Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi America, Ltd. XBRL Speeds Closing and Reporting
Written by Bob Schneider Posted May 25, 2007
Close Fast, Close Smart (CIO Asia, May 2007) is an extremely worthwhile article about how companies can close their books faster and the resulting benefits. Shortening the period-end accounting process by a few days may not seem like a big deal. But as the article’s author Galen Gruman states:
Increasingly, the speed with which an organization closes its books and reports its financial results is being looked at by practitioners, analysts, and investors as a defining metric for evaluating whether the organization possesses the best possible processes and enabling technologies. And it turns out that many companies don’t, even those making huge IT investments and supporting equally large IT departments.
For large public US companies, faster closings aren’t simply a matter of choice. Since December 2006, “large accelerated filers” (typically those with public floats above $700 million) have 60 days to file their 10-K’s, down from 75 previously.
But the benefits of accelerated closings extend far beyond meeting SEC deadlines. As Gruman describes, fast closings demand that the company rethink and redesign its financial processes. In adopting the new technology and systems required, managers gain a near-real-time view of financial performance that lets them spot opportunities and problems much sooner. Because the relationships between all financial information are much better understood, managers can perform better analysis. And faster closing builds confidence among investors who assume, often correctly, that a company that can’t get its numbers out doesn’t have its act together, or may be trying to hide something.
Integral to speeding closing is ensuring compliance to Sarbanes-Oxley and a host of other regulatory requirements. Indeed, in one real-world example Gruman describes, SOX was instrumental in getting mangers to review the closing process because “it exposed all the touchpoints in the process where errors could creep in.” One executive cited says that truly adhering to Sarbanes-Oxley’s requirements “was impossible to do with spreadsheets, e-mail and PowerPoints” because of the difficulty of validating the accuracy and consistency of such disparate, individually maintained data.
This discussion reminded me of the XBRL-GL outreach call I wrote about a couple of weeks ago. In this talk, Walter Hamscher described how the onerous compliance regimes companies now face require them to rethink their information systems, because it’s impossible to achieve compliance goals without built-in controls. In this environment, the adoption of XBRL can be extremely effective across a wide range of compliance processes.
I was therefore happy to see Gruman discuss the benefits of XBRL at some length. He focuses more on XBRL’s impact on financial reporting than the closing process. But he also includes these comments:
XBRL has been touted by the SEC as a way to make information more easily accessible to investors and regulators, but there’s a direct benefit to the enterprise itself XBRL also provides structure for validation rules, queries and analysis rules, notes Mike Willis, a PricewaterhouseCoopers partner. If XBRL were introduced throughout the enterprise’s financial closing and reporting process, rather than simply used as a report format after the fact, users would gain new controls and insights into their data, Willis says. “They can automate analytic rules rather than auditing manually, which would reduce costs and speed the process,” he adds. Plus, the use of XBRL would ensure that a company’s reports reach their stockholders (and analysts) unfiltered by third-party aggregators. “It lets companies tell their own stories,” says Willis.
It’s always interesting when a seemingly mundane goal like closing the books a couple of days sooner can have a wide-ranging impact throughout the organization. This article offers additional testimony to the power and usefulness of XBRL, and it is well worth your time.