Fw: UBL article

[jon.bosak@sun.com]

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.

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