All the debates over reform of the financial markets share one common theme: the need for greater transparency. DTCC, in conjunction with XBRL US and SWIFT, is making the case, most recently at the XBRL US National Conference, for leveraging a proven technology tool – XBRL (eXten-sible Business Reporting Language) data tagging – to increase transparency in corporate actions.
Since the three organizations launched their “Issuer to Investor: Corporate Actions” initiative in May 2009, they have used industry conferences, a series of stakeholder group meetings that bring together issuers, intermediaries and investors, one-on-one meetings with issuers, and a survey of key public companies and intermediary firms to solicit input for a business case that lays out the benefits and challenges of using XBRL to automate corporate actions communication.
The Issuer to Investor (I2I) initiative is building on the experiences of the first adopters of XBRL technology – the large public companies involved in the initial integration of XBRL into their Generally Accepted Accounting Principles (GAAP) reporting earlier this year – to urge the issuer community to extend XBRL data tagging into corporate actions, where the transformation of event information from text to standardized data can occur at the source – that is, with the issuers.
Shareholders and investors will then benefit from improvements in efficiency, timeliness and accuracy, as the information passes down the announcement chain that today is beset by a proliferation of manual processing.
In his keynote presentation at the XBRL US National Conference on November 17, Donald F. Donahue, DTCC chairman and CEO, said, “The widespread adoption of techniques for distributing data in ‘structured’ form is going to be key to achieving the higher levels of transparency that today’s financial markets will demand.” (See an excerpt from the speech here.)
Donahue’s address kicked off the meeting in New York that brought together representatives of public companies, technology firms, regulators and other parties extolling, challenging and exploring the current and potential uses of XBRL in the many facets of financial reporting.
Kathleen Casey, commissioner, U.S. Securities and Exchange Commission (SEC), reinforced the main XBRL conference theme in her address with attendees from Financial Executives International (FEI) Current Financial Reporting Issues Conference by noting the demand for increased transparency and how transparency is defining the terms of new regulations being drawn up for the financial markets.
Taylor Hawes, CFO, Intellectual Property & Licensing, Microsoft Corporation, and chair of the XBRL US National Conference Advisory Committee, called 2009 a “watershed year in the transformation of financial reporting – taking information out of the world of paper and into a digital world where accuracy, transparency and better communication are just ahead.”
Microsoft, as a pioneer in the use of structured data, led a list of public companies at the conference that have participated in the first year of fulfilling the SEC mandate on using XBRL. The companies provided significant insight into best practices and lessons learned during the implementation of XBRL for financial reporting and, along with the technology providers, identified new opportunities for using tagged data as the mandate expands.
XBRL technology, because it was derived from XML (eXtensible Markup Language), has been on the table for over 10 years, but only recently have market conditions been supportive of its use. The SEC mandate this year for the largest companies in the U.S. to tag their data with XBRL for GAAP filing was successfully realized in June 2009, with more companies to follow suit in the next year.
Several conference participants emphasized that other countries, such as the Netherlands and Australia, are farther along than the U.S. in mandating and using XBRL for all levels of financial reporting in the public and private sectors.
With the market crisis and a regulatory mandate driving the first phase of XBRL adoption, issuers and technology providers described XBRL as a technology “in its infancy” that “is not yet at full speed.” Jeff Morgan, CEO, National Investor Relations Institute (NIRI), struck a cautionary note in pointing out some of the challenges U.S. public companies have faced in implementing XBRL – for instance, the learning curve for staff, technology investment and adjustments to the data elements.
Speaking on a conference panel addressing “The Next Frontier in XBRL,” David Hands, director, Product Development, DTCC Solutions, pointed to corporate actions as the next logical step in the expansion of XBRL implementation. Proxy statements, where an XBRL taxonomy has been created, and internal financial reporting were among several other possible uses identified for data tagging. Many conference attendees pointed to the logic of a fully integrated use of XBRL internally and externally for public companies to achieve the greatest benefits from the technology. “XBRL can play a multi-functional role throughout a company, passing through the corporate silos and transforming the way data are reported and shared all across the industry,” said Hands.
Looking beyond the early promise of XBRL, DTCC’s Donahue stressed that distribution of data using markup languages such as XBRL will be imperative to gaining entry to new markets and to willing investors. “Issuers that adopt XBRL will garner wide and deep interest in their securities, while those that do not will increasingly be shut out of the markets,” he said.
While the I2I initiative is leveraging industry conferences as an important advocacy platform, it is also relying on stakeholders in the corporate actions announcement chain to provide detailed input on the current corporate actions process as well as to advise on the benefits and obstacles of turning XBRL data tagging, based upon an ISO global standard, into a best practice that issuers will willingly adopt. The input offered by stakeholders will help with preparation of the formal business case to be made available initially to stakeholders and regulators in early 2010, followed by general distribution through industry organizations and on the web. Stakeholder involvement is also fueling a public education campaign for market participants aimed in particular at engaging the issuer community and gaining its commitment to data tagging at the source.
For background on the Issuer to Investor: Corporate Actions initiative, visit www.dtcc.com/products/gca. @
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