The Companies and Intellectual Property Commission of South Africa (CIPC) as the regulator of all companies in South Africa, launched a programme in February 2016 to implement XBRL as Digital Financial Reporting Standard for qualifying entities, by mandating submission of Annual Financial Statements (AFSs) to CIPC by 1 July 2018.
The programme plan includes four stages, namely XBRL Planning (Taxonomy Development, Request for Proposal incorporating Terms of Reference), Reporting Platform and System Development, Pilot Measure and Maintain, Official Roll-out.
The CIPC taxonomy’s scope main focus is on covering the reporting requirements of domestic entities as prescribed by Companies Act, No. 71 of 2008 of South Africa. Apart from the SA-specific requirements, the IFRS taxonomy as on 31 March 2016 has been incorporated to the extent of all primary financial statements (PFSs) and a set of disclosures/explanatory notes. Rationale for selecting the implementation approach not including all IFRS statements, was not to overwhelm the reporting entities at the early stages of XBRL introduction (phased-in rather than ‘big bang’ approach), and to achieve at least the minimum level of structured data in a report (with all PFSs tagged). However, CIPC was aware that they cannot deprive the companies from reporting according to the full standard, therefore all IFRS elements were left in the CIPC taxonomy for the use of the entities (but not put together into structures).
The Companies and Intellectual Property Commission (CIPC) is a juristic person, and as mandated by the Companies Act, 2008 (Act 71 of 2008), has jurisdiction throughout the Republic of South Africa, is independent and subject only to the Constitution and law and any policy statement, directive or request issued to it by the Minister of Trade and Industry in terms of this Act. The Commission must be impartial and perform its functions without fear, favor or prejudice and must exercise the functions in the most cost-efficient and effective manner, and in accordance with the values and principles mentioned in section 195 of the Constitution.
The Commission seeks to assert the Commission as a credible, independent and transparent regulator, on par with the best in the world.
Some of the functions of the Commission includes:
- Promotion of compliance with relevant legislation
- Efficient and effective enforcement of relevant legislation
- Monitoring compliance with and contraventions of financial reporting standards, and making recommendations thereto to Financial Reporting Standards Council (FRSC)
The CIPC believes that South Africa should take advantage of the benefits offered by XBRL.
The Role of CFOs
CIPC hopes to encourage client companies to realize the benefits of XBRL to improve their own back-end processes. Currently the processes of preparing financial statements for regulatory purposes often involves manual steps wherein data gets consolidated 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 as well as the accuracy of data submitted to the CIPC and other regulators.
It is important for CFOs to realize that XBRL has the potential to improve the efficiency, accuracy and effectiveness of processes 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 utilize financial data for regulatory purposes.
CFOs can ensure that business processes and tasks that occur between clarification of the trial balance, the validation of data from discrete sources, and the filing of AFSs to the CIPC, are automated by XBRL to assist in the tagging effort to eliminate the manual efforts to obtain data form various sources and disparate systems.
The vision of the CIPC is to be a reputable world class regulator of business entities and intellectual property. CIPC is currently receiving all Annual Financial Statements (AFSs) in PDF format in 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 who’s 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 strategy of the CIPC by implementing XBRL, is to 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. This will greatly enhance analysis of AFSs, and consequently the regulatory effectiveness of the CIPC.
The CIPCs Programme has been carefully planned to include both a formal and ongoing Change Management Campaign to create awareness and buy-in aimed at all stakeholders, as well as development of the taxonomy and Reporting Platform on the CIPCs side, which included a budget for the whole programme. However, development of XBRL interfaces at client companies depends on existing software and sophistication of back-end processes to produce XBRL instance files as required by the CIPC that may or may not be in place at these companies. Some client companies already have vendor software with XBRL modules, or such modules can be developed by the vendors as extensions to their current software.
Other client companies may need to invest in XBRL enabled software for the first time which will entail development from scratch. The decision by client companies on how far they want to take implementation of XBRL will also have an impact on their costs. They may decide to invest in simple software to produce XBRL files by tagging data manually captured, or they may decide to fully automate their back-end processes through XBRL. The costs implications may therefore be very different for different client companies.
The CIPC will be providing formal guidelines on how to become compliant, and will also provide formal guidelines to Software Service Providers on the minimum requirements of XBRL enabled software to be used by client companies.