Dialogue: X factor set to shake up financial reporting

Companies will soon be able to offer investors daily updates on their finances. MARK HUCKLESBY* looks at a technology that will change how firms report.

A revolution is coming in global financial reporting that could put New Zealand companies and financial institutions at the forefront of investment opportunities or leave them floundering behind the rest of the world.

It all depends on the X factor - how quickly companies and financial institutions in this country adopt a new computer language called XBRL, which is variously described as a "child" or "dialect" of XML (eXtensible Markup Language), a standard computer language used to exchange data across the internet.

XBRL stands for eXtensible Business Reporting Language. It solves two significant problems that pervade all financial reporting.

The first is that to prepare financial statements for management, regulators and a website, a company would typically enter and reformat the information three times.

The more times data is re-keyed into different computer systems, the greater the risk of human error and the need to check and recheck data.

With XBRL, financial information need be entered only once. This is because web-based technology now allows financial information to be "rendered" many times and it does not matter whether it ends up as a printed financial statement, a source document for a website or in a specialised reporting format for a bank or a regulator.

The beauty with XBRL is that it allows all those different systems to "speak" to one another and freely exchange financial information.

The second problem it solves is that extracting specified detailed information from a financial statement, even an electronic financial statement already posted to a website, is currently a manual process.

For example, a company cannot at present tell a computer program to "Get the directors' fees for 1999 from all the companies listed on the NZSE" from an electronic source.

If financial statements were prepared using XBRL, computer programs could easily extract that information from every statement listed in the selected domain, using a system known as "angley" brackets. To extract the above information would require