Description
Implementation is the realization of an application, or execution of a plan, idea, model, design, specification, standard, algorithm, or policy.
PLANNING THE OUTSOURCING PROJECT FOR XBRL IMPLEMENTATION Deb Sledgianowski, Department of Accounting, Taxation, and Legal Studies, Hofstra University, Hempstead, NY, (516) 463-4759, [email protected] Nathan Slavin, Department of Accounting, Taxation, and Legal Studies, Hofstra University, Hempstead, NY, (516) 463-5690, [email protected] Robert Fonfeder, Department of Accounting, Taxation, and Legal Studies, Hofstra University, Hempstead, NY, (516) 463-6988, [email protected]
ABSTRACT Publicly-held companies in the U.S. are now being required by the Securities Exchange Commission (SEC) to file their financial reports using the tagging standard of Extensible Business Reporting Language (XBRL). This interactive data requirement is being phased-in beginning in 2009, with all U.S. publicly-traded companies complying by 2011. The objective of our work-in-progress paper is to discuss eight characteristics of client-vendor relationships organizations should consider when developing a plan for outsourcing implementation of XBRL filing. The eight characteristics are (1) client-vendor relationship, (2) company size, (3) outsourcing contract, (4) intellectual property, (5) communication, (6) custom functionality, (7) task complexity, and (8) vendor’s skills. Keywords: Accounting Information Systems, Project Management
WHAT IS XBRL? XBRL is a standard open source markup computer programming language that uses header tags to label each individual element of data to enable them to be identified by other software applications. XBRL can be used to electronically communicate business and financial information both intra- and interorganizationally. XBRL has recently come into the spotlight as an information technology to facilitate the transmission of financial statements that publicly held companies file with the Security Exchange Commission (SEC). For example, when using XBRL to electronically file its 10-K and 10-Q statements, a company would attach a tag labeled “usfr-pte:CommonStockParValuePerShare” to its U.S. GAAP Common Stock Par Value Per Share figure on its interactive data balance sheet submission to signify that the data following the tag is the numerical amount of the Common Stock Par Value Per Share from its financial statement.
IMPLEMENTING THE SEC’S MANDATE The SEC’s interactive data ruling affects over 10,000 domestic and foreign issuers that prepare their financial statements under U.S. GAAP or IFRS. The SEC estimates that preparation costs to a company submitting its interactive data financial statements with detailed footnotes and schedules could average between $21,075 and $30,700. The SEC estimates the number of hours required to tag face financials averages 125 hours for the first submission and 17 hours for subsequent submissions. One of the implementation options that firms are contemplating is to outsource their XBRL filing to a third-party.
Over half of the 50 companies participating in the SEC’s voluntary program for XBRL filing reported that they outsourced their XBRL activities [3]. The following eight characteristics (see Figure 1) should be taken into account when considering outsourcing implementation of the interactive data mandate.
CHARACTERSTICS OF OUTSOURCING RELATIONSHIPS FRAMEWORK 1. Client-Vendor Relationship: Firms should consider whether they already have an established relationship with an XBRL service provider. Their accounting firm, financial printer, or provider of financial statement conversion to HTML may also provide XBRL conversion services. It may be more beneficial to continue an established relationship than to develop a new one. Firms should be aware that interactive data will be subject to the same liability under federal securities laws as the corresponding portions of the traditional format filing, and as such, they are still responsible for the content even if they don’t actually create the XBRL documents. 2. Company Size: Firms should consider their size relative to the size of the outsourcing vendor. Firms tend to engage services of similar sized firms, especially small-to-medium sized firms. This may be due to difficulties that small firms have in reaching out to larger vendors. Smaller firms may prefer to work with vendors similar in size because they may perceive that they receive better service from them than from larger vendors, who may give preference to more lucrative contracts. When using vendors of similar size, the ability to monitor the vendor’s performance and reduce the risk of non-compliance is enhanced [12]. While no empirical research to date has conclusively established a significant advantage from outsourcing client-vendor size parity, the prescriptive literature suggests that small-to-medium sized businesses tend to use vendor companies of a similar size [4] [8]. Some, however, argue that this is because SMBs have difficulties in reaching out to large IT outsourcers [13]. 3. Outsourcing Contract: Best practices suggest the use of a formal detailed and comprehensive contract for outsourced services [2]. A level of trust established by a pre-existing client-vendor relationship can reduce the transaction costs inherent in a relationship between two parties. If one side doesn’t trust the other side, then resources that could be utilized elsewhere may be consumed to manage the risk that the other party won’t keep its side of the agreement. Social network and prior favorable relationships can help reduce the transaction cost of having to prepare highly comprehensive contracts, and “act as substitutes for formal institutional support” [3]. 4. Intellectual Property: Transaction-cost theory informs us that, the collaboration between a client and its outsourcing partner creates an asset whose ownership must be agreed upon by both sides [1]. Firms deciding to outsource will still accountable for the content of their interactive data so they may want to consider whether the outsourced vendor offers Statement on Auditing Standards 70 or another form of assurance of their internal controls for safeguarding data and other content. 5. Communication: Research has shown that clear communication of objectives and information exchange can lead to a higher level of team commitment and performance [9]. 6. Custom functionality: Unless an organization has unique filing requirements, there probably isn’t any custom functionality required to fulfill its XBRL obligations. The common wisdom in outsourcing is to develop a solid business case for not implementing a commercially available solution [7] [10]. If one of the existing XBRL software packages can easily be used to solve the business requirements, then
it can be a much faster and cheaper solution than developing a solution in-house or outsourcing implementation. If a process is not seen as a core competency, which in many cases financial reporting isn’t, then a firm can make a good case for outsourcing its filing. 7. Task Complexity: Traditional information technology outsourcing involved highly structured application development. The trend now is toward outsourcing less structured projects requiring greater client contact, clarity of outsourcing mission, and project management [6] [14] [11]. Organizations may want to initially outsource XBRL filing if they consider the implementation to initially be complex but as they become more comfortable with the process, they may want to consider other alternatives, for example, an inhouse implementation of filing using XBRL software applications. 8. Vendor’s Skills: Organizations considering outsourcing should make sure the vendor they use has experience with industry specific XBRL requirements. If special tagging is needed, does the vendor have experience with this? One of the main reasons of outsourcing is to take advantage of the vendor’s technical skills [1]. As Gonzalez et al [5] asserted, in the case of IS outsourcing if the provider does not fully understand what the business is all about the customer’s needs may not be properly met.
Exhibit 1. Characteristics of XBRL Client-Vendor Outsourcing Relationship
CONCLUSION Organizations outsourcing their implementation of the recent mandate by the SEC requiring XBRL filing should consider (1) the client-vendor relationship, (2) company size, (3) the outsourcing contract, (4) intellectual property assurances, (5) communication, (6) custom functionality, (7) task complexity, and (8) vendor skills.
ACKNOWLEDGEMENTS This research was sponsored by a Summer Research Grant from the Frank G. Zarb School of Business at Hofstra University.
REFERENCES [1] Aubert, B. A., Rivard S., Patry, M. “A Transaction Cost Model of IT Outsourcing”, Information & Management, 2004, 41(7), pp. 921-932. [2] Bryson, K.M., Sullivan, W. E. (2003), “Designing effective incentive-oriented contracts for application service provider hosting of ERP systems”, Business Process Management Journal, 2003, 9(6), pp. 705–721. [3] Choi, V., Grant. G., Uiz, A. “Insights from the SEC’s XBRL Program”, The CPA Journal, 2008, December. [4] Fox, G. “What You Should Know about Outsourcing Contracts,” CIO Magazine, January, 2006. [5] Gonzalez, R., Gasco, J., Llopis, J. “Information Systems Offshore Outsourcing”, Industrial Management & Data Systems, 2006, 106(9), pp.1233-1248. [6] Jennex, M. E. and Adelakun, O. “Success Factors for Offshore Information System Development”, Journal of Information Technology Cases and Applications, 2003, 5(3), pp. 12-31. [7] Keil, M. and Tiwana, A. (2006), “Relative Importance of Evaluation Criteria for Enterprise Systems: A Conjoint Study”, Information Systems Journal, 2006, 16(3), pp 237-262. [8] Kobayashi-Hillary, M. “It’s Time to Focus on Quality and Information Security”, October, 2006, available at: www.indiaonestop.com/face2face/mark.htm (accessed on November 11, 2009). [9] Liang, T., Liu, C., Lin, T., Lin, B. “Effect of Team Diversity on Software Project Performance”, Industrial Management & Data Systems, 2007, 107(5), pp. 636-653. [10] Lucas, H. C. Information Technology: Strategic Decision Making for Management, NY: Wiley, 2005. [11] Mirani, R. “Client-vendor relationships in offshore applications development: an evolutionary framework”, Information Resources Management Journal, 2006, 19(4), pp.72-86.
[12] Oh, W., Gallivan, M. J., Kim, J. W. “The Market's Perception of the Transactional Risks of Information Technology Outsourcing Announcements”, Journal of Management Information Systems, 2006, 22(4), pp 271-303 [13] Paul, A. (2007). “Size Impedes SMEs' Tryst with Outsourcing”, The Economic Times, March 16, 2007. [14] Xue,Y., Sankar, C. S., Mbarika, V. W. “Information Technology Outsourcing and Virtual Teams”, Journal of Computer Information Systems, 2004/2005, 45(2), pp. 9-16.
doc_736869595.pdf
Implementation is the realization of an application, or execution of a plan, idea, model, design, specification, standard, algorithm, or policy.
PLANNING THE OUTSOURCING PROJECT FOR XBRL IMPLEMENTATION Deb Sledgianowski, Department of Accounting, Taxation, and Legal Studies, Hofstra University, Hempstead, NY, (516) 463-4759, [email protected] Nathan Slavin, Department of Accounting, Taxation, and Legal Studies, Hofstra University, Hempstead, NY, (516) 463-5690, [email protected] Robert Fonfeder, Department of Accounting, Taxation, and Legal Studies, Hofstra University, Hempstead, NY, (516) 463-6988, [email protected]
ABSTRACT Publicly-held companies in the U.S. are now being required by the Securities Exchange Commission (SEC) to file their financial reports using the tagging standard of Extensible Business Reporting Language (XBRL). This interactive data requirement is being phased-in beginning in 2009, with all U.S. publicly-traded companies complying by 2011. The objective of our work-in-progress paper is to discuss eight characteristics of client-vendor relationships organizations should consider when developing a plan for outsourcing implementation of XBRL filing. The eight characteristics are (1) client-vendor relationship, (2) company size, (3) outsourcing contract, (4) intellectual property, (5) communication, (6) custom functionality, (7) task complexity, and (8) vendor’s skills. Keywords: Accounting Information Systems, Project Management
WHAT IS XBRL? XBRL is a standard open source markup computer programming language that uses header tags to label each individual element of data to enable them to be identified by other software applications. XBRL can be used to electronically communicate business and financial information both intra- and interorganizationally. XBRL has recently come into the spotlight as an information technology to facilitate the transmission of financial statements that publicly held companies file with the Security Exchange Commission (SEC). For example, when using XBRL to electronically file its 10-K and 10-Q statements, a company would attach a tag labeled “usfr-pte:CommonStockParValuePerShare” to its U.S. GAAP Common Stock Par Value Per Share figure on its interactive data balance sheet submission to signify that the data following the tag is the numerical amount of the Common Stock Par Value Per Share from its financial statement.
IMPLEMENTING THE SEC’S MANDATE The SEC’s interactive data ruling affects over 10,000 domestic and foreign issuers that prepare their financial statements under U.S. GAAP or IFRS. The SEC estimates that preparation costs to a company submitting its interactive data financial statements with detailed footnotes and schedules could average between $21,075 and $30,700. The SEC estimates the number of hours required to tag face financials averages 125 hours for the first submission and 17 hours for subsequent submissions. One of the implementation options that firms are contemplating is to outsource their XBRL filing to a third-party.
Over half of the 50 companies participating in the SEC’s voluntary program for XBRL filing reported that they outsourced their XBRL activities [3]. The following eight characteristics (see Figure 1) should be taken into account when considering outsourcing implementation of the interactive data mandate.
CHARACTERSTICS OF OUTSOURCING RELATIONSHIPS FRAMEWORK 1. Client-Vendor Relationship: Firms should consider whether they already have an established relationship with an XBRL service provider. Their accounting firm, financial printer, or provider of financial statement conversion to HTML may also provide XBRL conversion services. It may be more beneficial to continue an established relationship than to develop a new one. Firms should be aware that interactive data will be subject to the same liability under federal securities laws as the corresponding portions of the traditional format filing, and as such, they are still responsible for the content even if they don’t actually create the XBRL documents. 2. Company Size: Firms should consider their size relative to the size of the outsourcing vendor. Firms tend to engage services of similar sized firms, especially small-to-medium sized firms. This may be due to difficulties that small firms have in reaching out to larger vendors. Smaller firms may prefer to work with vendors similar in size because they may perceive that they receive better service from them than from larger vendors, who may give preference to more lucrative contracts. When using vendors of similar size, the ability to monitor the vendor’s performance and reduce the risk of non-compliance is enhanced [12]. While no empirical research to date has conclusively established a significant advantage from outsourcing client-vendor size parity, the prescriptive literature suggests that small-to-medium sized businesses tend to use vendor companies of a similar size [4] [8]. Some, however, argue that this is because SMBs have difficulties in reaching out to large IT outsourcers [13]. 3. Outsourcing Contract: Best practices suggest the use of a formal detailed and comprehensive contract for outsourced services [2]. A level of trust established by a pre-existing client-vendor relationship can reduce the transaction costs inherent in a relationship between two parties. If one side doesn’t trust the other side, then resources that could be utilized elsewhere may be consumed to manage the risk that the other party won’t keep its side of the agreement. Social network and prior favorable relationships can help reduce the transaction cost of having to prepare highly comprehensive contracts, and “act as substitutes for formal institutional support” [3]. 4. Intellectual Property: Transaction-cost theory informs us that, the collaboration between a client and its outsourcing partner creates an asset whose ownership must be agreed upon by both sides [1]. Firms deciding to outsource will still accountable for the content of their interactive data so they may want to consider whether the outsourced vendor offers Statement on Auditing Standards 70 or another form of assurance of their internal controls for safeguarding data and other content. 5. Communication: Research has shown that clear communication of objectives and information exchange can lead to a higher level of team commitment and performance [9]. 6. Custom functionality: Unless an organization has unique filing requirements, there probably isn’t any custom functionality required to fulfill its XBRL obligations. The common wisdom in outsourcing is to develop a solid business case for not implementing a commercially available solution [7] [10]. If one of the existing XBRL software packages can easily be used to solve the business requirements, then
it can be a much faster and cheaper solution than developing a solution in-house or outsourcing implementation. If a process is not seen as a core competency, which in many cases financial reporting isn’t, then a firm can make a good case for outsourcing its filing. 7. Task Complexity: Traditional information technology outsourcing involved highly structured application development. The trend now is toward outsourcing less structured projects requiring greater client contact, clarity of outsourcing mission, and project management [6] [14] [11]. Organizations may want to initially outsource XBRL filing if they consider the implementation to initially be complex but as they become more comfortable with the process, they may want to consider other alternatives, for example, an inhouse implementation of filing using XBRL software applications. 8. Vendor’s Skills: Organizations considering outsourcing should make sure the vendor they use has experience with industry specific XBRL requirements. If special tagging is needed, does the vendor have experience with this? One of the main reasons of outsourcing is to take advantage of the vendor’s technical skills [1]. As Gonzalez et al [5] asserted, in the case of IS outsourcing if the provider does not fully understand what the business is all about the customer’s needs may not be properly met.
Exhibit 1. Characteristics of XBRL Client-Vendor Outsourcing Relationship
CONCLUSION Organizations outsourcing their implementation of the recent mandate by the SEC requiring XBRL filing should consider (1) the client-vendor relationship, (2) company size, (3) the outsourcing contract, (4) intellectual property assurances, (5) communication, (6) custom functionality, (7) task complexity, and (8) vendor skills.
ACKNOWLEDGEMENTS This research was sponsored by a Summer Research Grant from the Frank G. Zarb School of Business at Hofstra University.
REFERENCES [1] Aubert, B. A., Rivard S., Patry, M. “A Transaction Cost Model of IT Outsourcing”, Information & Management, 2004, 41(7), pp. 921-932. [2] Bryson, K.M., Sullivan, W. E. (2003), “Designing effective incentive-oriented contracts for application service provider hosting of ERP systems”, Business Process Management Journal, 2003, 9(6), pp. 705–721. [3] Choi, V., Grant. G., Uiz, A. “Insights from the SEC’s XBRL Program”, The CPA Journal, 2008, December. [4] Fox, G. “What You Should Know about Outsourcing Contracts,” CIO Magazine, January, 2006. [5] Gonzalez, R., Gasco, J., Llopis, J. “Information Systems Offshore Outsourcing”, Industrial Management & Data Systems, 2006, 106(9), pp.1233-1248. [6] Jennex, M. E. and Adelakun, O. “Success Factors for Offshore Information System Development”, Journal of Information Technology Cases and Applications, 2003, 5(3), pp. 12-31. [7] Keil, M. and Tiwana, A. (2006), “Relative Importance of Evaluation Criteria for Enterprise Systems: A Conjoint Study”, Information Systems Journal, 2006, 16(3), pp 237-262. [8] Kobayashi-Hillary, M. “It’s Time to Focus on Quality and Information Security”, October, 2006, available at: www.indiaonestop.com/face2face/mark.htm (accessed on November 11, 2009). [9] Liang, T., Liu, C., Lin, T., Lin, B. “Effect of Team Diversity on Software Project Performance”, Industrial Management & Data Systems, 2007, 107(5), pp. 636-653. [10] Lucas, H. C. Information Technology: Strategic Decision Making for Management, NY: Wiley, 2005. [11] Mirani, R. “Client-vendor relationships in offshore applications development: an evolutionary framework”, Information Resources Management Journal, 2006, 19(4), pp.72-86.
[12] Oh, W., Gallivan, M. J., Kim, J. W. “The Market's Perception of the Transactional Risks of Information Technology Outsourcing Announcements”, Journal of Management Information Systems, 2006, 22(4), pp 271-303 [13] Paul, A. (2007). “Size Impedes SMEs' Tryst with Outsourcing”, The Economic Times, March 16, 2007. [14] Xue,Y., Sankar, C. S., Mbarika, V. W. “Information Technology Outsourcing and Virtual Teams”, Journal of Computer Information Systems, 2004/2005, 45(2), pp. 9-16.
doc_736869595.pdf