Getting Started for Regulators

Regulators collect significant quantities of data from businesses in order to carry out their regulatory obligations. Right around the world, regulators are using the XBRL standard in order to improve reporting. The standard provides a well defined mechanism to:

provide end-to-end integrity, with system-to-system connections, or alternatively form/template based assistance, to simplify and lower the costs associated with compliance. Equally and very typically, regulators can offer both choices, depending on the sophistication of the regulated entity.
provide pre-defined public sets of business and accounting logic rules that must be passed prior to accepting filings, increasing the quality and consistency of filed data.
provide pre-defined private sets of rules to help detect anomalies early and allow resources to be assigned to high priority entities.
provide multi-lingual data input channels and mechanisms for multi-lingual republication of reports and forms, simplifying the accessibility of data where that is a goal.
provide filer-centric and analyst-centric mechanisms for displaying reports.
deal with complex multi-dimensional data, including via presentation templates and forms, as well as well defined semantics.
natively deal with accounting, monetary and boolean types of information.
store and transform the data into existing or COTS business intelligence systems where that is a goal.
rapidly and accurately republish data for system-to-system ingestion and analysis.

The Standard has been developed over many years, is freely available and is supported by a large and active public-private and not-for-profit consortium that is focussed on improving reporting in the public good.

A very significant amount of specialised XBRL software exists to help regulators simplify their reporting implementations. Support for companies that need to comply with XBRL reporting requirements is very widespread across commercial accounting, ERP and regulatory reporting systems, simplifying the process of enabling the relevant reporting ecosystem.

In addition, key “taxonomies” or definitions of reporting terms have been developed over many years, greatly simplifying the process of collecting data for a range of environments including IFRS and major risk based frameworks such as the European CRD IV implementation of Basel III.

Joining the consortium is the best place for most regulators and government agencies to start, as it ensures access to peers and experts in the field and avoids “reinventing wheels” unnecessarily.

Assuming, that important step is underway, what are some of the key things that regulators need to consider as they start to plan their data modernisation?

Being clear about purpose

There are many variables associated with these types of collections including –

Republication

Some, like tax authorities, never make the information they collect public.
Others, like financial services regulators, make a subset of what they collect public.
Still others, like securities regulators, stock exchanges and business registrars make everything they collect public.

Different types of collections

Some regulators collect information that must conform to specific regulatory definitions, without any flexibility, so as to maximise the analytic utility of the information and reduce the scope for interpretation. In XBRL terms this is called Closed Reporting. It can cover relatively straightforward data, such as summarised financial condition reports, but it can also cover much more complex types of reporting, such as multidimensional reporting of financial risks by bank and insurance regulators.
Some regulators collect financial statements and other kinds of free format reports either for compliance reasons or for market transparency reasons. When collecting these reports in XBRL format, regulators have a choice about whether to collect, in structured form, the entire report, including company-specific terms and reporting choices, or a subset of the report, in normalised or summary view. Where company-specific terms are sought, this is called Open Reporting.

Different goals

Some regulatory reporting is aimed at improving the data that is available to regulators themselves, for analysis and review.
Some regulatory reporting is aimed at third parties, either a broad market or a specific set of external stakeholders, for transparency, investment or regional or international reporting reasons.

Whatever the purpose, or combination of purposes that the regulator might have, it is important to clearly define the goals at the outset of any effort to modernise with XBRL.

The standard provides a very significant number of powerful capabilities and it is important to choose the most appropriate parts of the standard, with the end goals very clearly articulated.

Levels of Comparability

When designing XBRL based data collections, it is important that regulators decide (and preferably articulate) their goals in terms of data comparability. For some agencies, collecting data that aids comparability across companies will be a key consideration. For others, allowing companies to provide filings that exactly match their accounting disclosures is a key objective, either to facilitate sophisticated market-based analytics, or to enable regulatory analysis of the compliance of those disclosures.

Getting this question right, up front, is probably one of the most important questions regulators face in their XBRL implementations. There are no right or wrong answers, although increasingly, XBRL provides guidance to members.

Reuse of Existing Definitions

Another key consideration for many regulators is to determine whether or not it is possible to reuse (and if necessary extend) existing substantial reporting frameworks such as the IFRS taxonomy. Reusing taxonomies (the collection of concept definitions that go to make up a set of reporting requirements) enhances comparability, enhances software interoperability and can greatly simplify regulatory reporting projects. Sometimes it is essential. Sometimes it is possible. Sometimes it is impossible. Regulators need to make appropriate judgements.

Respondent Burden Considerations

Another key question for many regulators is the level of respondent burden that is being imposed. While many project leaders are familiar with balancing the competing pressures of time, quality, scope and cost, for regulators there is often a fifth component – the extent of regulatory burden being imposed. In other words, the cost and complexity associated with sourcing an preparing the information sought by regulators is one of the variables in their control. In some cases, the use of XBRL can greatly diminish the respondent burden, as accounting and reporting software are able to reuse information already available. In other cases the technology can’t assist at all, and this is purely a policy question. Regulators need to understand the business environment, the software ecosystem, and their regulatory responsibilities in order to make necessary decisions.

Getting Started: a summary

To summarise, amongst many other questions, regulators and government agencies that are seeking to modernise their reporting framework need to:

Be clear about the goals and scope of their project
Determine how the resulting data will be used
Define up front the importance of data comparability
Assess the extent to which existing data definitions (XBRL taxonomies such as IFRS) can be reused
Decide what their policies and processes are in relation to respondent burden

The XBRL International consortium provides a range of guidance, formal and informal to regulators and their stakeholders and the best way to access this information, and minimise the risks associated with “reinventing wheels” is to join the consortium.