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Identifying, Monitoring & Responding to Corporate
VulnerabilityPerspectives on the Future of Corporate Reporting
March 22, 2004
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Predicting systemic corporate crises Is elusive for public & private sectors today
Several elements are needed to improve the ability of both public and private sector companies to effectively predict systemic corporate crises:
RelevantEconomic
Trend Data
RelevantEconomic
Trend Data
Timely, Accurate
Financial Data
Timely, Accurate
Financial Data
ReliableMarket Data
ReliableMarket Data
PredictCrises!PredictCrises!
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Quality data serves as the foundation for better predicting systemic corporate crises
Reliable, timely data is foundation upon which methodologies and analytics for predicting and analyzing corporate crises are built.
Analytics
Methodology
Data
Most financial institutions are not dependent on a single methodology or model
Depth, quality and breadth of data are key drivers of credit capabilities
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Solutions do exist, but are primarily limited to areas where data is readily available
Where data is abundant, commercially available and proprietary tools provide a big part of the answer.
AM Best Bureau Van DijkCreditAnalyzer LLCCrisil (India)Dun & BradstreetEgan Jones Ratings CoFair Isaac & CompanyFitch RatingsICRA (India)IQ Financial (Misys ’04)
Comml. Services Providers
Primarily limited to North
America, Europe and
Industrialized AsiaTools/Services
• Probability of Default Models• Bankruptcy Prediction• Early Warning Models• Ratings Service• Risk Scoring• Data Services (Ratings, LIED,
Recoveries, etc.)
KamakuraMoody’s/KMVMoody’s Investor ServicePhillipines Ratings Svcs Corp.RiskMetrics GroupStandard & Poor’sThai Ratings & Info ServicestradeRadar.netUBS Warburg
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Availability of consistent, reliable data is hampering improvement efforts There are several key reasons why consistent, reliable data to improve the ability to predict corporate crises are not widely available:
Standards – There is a broad lack of global and/or regional standards for collecting and presenting market and financial data, particularly among global companies
Timeliness – The amount of time between when companies report financial performance and when it is audited (or verified), released and consumed is too long
Processes – Despite significant expense in automating reporting processes over the past 10 years, manual and spreadsheet driven-processes still prevail, increasing complexity and the possibility for errors
Availability – In certain developing regions, consistent, reliable economic, market and financial data is not readily produced, accessible or usable
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Improving the availability of critical data is possible…but not overnight
Improving availability, reliability and usefulness of data will require focused efforts in addressing the following areas:
Development and adoption of global financial reporting standards.
Use of open data standards such as XML/XBRL to describe data elements and facilitate validation
Increased automation in the production, dissemination and consumption of data
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Regulators & Exchanges around the globe are leading efforts to streamline reportingAustralian Tax Office
Autoriteit Financaiele Markten (Netherlands Authority for the Financial Markets)
Banco de Espana
Bank of Japan
Bundesbank
Danish Commerce & Companies Agency
Dutch Tax Authority
Dutch Water Authority
The Irish Revenue
KOSDAQ – Korea
Luxembourg Stock Exchange
National Tax Agency of Japan
New Zealand Exchange
Patent and Registration Office (PRV – Sweden)
Shenzhen Exchange
Tokyo Stock Exchange
Toronto Stock Exchange
UK Financial Services Authority
UK Inland Revenue
US Federal Financial Institutions Examination Council (includes the FDIC and the Federal Reserve Board)
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Case Study: US FFIEC Call Report Modernization Project…Today
Today
8900 Banks
FDIC OCC FRB OTS NCUA
Multiple copies of data exist inside multiple agencies (error prone)
Avg of 60 – 75 days to receive, validate + publish filings (not timely)
Estimated processing costs over next 10 years - $65 million (costly)
March 2003 reports had nearly 18,000 errors that needed to be corrected (integrity issues)
• 1,000 basic math errors• 17,000 quality (validation) errors
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Case Study: US FFIEC Call Report Modernization Project…the Project
The FFIEC awarded a $39 million 10-year project to modernize its Call Report (principal regulatory filing) process to a combined team of Unisys, PwC and Microsoft. The project involves:
Standardization of call report data among agencies
Creation of standard instructions and validations
Construction of Central Data Repository
Establishment of metadata management capability for providing context to call report data using XBRL
Web services applications to transmit and receive secure XBRL-formatted report data
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XBRL open source data standard used for communicating report requirements, validations, instructions (timeliness/flexibility)
Filers required to submit data in XBRL format over the web (automation)
Multiple sources of data SINGLE SOURCE (integrity)
Processing Time 60-75 days 2 Days (timeliness)
Processing Costs $65M $39M, a savings of $26M (cost/efficiency)
Future
8900 Banks
FDIC OCC FRB OTS NCUA
FFIEC
Case Study: US FFIEC Call Report Modernization Project…Future
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What is XBRL?
XBRL (eXtensible Business Reporting Language) is:
An information format designed for the Internet.
Freely available
Developed and maintained by over 250 supply chain participants
Based on accepted reporting standards
The convergence of:
Technology = XML-based specification
Language/dictionary = Terms by jurisdiction/industry
Consortium Participants = Supply chain members
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Scope and role of XBRL
ExternalFinancialReporting
BusinessOperations
InternalFinancialReporting
Investment,Lending,
RegulationProcesses
Participants
AuditorsTradingPartners
Investors
FinancialPublishersand Data
Aggregators
Regulators
Software Vendors
ManagementAccountants
Companies
Economic Policymaking
CentralBanks
XBRLLedger
XBRLFinancial Statements
XBRL International is a non-profit consortium
Manages the royalty-free intellectual property
Facilitates knowledge sharing with members
Provide a framework for further development
Japan
UnitedStates
Australia
GermanyCanada
UnitedKingdom
IASB
China
Sweden
Denmark
Switzerland
Netherlands
NewZealand
Brazil South Africa
Korea
Colombia
Argentina
SingaporeSpain
Ireland
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Here is how this works
http://www.nasdaq.com/xbrl
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XBRL Links to other concepts
XBRL adds to XML: Multi dimensional financial data
representations
Financial reporting vocabularies (taxonomies)
Aliases and other definition relationships
Mathematical relationships between concepts
Flexibility about how to present items to users
Structure for authoritative policies and guidance
Reporting apps need these even when using XML
CalculationsCash = Currency + Deposits
CalculationsCash = Currency + Deposits
PresentationCash & Cash Equivalents
PresentationCash & Cash Equivalents
FormulasCash ≥ 0
FormulasCash ≥ 0
ReferencesGAAP I.2.(a)Instructions
Ad Hoc disclosures
ReferencesGAAP I.2.(a)Instructions
Ad Hoc disclosures
DefinitionscashCashEquivalentsAndShortTermInvestments
DefinitionscashCashEquivalentsAndShortTermInvestments
LabelUS $
FY2004Budgeted
LabelUS $
FY2004Budgeted
XBRLItem
“200”
XBRLItem
“200”
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The Growing XBRLFamily
Over 250 and growing
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Benefits of XBRL for Preparers
Lower cost of producing information
More timely, accurate, data for decisions
Enhanced analytical capabilities
Better control environment
Tell your own story (precise & clear)
Accelerate adoption of reporting models
Enhanced functionality
Ease of use
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Benefits of XBRL for Consumers
Lower cost of consuming information
Faster access to information
More timely, accurate, data for decisions
Enhanced analytical capabilities
Enhanced functionality
More useful access to information
Ease of access to definitions enhance comparability
Facilitates language translations
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Benefits of XBRL for Regulators & Standard SettersReduced Reporting Burden on regulated entities
Improved data timeliness
Improved data accuracy
Enhanced validation
Simplified programming efforts
Improved flexibility in handle changes
Enhanced inter-connectivity of standards content
Enhanced consistency of data for analysis
More proactive use of standards and regulations within the market
Enables more efficient research
More effective way of identifying changes and/or relationship with other standards
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XBRL – Ready for Prime Time
“Some critics have suggested
that XBRL is not ready for
primetime. In fact, it is.”
Hon. Richard H. BakerChairman, Capital Markets Subcommittee
Identifying, Monitoring & Responding to Corporate
VulnerabilityPerspectives on the Future of Corporate Reporting
March 22, 2004
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