XBRL and web services will help regulatory compliance, says PwC

The report comes as businesses struggle to meet the demands of new regulations such as Basel II.

XBRL is an electronic format for simplifying the flow of financial statements, performance reports, accounting records and other financial information between software programs. Until recently, there were no standards that would allow financial information to be automatically communicated between different applications.

Companies often manually assemble financial information from different systems in order to prepare financial reports, resulting in high reporting costs. The lack of standardisation makes it difficult for consumers of business information to track a company's performance and assemble information from multiple corporations for analysis.

XBRL defines a consistent format for business reporting and will streamline how companies prepare and disseminate financial data, and how analysts, regulators, and investors review and interpret it.

As a result, XBRL will save time and money when information consumers within and outside of a company analyse complex data. XBRL is a standard based on Extensible Mark-up Language (XML) and is supported by a consortium of over 200 corporations, financial markets, accounting firms and regulators.

As businesses work to regain the confidence of investors and comply with new regulatory requirements such as those imposed by the Sarbanes-Oxley Act in the US, many are making efforts to provide financial information more quickly and in formats that are easier to interpret. Another significant area of regulation is Basel II, an international accord which is going to map out how the banking industry will regulate itself for the next generation.

Under Basel II, financial services firms will be expected to examine IT, security, fraud, employment practices and workplace safety, business services, physical damage, business disruption, system failure, service execution-delivery-process management, and legal and reputational factors. It is due to take effect from 2007, but data capture which enables operational risk factors to be identified and analysed needs to be fully operational from 2004. And XBRL seems to lend itself to Basel II compliance.

PwC partner and XBRL expert Alison Jones commented:

"XBRL will enable companies to manage information more effectively and react more quickly to changing business conditions. And as corporate transparency continues to be at the forefront of discussion in the business world it provides an important incentive for businesses to make use of these capabilities.

"In the next three to five years, XBRL will move from the early adopter phase to become the generally accepted way to report business information. As a result, businesses will achieve benefits from simplifying their processes for producing business reports, and their stakeholders and regulators will find it easier to get the information they need to make informed decisions."

XBRL is not a replacement for XML. PwC predicts that XML's use will take off soon, providing the basis for developing specifications and standards for automating business process within and between enterprises.

XML also provides the basis for web services, which PwC says will eventually replace the current model of the web – people looking at web pages – with automated communication between software programs, allowing information to be accessed and processed without the need for human intervention. For example, web services will allow company financial reports in XBRL format to be automatically retrieved by a financial analysis program, eliminating the need for an investor to first locate and download the information.