRS taxonomy needs to be extended. Once the extensions have been created and the information tagged, a user of the XBRL document can quite easily distinguish between IFRS reporting elements and extensions to the IFRS taxonomy. Analysts can therefore pre-map the IFRS taxonomy into their current models and therefore just deal with the differences or extensions. This will most certainly speed up the analysis process.
How many extensions were created for the financial information of the eight companies?
The following table summarises the details of the taxonomy extensions created to represent complete annual reports of the eight companies involved: see table below.
Table 1 (Source: IRIS)
Industry
Industry specific extensions (Avg.)
Company specific extensions (Avg.)
Total company specific extensions
Banking (4)
230
150
600
Mining (2)
125
125
250
Financial Services (2)
90
125
250
Total
445
400
1,100
Regulatory requirements
150
Close to 1,100 taxonomy extensions were created for the eight companies across three industry sectors. This is in addition to the 445 Industry specific extensions and 150 Regulatory Requirement extension elements.
What does this centralised data hub look like?
The requirements for the creation of a centralised data hub were that the information inside the hub needed to be accessible via a web portal. This will ensure a central point of reference for the deposit and collection of information to be used for analysis and/ or consumption. The web portal provides summary reports, ratios and graphs using the underlying tags of the XBRL document to present the information in a structured way. A user selects, through a couple of drop-down lists, the summary information to be displayed on screen (i.e. industry, company, financial year and whether it be interim or annual financial information). Multiple companies for multiple financial years can be selected to be compared next to each other. The web-application then dynamically builds ratio comparisons in a graphing format to compare the companies with each other.
The web application furthermore provides download functionality, where a user can choose between downloading the financial information in PDF, Excel or XBRL. The excel tool populates an Excel spreadsheet using the information in the XBRL document, which provides more detailed information than that displayed on the web interface itself. These digital XBRL tags allow for the standardisation of financial reporting definitions against a recognised framework, namely IFRS, and any extensions to the IFRS taxonomy can then be dealt with separately when doing analysis. The benefits of using these XBRL tags include increased comparability, automation, more reliable and accurate handling of data and improved analysis capabilities for a variety of users.
What about the automated compliance checker?
The automated compliance checker will specifically be used to test compliance with the JSE Listings Requirements. The JSE Listings Requirements taxonomy will be loosely coupled with the IFRS taxonomy, which will enable companies to tag their disclosures, and submit this XBRL document to the JSE in an electronic format. The compliance checker will then automatically accept or reject the filing, depending on predefined business and validation rules. The turnaround time on compliance with the JSE Listings Requirements is therefore significantly reduced. As part of the pilot project, the following five JSE Listings Requirements were selected to test compliance:
• Directors’ interests in contracts
• Shareholder spread
• Share incentive scheme
• Directors’ emoluments
• Headline earnings per share.
The compliance checker won’t be visible to the company submitting the information as this will be a tool used in-house at the JSE. The company submitting its XBRL document will merely do this through the web portal, and then receive feedback on the compliance of the filing.
What are the next steps?
The centralised data hub pilot project was showcased to the eight sponsoring companies in the first quarter of 2009. After that, the hub was showcased to the analyst community in order to get their feedback on the pilot project. It is anticipated that once the analyst feedback has been received it will be incorporated into taking the data hub to the next level and allow companies to file to the JSE voluntarily in an XBRL format. In all likelihood, the voluntary filing programme will be up and running before the end of this calendar year and companies can start preparing information in an XBRL format and submitting it into the centralised data hub.
As Freda Evans rightly said: “The JSE is excited about the benefits this central financial information hub will provide in the areas of submission and review and timely information sharing with various stakeholders”.
Conclusion
The voluntary filing programme will provide different ways in which information can be submitted to the JSE to cater for those companies that won’t have the expertise in-house to prepare XBRL information. One such a way is a predefined form (much like a PDF document) that can be filled in and submitted to the JSE, which will then extract the information in an XBRL format as the XBRL tags will live inside the form where the human eye can’t see them. But seeing is believing…
Theodore de Jager CA(SA), BCom (Hons), MCom, is a Manager in Accounting and Auditing Technical and is also part of the team that heads up XBRL at Deloitte.
