Why South Africa’s CIPC Decided to Mandate XBRL
Guest Post from Hennie Viljoen, XBRL Project Manager at the CIPC
At present the Companies and Intellectual Property Commission of South Africa (CIPC) receives all Annual Financial Statements (AFSs) in PDF format, which is obviously an unstructured format. This means analysis of AFS documents has to be done one-by-one by a human analyst. Humans have to complete a large number of calculations manually and are prone to making mistakes or missing important facts within the statements. Manual analysis is slow, and makes it very difficult to compare with statements from other companies in order to determine trends within a sector of the economy or even the economy as a whole. The scope for analysis of PDF documents is therefore very limited.
The CIPC has around 1.8 million registered active entities. A sub-set of these entities are required to submit AFSs. These include all public listed entities, state owned companies, private companies with a 350 Public Interest Score, and companies whose Memorandum of Incorporation prescribes filing of audited financial statements. Currently the operational efficiency and regulatory effectiveness of the CIPC is constrained due to the unstructured format of AFSs provided in PDF.
The use of XBRL will bring a new dimension of efficiency and effectiveness to the CIPC, because the standard allows automatic validation of AFS data against the IFRS taxonomy. A validation engine can automatically run through the rules built into the taxonomy, and programmatically verify that each rule has been adhered to in the AFSs.
CIPC plans to store the financial statements of all filing companies in a consolidated common repository, allowing analysis through business intelligence applications that will allow the identification of industry and economic trends.
The CIPC is the central government agency for registration of all companies in South Africa. Many of these companies also need to submit financial statements to other regulators, depending on the industry they are operating in. Other regulators currently have different prescribed formats for statements required by them. By pioneering the implementation of XBRL at the CIPC, it will be possible for other regulators to follow, by developing their own taxonomies in line with the CIPC’s programme. Should South Africa eventually decide on the principle of Standard Business Reporting (SBR) by introducing a common taxonomy for all regulators, this will enable all entities in South Africa registered at multiple regulators to submit their financial data only once, with the data being shared to different authorized regulators.
The CIPC also hopes to encourage client companies to realize the benefits of XBRL to improve their own back-end processes. Currently the preparation of financial statements for regulatory purposes often involves manual steps to consolidate data from various sources and disparate systems at client companies. XBRL can also be used for integration in back-end processes at client companies to automate the preparation of financial statements. This will improve productivity at client companies and enhance the accuracy of data submitted to the CIPC and other regulators.
XBRL therefore has the potential to improve the efficiency, accuracy and effectiveness of the whole value chain of financial data from the point where individual transactions at client companies initiate the generation of financial data, to the point where a regulator like the CIPC can utilise financial data as decision-useful information.
For further information, please refer to www.cipc.co.za or contact:
Hennie Viljoen (XBRL Project Manager)