CIPC to unpack how the XBRL programme is unearthing valuable insights at Finance Indaba.
The Companies Act requires that the Companies and Intellectual Property Commission (CIPC) ensures that companies submit financial statements on an annual basis and that they are submitted in a uniform format. CIPC Commissioner, advocate Rory Voller, says for a long time this was a challenge and in the past, they received financial statements in different formats.
He explains: “Some companies submitted PDFs, others sent Word documents, and some submitted their financials through their accounting software or provider. As a result, it was impossible for us to compare one company’s financial statement to another’s. As a statutory body, this was a worrying issue and we needed to find a mechanism by which they could compare apples with apples.”
To address this, the CIPC adopted iXBRL, a platform which has facilitated a data standardisation process that creates a uniform way in which financial data is reported, enabling the regulator to compare the financial standing of different companies.
CIPC’s iXBRL adoption delivers a powerful host of benefits
The CIPC has been on a mission to become a more effective regulator and identified the ability to digitise financial reporting as a way to meaningfully drive this agenda.
iXBRL is an electronic communication protocol for business reporting, overcoming the limitations of traditional financial statements. It provides major benefits in the preparation, analysis, and communication of annual financial statements.
Rory says, “With the decision to adopt digital reporting in the format of iXBRL, we pitched it as a national imperative, because the data we will give to the taxonomy is data required by other bodies. One of the benefits we are seeing in the space is a concept called ‘file once, use many’. A financial statement will be filed with CIPC in one format, and it will be useful to financial institutions such as banks, insurance companies, credit bureaus, and other types of institutions. These institutions will mine our data and analyse companies through the use of that data. Banks have found this data so useful that they have set up internal iXBRL units.”
The value of data generated stretches beyond financial service organisations. Other stakeholders that benefit from the data capabilities of IXBRL are media houses. “Financial journalists can now receive timely information from CIPC. This data allows them to analyse companies and glean information on which entities are liquid, what their share price is doing, and how they are performing, because the taxonomy has a lot of data points that they can utilise.
“International regulatory bodies also find CIPC’s data extremely useful because we can cross movement of data in terms of the iXBRL format, which allows them to track company data across borders in order to perform economic analysis as part of African continental free trade agreements.”
South Africa is striving to be an investment destination of choice and the increased capability of CIPC means investors have insights that can help assist their due diligence processes. Additionally, data modelling can be used to look at the touch points of not only regulation or financial data, but also the performance of a company at the touch of a button. “This is because you can mine data across various departments, you can mine it against your competitors. And what's more, with experts being able to make economic decisions based on a single source of information, there’s a wealth of vital data available for cross referencing across industries,” he says.
The platform provides intelligence that is crucial for the CIPC. The commission has an annual financial statements review committee, which is set up in-house under the corporate compliance unit. Rory explains that they take a sample of the external data and they test it for internal review. “It provides us with key insights. Most importantly allows us to address issues around solvency and liquidity. This is vitally important for us as a regulator, because according to the Companies Act, it is illegal to trade when you are insolvent. It’s called reckless trading.”
CIPC can use the iXBRL’s business intelligence aspect for us to issue compliance notices to warn companies about their solvency status and also to make sure that the entity informs them of what their plans are to rectify it.
“This capability puts companies on their toes as to the fact that the regulator is watching them. We are able to look at the entire population of the filing,” says Rory.
Making iXBRL stick
Uptake of new systems in a project of this magnitude is often a challenge and Rory says they were aware of the possibility of failure and took the decision to mandate the digital reporting system. He says, “To make an initiative like this work, you have to make it mandatory. Countries that have not made it mandatory have a very, very little take-up. I sit on the SPL international board, which has been totally blown away by the numbers that are coming through South Africa.”
He cites the number of companies that have filed as evidence that the programme is successful. “The total number of filings sits somewhere in the region of about 55,000 companies that are reported over the period when we started in 2018.”
South Africa leading the pack
With just over four years since adopting iXBRL, South Africa has gained recognition as one of the up and comers when it comes to financial reporting regulation.
Rory says, “Despite the short period, we have already gained international recognition. In 2020, CIPC received the Commendation Award from the Corporate Registers Forum for Innovation in Exploration and Financial Reporting Regulation. The acknowledgement we have received has put South Africa on the map and countries across the African continent and Australia have contacted us and asked how we have done it. They are interested in learning our best practices and processes, which we are proud to share.”
You can find out more about this topic by visiting CIPC's stand at the live Finance Indaba on 20 October at the Sandton Convention Centre.