Tool to keep business honest

By RICHARD WOOD

The New Zealand Stock Exchange is to test a sophisticated electronic reporting system in a bid to keep its listed companies honest and avoid the Enron-style accounting disasters that have plagued the US exchanges.

Financial analysis software using the XBRL (eXtensible Business Reporting Language) standard will offer greater transparency for auditing and faster diagnosis of discrepancies in company accounts.

It is tipped to become a star player in the effort to police the exchange.

XBRL uses "tags" to identify each piece of data in reports that a company may generate. These work in conjunction with "taxonomies" that describe standard content requirements and formats for items like annual reports.

Computer accounting and business systems can be made to generate XBRL data at the push of a button, cutting back on filing delays.

Regulators and investors can use their own desktop software or specialised tools to easily interrogate or compare that data.

The first phase, due to begin this month, involves the "Appendix One" biannual filing of listed companies. A pilot involving eight listed firms is set to begin in November.

NZX strategy manager Carl Daucher said XBRL would ultimately present the market with more useful information. He hopes listed companies will be keen to join.

Daucher said the accounting profession could help corporates see that "this is in their best interest".

"I firmly believe companies will be convinced there is value. For publicly listed companies, information is the lubricant for the market."

XBRL is at a relatively stable stage in development and is being considered by stock exchanges and regulators globally.

Chartered Accountants Institute general manager corporate services Grant Boyd said the institute wanted New Zealand to be "not an early adopter but a close second".

Icanz has had discussions with Government departments, including the Companies Office, Statistics, the Reserve Bank, and Audit NZ.

For smaller businesses, a key component will be support from accounting software vendors such as MYOB.

Microsoft is understood to be including support for XBRL tags in the new version of Office due out in September. Enterprise business systems such as SAP already have XBRL capability.

Microsoft, PricewaterhouseCoopers and the Nasdaq stock exchange have piloted XBRL and produced a spreadsheet tool to analyse five years of data over 21 Nasdaq companies.

The local office of PricewaterhouseCoopers is also pushing XBRL.

Partner Gerry Conroy said he did not think using XBRL would lead to higher compliance costs for small business. And there will be advantages in terms of a business' awareness of its accounts.

For small investors, XBRL helps to level the playing field because anyone will be able to compare standard corporate data in a spreadsheet or specialised tool rather than work their way through many different formats of annual reports.

But it also created more risk for companies, Conroy said. "There is the issue of what management wants released and how they want it to be interpreted. So there are important security and integrity issues."

Regulators, though, are starting to make it mandatory. Japan's stock exchange will require XBRL by the end of the year, and the UK's IRD by 2007.

New Zealand IRD strategic technology and e-business manager Laurence Chiu said the department was not a part of the XBRL strategy group but was "observing developments in XBRL" and believed it to be in line with its e-enablement strategy.

The XBRL International Conference will be held in New Zealand next May.

XBRL