What do grocery store managers and financial executives have in common? Amongst other similarities, both are at the end of a long supply chain (trade products and business reporting data, respectively) and stand between that supply chain and the external consumer. How can Financial Executives in 2013 benefit from lessons learned previously by the grocery store managers? Read on!
Almost 40 years ago, in 1974, a package of Wrigley’s Juicy Fruit chewing gum was the first product bar coded and scanned using the now omnipresent Universal Product Code (UPC), the bar code designed for retail point-of-sale. That was the spark leading to grocery store managers realizing an adage of supply chain standardization: it’s one thing to apply the bar code to the products when they show up at the store and get put on the shelf; it’s another to push standardization back – potentially, to the beginning of the supply chain.
When grocery store managers were able to push the application of the UPC back to the product’s manufacture, they realized an increased range of process benefits over the already beneficial more automated check-out and physical inventory, including: lowered costs; automated inventory management; more timely and accurate fulfillment; and consumer purchasing insights through behavioral marketing; as well as many others.
Grocery store managers initially had inventory clerks apply the bar codes while stocking the shelves. This was a simple replacement to the legacy pricing gun; instead of a fixed price, the bar code would automate the benefits moving forward and didn’t have to be changed if prices changed. But there were other benefits available, at a lower cost. Are you doing the same thing with XBRL? Are you applying XBRL after-the-fact, as a bolt-on to an existing manual report assembly and review process? If so, you may be experiencing the same outcome that grocery store managers experienced with their initial adoption of the UPC: unnecessary costs and time, mislabeling, and poor quality processes.
When facing regulatory XBRL mandates, many financial executives have chosen to outsource the XBRL tagging and creation process, viewing it only as a compliance requirement; initially relying on third party assistance to ‘tag their reports’. This is perceived as bringing minimal disruption, but also providing minimal potential benefit to the company – and there is incremental cost, guaranteed. Others have seen a net cost reduction, as they have chosen to integrate and push the standardization earlier in their process. The costs (or savings) and benefits realized will be largely dependent upon how financial executives view XBRL mandates: either narrowly, as a simple compliance requirement, or more broadly, as a business reporting supply chain standardization opportunity to streamline a broad range of compliance processes.
Based on a recent survey by the Financial Executives Research Foundation, financial executives are now planning a migration similar to the grocers - away from the initially pervasive bolt-on (or outsourcing) approach to a more integrated in-sourcing implementation model. While there is a range of implementation effectiveness, companies with best practice 'built-in' implementations are realizing 25%+ net cost reduction … and time enhancements as well.
Like the forty year old UPC story, the story of potential benefits for financial executives is not new. A 2009 FEI Issue Alert titled: "Year 2 of the SEC's XBRL Mandate: Caution and Opportunities on Compliance Requirements" highlighted some of the common potential process enhancements and may be useful to companies now considering in-sourcing of XBRL Compliance Requirements. The FEI Issue Alert notes that mapping of disclosure elements to the U.S. GAAP Taxonomy within company report writers (Built-in) rather than subsequently applying XBRL to completed company reports (Bolt-on) provides opportunities for potential process enhancements. This is the purpose of Disclosure Management systems, which facilitate:
* Automation of the assembly process of the monetary debits and credits, as well as the narrative and numeric footnote and MD&A disclosures (compared with manual assembly using word processing and spreadsheets);
* Automation of analytical and validation controls (compared with manually-applied controls using word processing and spreadsheets);
* Automation of the aggregation processes for information relevant to closing, elimination, and other adjusting entries (as opposed to manual aggregation commonly executed with worksheet templates);
* Facilitating contextual review of draft report disclosures by relevant management team members (e.g. enabling simultaneous (parallel) review of disclosure content by topic rather than waiting in line for serial review);
* Enabling collaborative review of draft reports (e.g., online review rather than individual review of hard-copy documents);
* Automation of multiple, alternative, report presentation of the reported disclosures (e.g., annual report, summary report, summary tables, graphs, etc.) using standardized presentation templates enabled by XBRL (instead of hand-crafting individual report each period);
* Transparent access by company management to supporting transaction level information (as opposed to more opaque trial balance access with limited or cost-prohibitive access to more detailed information
* Automated documentation of explicit links to technical sources, accounting and reporting memos, subject matter experts, specific and relevant company policies, creating a sustainable knowledge base.
A 2012 blog posting “How to Differentiate Disclosure Management Features” may help companies differentiate individual application feature strengths and weaknesses of different Disclosure Management tools and how they relate to company specific reporting environment process, controls and diversity of reporting requirements.
The January 2013 Center for Excellence in Accounting and Security Analysis (CEASA) white paper “An Evaluation of the Current State and Future of XBRL and Interactive Data for Investors and Analysts”, provided a number of recommendations, noting that financial executives should work on improving the quality of their own data, as well as on making their own data more useful and accessible to consumers of their information. For many companies with manual review processes, this may be easier said than done.
While the common errors outlined by US Securities and Exchange Commission (SEC) Staff are basic accounting / reporting issues; many financial executives limit their review to comparing the rendered view of their XBRL report with their traditional report as their primary assessment method. This approach, which ignores mappings and other vital messages about their information, makes it difficult to effectively identify common errors within their XBRL reports; it is like trying to validate formulas in an Excel file by reviewing a fax transmittal of the worksheet. Undoubtedly, this rendering review results in a very frustrating process for both financial executives and the potential users of the XBRL reports.
The common errors are largely found in subjective and or judgmental areas including: backward amounts (e.g. debits reflected as credits and vice-versa); inappropriate company specific extensions; disclosures not tagged; totals that don’t add up; missing or incorrect contextual data (e.g., “I am six gallons tall”); and other subjective or judgmental items. These subjective errors cannot be automatically detected – they require someone with business savvy to catch them - and thereby are commonly found in company reports. Using appropriate analytical tools that enable more effective identification of these types of subjective error types is a great step towards more efficiently identifying errors and resolving them. Tools that can help financial executives effectively identify judgmental errors range from open source products (free) to $2,500 and include applications like: Arelle; Corefiling Magify, Fujitsu XWand, XBRLCloud and XBRL US Consistency Suite, to name a few.
At the end of the day, grocery store managers’ reliance on the accurate and cost-effective application of supply chain standardization at the beginning of the supply chain (rather than at the end) enabled a broad range of economic benefits. The costs and benefits realized by financial executives will be largely dependent upon how the XBRL mandates are viewed; narrowly, as a compliance requirement, or more broadly as a business reporting supply chain standardization opportunity to streamline a broad range of external and internal compliance processes and controls.