A few weeks ago we had the privilege of meeting with the CIPC to discuss an exciting new project.
The project was a new financial reporting technology called XBRL, a nifty acronym for extensive business reporting language. In short the technology was an old-school invention that never really took off, consisting of tagging financial reports with descriptive data, allowing end-users to more easily track and compare values. Yet, with the demand for global information on a steady rise, governments have begun realising the true potential of such a standard.
Think of XBRL as barcodes for financial reporting.
Due to the nature of the benefits, being primarily for governance and analysis, accountants have never taken the initiative to implement the standard of their own accord, not even in education. Instead, it has been up to the governing bodies to mandate the improvements and enforce compliance through an upgrade in corporate governance.
This is where the CIPC comes in.
While some would argue the improvements are unnecessary (South Africa is ranked number one for auditing and reporting standards after all), the international case studies are inspiring. Companies House, the UK’s registrar for instance, recently made all of their company data public, allowing investors untethered access to thousands of potential investments. A huge advantage for the UK economy, which despite national setbacks has continued to demonstrate the type of resilience only integrity can afford.
ACRA, Singapore’s registrar on the other hand, have even gone as far as building their own financial analysis tool through the BizFinX portal. This free tool allows you to track a company’s key metric performance, compared to that of the industry and chosen competitors — a powerful insight for both company owners and potential investors. These are among the many and growing success stories credited to XBRL format and the pioneers of it’s implementation.
Being the youngest of our industry’s software providers, we were undoubtedly excited for the meeting. For us it was a chance to meet the faces behind our favourite competitor products while seizing our own potential impact in the governance sphere. And yet, we were the only ones to arrive, putting us in the unlikely position of speaking on behalf of the software providers.
In the room with us were some rather important people representing the big accounting firms, as well as representatives of the Financial Reporting Standards Council (FRSC). Each was there to hold the CIPC to the necessary standard, with interrogating questions as to implementation of such a pivotal shift.
At this point everything seemed to be in order.
The CIPC presented an overview approach, with a focus on the top 100 companies who would be mandated to provide XBRL formatted audits in mid-2018. This approach required extensive development and testing before being introduced and the roadmap was a long one. In addition, to make the pivot as seamless as possible for everyone, CIPC had hoped to motivate existing software providers to take the initiative of embedding the added functionality to their own products.
Their lack of presence was, of course, disappointing.
A few key findings came out of that meeting, including an active company population of around 1.6 million, a healthy target market. Of these companies, roughly 350,000 of them had a public interest score of over 350 — the point at which audited financial statements (AFS) become mandatory. This score is designed to indicate just how big an impact a company had on the economy, so these are biggest 350,000 companies we’re talking about. Yet, with only 100,000 of these actually submitting financial statements, 70% of them were non-compliant.
In a later meeting, we spent a bit more time with the project manager to discuss some of our own insights and ideas. We proposed a number of small innovations, including a free ‘Do I Need An Audit?’ tool that allowed users to find out their public interest score with the aim of spreading awareness and tackling that dangerous statistic we heard earlier. More importantly, we offered an entirely different approach for introducing XBRL.
How about, instead of starting with the full AFS’s of large companies, you begin with the smaller companies who need only provide their turnover in a standard Annual Return?
This would be very easy to imbed in our service and make the whole process a lot simpler, while still capturing the data in the new format. Such a manageable experiment could be used to test the system and capabilities while giving the other software providers, an example of the set standard.
The idea was welcomed by the project manager and met with further collaborative suggestions on how software providers like us could both help and improve corporate governance in South Africa. And thus, we’re excited to be working on a first for XBRL in SA and hope to provide clients with an impressive new service.
As always, watch this space.
