Further to go
Despite these advances, CFA Institute, which represents investment professionals around the world, believes that today’s financial reporting system has a long way to go in adopting technologies that will make data more helpful to users.
It says current reporting requirements still presume that humans consume the information, and much of the annual report is not in a machine-readable format, which would be more useful. One major improvement, it suggests, would be for preparers to structure data at an early stage in the reporting process, rather than adding tags later.
Mohini Singh, CFA Institute’s Director of Financial Reporting Policy, says she welcomes regulators’ emerging support of inline XBRL (iXBRL), a process that supports early structuring by allowing preparers to incorporate XBRL tags into an HTML-formatted financial statement, rather than filing a separate XBRL document. But she adds that there is still an urgent need for education.
“We surveyed our members in September 2016 and 90% said they were not familiar or not up to date with XBRL,” she says.
“Often, that is because of the many problems with the quality of data being filed [in some countries]. Where the data isn’t clean, data providers are having to clean it, which makes it costlier.”
Toomse-Smith adds that the introduction of the European Single Electronic Format will also have a major effect. From 2020, this will require all European Union listed companies to produce their annual reports in Extensible Hypertext Markup Language (XHTML) with tagged primary statements.
“This will mean that data is more accessible and usable and could lead to innovation in this space,” he says.
Use of electronic platforms where data sources can be married together effectively is also increasingly important, according to Castagno.
“I use a program called AlphaSense, which locates filings and transcripts extremely quickly,” he says. “And we are increasingly using technologies such as Tableau, Spotfire or QlikView that can handle extremely large data sets much more efficiently than an Excel spreadsheet can.”
Jeff Casson, Investment Director, Global Emerging Markets, at Martin Currie Investment Management, agrees with Singh that regulators should require more standardization of data.
“Without standardization, individual companies will report different information to the extent that it becomes too much to process, materiality is lost and transparency is reduced, not enhanced,” he says. “Standardization also allows companies to engage more proactively with management on nonfinancial aspects of their business, such as environmental, social and governance (ESG) issues and strategic planning.”
Professional body Accountancy Europe has also carried out research with users. Deputy CEO Hilde Blomme says it agrees with the need for more structuring of financial and nonfinancial data, and that the current paper/PDF-based system that many companies use is “underwhelming.”
Accountancy Europe wants to encourage a more interactive approach to reporting through a so-called “core and more” concept. Blomme recommends that companies produce “a core executive summary, with key information that all users need, as quickly as possible. This would then connect to more detailed information for those who are interested.”