XBRL Standard could highlight financial risks
CNET News – 15 December 2008
IBM’s data council has called for a taxonomy to allow for better reporting against risk and losses. The reporting meme du jour is that risk management was missing in action the last few years which may have assisted this current crisis stay undetected for so long.
What does it mean? A special taxonomy will allow companies to report granularly those financial items that will be of interest when assessing risk and losses. This will allow internal and external analysts search financial statements rapidly to ascertain risk and risk management.
The critical nature of data in business means it need to be moved along the C-Suite to the CFO’s basket. Data integrity, security and quality will need to be reported on in asset and risk terms, I quote:
- Data governance will become a regulatory requirement in an increasing number of countries and organizations. In some countries, organizations will have to demonstrate data governance practices to regulators as part of regular audits. This will likely affect the banking and financial services industries first, and will emerge as a growing trend worldwide.
- The value of data will be treated as an asset on the balance sheet and reported by the Chief Financial Officer while the quality of data will become a technical reporting metric and key IT performance indicator. New accounting and reporting practices will emerge for measuring and assessing the value of data to help organizations demonstrate how data quality fuels business performance.
- Calculating risk will be used more pervasively across enterprises for small and large decision-making and will be increasingly automated by information technology. Today in most organizations, risk calculation is done by a select group of individuals using complicated processes. In the future, risk calculation will be automated providing greater transparency to more easily examine past exposure, forecast direct and indirect risk, and set aside capital to self-insure and cover risk.
- The role of the Chief Information Officer (CIO) will change, making this corporate officer responsible for reporting on data quality and risk to the Board of Directors. The CIO will have the mandate to govern the use of information and report on the quality of the information provided to shareholders.
- Individual employees will be required to take more responsibility for recognizing problems and participating in the governance process to facilitate greater operational transparency and the identification of risk. They will be aided by new categories of operational software that will demonstrate common data governance problems and allow employees to self- govern; sponsor and vote on new policies; provide feedback on existing ones and participate in dynamic data governance.