Regulators and the Regulated
XBRL Inside the Corporation
How Will XBRL Impact Provision of Data to the Regulators?
The Issue: The Never-Ending Demand for
Data
As we know, regulators that collect financial or other performance information about companies (generally in accordance with a statutory obligation) do so to:
- Make effective regulatory decisions about
those organizations in terms of their statutory mandate
- Mitigate and better manage the risks imposed on consumers or
third parties by the actions of the regulated.
The performance of a bank impacts depositors and the economy as a whole; the performance of a nuclear power generator impacts the economy as well as local residents. The regulators exist to identify risks to these third parties, and to mitigate, monitor, and—when necessary—manage those risks.
Regulators can carry out this mandate:
Actively via enforcement by querying, directing, or prosecuting where non-compliance is detected.
Passively by ensuring that incentive structures drive positive behavior
For example, securities regulators use transparency
measures that ensure financial statements are freely available
in the marketplace, thereby ensuring that other market participants
will drive compliant behavior. Other types of regulators,
such as monetary authorities, tax authorities, and statistics
agencies also make decisions based on information provided by
companies. In these cases the purpose tends to be
societal—setting interest rates, ensuring taxes are collected,
or providing information for policy and business decision making.
Whatever regulatory strategy exists, a large majority of regulators
require companies to provide a range of filings, often including
core financial statements.
Most organizations understand this and
respect the need to provide information to deliver these benefits.
But it seems as though these business-government interactions
overlap, are inconsistent, and invariably involve slightly different
data requirements. What impact might XBRL have on these processes?
A Future Perspective
Data collection and analysis needs to be:
- Timely—available within a reasonably short period from the time of measurement
- Accurate—free of data anomalies and errors and tested for obvious manipulation
- Relevant—the definitions and interrelationships between data points kept up to date and linked as tightly as possible to information used for the running of the business
- Efficient—the cost of collecting the information proportionate to the value of the data collected
- Flexible—to address the information requirements, which change markedly over time
- Pragmatic—the provider burden (the amount of effort imposed on the regulated community by the scope of the data collection) needs to be minimized while ensuring that the regulator has the up-to-date information necessary to regulate effectively
XBRL is already having an impact in this
field. It is substantially improving regulatory data collections
around the world on each of these fronts by improving definitions, data accessibility, interchange, and provider costs.
XBRL is poised to become the de facto standard among regulators and offers substantial advantages to companies that have to provide information to one or more government agencies.
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