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http://www.vnunet.com/financial-director/analysis/2156747/standard-issue Standard issue Large companies are spending millions to harmonise technology standards and protocols throughout their organisations, but they are still a long way from a truly integrated system Antony Harrington, Financial Director 25 May 2006 It can be safely said that the panacea of standardisation in the technology world is even more of a pipedream than it is in the accounting world. The history of business application development has been one where individual vendors went their own way and did their own thing. No one spent any time looking over their shoulder wondering how competitors were writing code. The aim of the game was for each vendor to corral their own stable of users and interoperability of systems was nowhere on the agenda. The cost to business of this individualistic approach to systems development has been enormous. Every time a company thinks about acquiring another, for example, the acquiring management team and its funders have to work out the likely costs of integrating the two organisations’ IT infrastructure – and in many instances, IT incompatibilities can demolish the business case for an acquisition. The problem of incompatible systems also impacts companies who want to collaborate by sharing information on their IT systems. One thinks here of manufacturers and suppliers in a supply chain. Unless they each use the same version of the same vendor’s systems, before they can collaborate they first have to figure out how to transfer information between their different IT systems. However, if standardisation was simple we would not have the mess of incompatible systems we have today, and large organisations would not have to spend millions on technology integration exercises. Instead, the IT sector would have come up with a “nice, simple” standard way for all applications to talk to each other and the problem would be solved. XML standard In fact, the sector is in the process of solving this problem through a standards-based approach. The standard in question is XML, or Extensible Markup Language (see box), but agreeing and implementing the standard is a laborious and time-consuming process and we are not anywhere near the end of it yet. One of the main thrusts pushing businesses and IT vendors in the UK to adopt XML is coming from HM Revenue and Customs. As Dennis Keeling, chief executive of the Business Application Software Developers’ Association says, the government is enthusiastic about online filing of company reports for corporation tax purposes. The government is very keen to have all accounts, whether they are corporate or individual, filed electronically and it wants the numbers in those electronic documents to be machine readable. At a stroke, this will cut out the need to re-key and allows all kinds of machine-based analysis and checking of accounts to take place. The potential savings for the government are enormous. Lord Carter of Coles recently completed a report for the government into the online services of HMRC, where he looked closely at XML as the mechanism for enabling online filing. As a result, he has recommended that for returns due after 31 March 2010, all companies should be required to file their company tax returns online using XBRL, or Extensible Business Reporting Language, an XML-based format for financial reporting. XBRL is being developed by an international, non-profit consortium of approximately 450 organisations and already there are numerous implementations. The basic approach is to provide a computer readable identifying ‘tag’ for each individual item of data. An example would be company net profit, which would have its own unique tag. Financial data is transformed into XBRL by suitable mapping tools or by appropriate software. Mixed opinions But despite the government’s enthusiasm, there are still differences of opinion over the benefits that XBRL can bring in the business world. Both the Financial Services Authority and the US Securities and Exchange Commission embarked on wide-ranging XBRL projects. However, while the FSA decided to shelve its plans for regulated companies to report using the language due to a lack of interest, the SEC is taking a more proactive approach and firing ahead at full speed. As recently as May this year, SEC chairman Christopher Cox put his weight behind the reporting language in a speech before the Congressional Committee. “Interactive data is a concept that I know has been of long-standing interest,” he said. “Bill Donaldson, my predecessor at the SEC, also saw the promise of interactive data and got the ball rolling by launching our internal efforts to investigate the technology. “Under his watch, we launched the XBRL voluntary filing program. I, too, see the promise and potential that this concept holds for consumers of financial data, particularly individual investors and believe that it will someday soon transform the way we as individuals interact with information about our investments.” Although XBRL has been mandated by Lord Carter as the format for delivering accounts for corporation tax purposes in future, there is a real problem with it. The source of the problem lies in the enormous number of ways in which companies can define their chart of accounts. As Keeling notes, charts of accounts change constantly even within the same company from one year to the next and no two charts of accounts are the same. It is one of the fundamental reasons why FSA-regulated companies did not enthusiastically adopt the standard. “Unfortunately, those responsible for the XBRL standard have chosen to tackle this problem by defining a vast library of taxonomies of possible items of charts of accounts. Since businesses have to take on the task of mapping their present chart of accounts to XBRL tags themselves, it is just too difficult to do and the project has stalled. The result is that very few people use it for financial reporting,” says Keeling. Lord Carter has tried to overcome this by suggesting a more limited subset of about 100 chart account headings for corporate tax filing. Companies House has a project underway where dormant companies, can file today using XBRL. The project is going to be extended to embrace small companies, which do not need to be audited. It is important to stress that XBRL, as the name suggests, is about business reporting and is not designed to be an e-commerce transaction-enabling language. Universal acceptance There are already several XML variants of electronic commerce languages, but thankfully everyone seems to have thrown their weight behind what’s known as the Universal Business Language (UBL); a standard developed by the US-based Organisation for the Advancement of Structured Information Standards (OASIS). Ken Holman, chief technology officer of the US consultancy Crane Softwrights, has been involved with the UBL standard from the beginning. “The whole point of UBL is to come up with XML document models with which businesses can express their transactions,” he says. UBL has so far described seven key documents, including things like an invoice, a sales order and so on. It is then a relatively simple matter for accounting and e-business software vendors to adapt their applications to recognise and to output UBL-conformant and machine-readable documents. The UBL committee is currently developing version two of the standard, which will define around 28 documents, providing a wide suite of e-capable and universally compliant documents that will enable companies to transact just about any business they want on-line. “There is a real parallel here with HTML,” says Holman. “In the web world there were many experts in hypertext in the early days who said that HTML was far too unsophisticated to express the world’s needs. But the World Wide Web Consortium (W3C) standardised a vocabulary for hypertext and it is now the standard for the Web. People who have a problem to solve can adapt their solutions to a system that is standard and easy to use – this is what UBL is going to do too,” he says. Holman points out that Denmark is the first country to mandate the use of UBL. Anyone wishing to send the government an invoice has to submit a UBL document. Other countries in Scandinavia are now considering taking similar steps. For Holman, a standard like UBL is an enabler, not a suppressor of initiative (one of the common criticisms of standardisation efforts is that they dumb down a solution and suppress innovation). For Holman there is nothing in UBL that stops an accountancy software vendor, for example, from being innovative where it counts. But no one wants them to be innovative to the extent of trying to reinvent what it is that an invoice does or how it should be described to be “machine agnostic”. And machine agnostic really is the panacea of IT as far as business people are concerned. Or, in other words, being allowed not to worry about it. Permalink to this story www.vnunet.com/2156747 This article was printed from the VNU Network VNU Business Publications © 2005 All rights reserved
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