XBRL & Enhanced Business Reporting:

A Consortium Approach

Dr. Robert G. Eccles

XBRL International
April 27, 2005

Boston, USA
Wait a minute… enhanced business reporting,
improving the reporting model…

• Didn't Sarbanes-Oxley § 404 lead to improved

internal controls and result in better information?
– No…..SOX targeted improved internal controls over
financial reporting, however…
– Investors, creditors and business executives do not use
the financial statements as their primary tool when
making decisions about the allocation of capital
• Then, what information is important?

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Research tells us what is important

• Provide shareholders and others with information needed to

make decisions
– Financial and nonfinancial value drivers
– Tangible and intangibles assets
• In general, many measures require information from
outside the Company's financial or business systems
• Vast majority of measures are not subject to standards or
reporting frameworks of any kind

Enhanced Business Reporting = Better Information

3
PwC ValueReporting capital markets research

Banking Insurance

• Loan Loss • Fee-based Revenue • Performance by • Customer Retention

• Earnings Growth
• Delivery Channels
• Capital Adequacy
• Economic Profit
• Risk Management
Practice • Performance by
• Customer Retention Business Segment
• Market Risk Exposure
• Customer Penetration
• Cost/Income
• Asset/Liability
Management • Market Share
• Asset Quality • Assets Under
• Return on Risk Adjusted Management
Capital • Employee Satisfaction
• Capital • Brand Equity
• Management • Product Innovation
• Quality of Management • Investment Performance
• Plans for Growth • Degree of Diversification
• Market Growth • Regulatory Reputation
• IT Expenditures
Business Segment • Capital Adequacy
• Expense Ratio • Claims Ratio
• Capital Management • Economic Profit
• Risk Management • Employee Satisfaction
Practices
• Customer Penetration
• Plans for Growth
• Market Risk Exposure
• Investment
• Assets Under
Performance
Management
• Distribution Channels
• Asset Quality
• Quality of
• Embedded Value
Management
• IT Expenditures
• Earnings
• Brand Equity
• Asset/Liability
Management • Product Innovation
• Return on Risk • Regulatory Reputation
• Adjusted Capital • Market Share
• Market Growth

Source: PwC ValueReporting Capital Markets Survey 4

PwC ValueReporting capital markets research

Investment Management High Technology Telecommunications

• Competitive Landscape
• Profit Margins • Compensation • Strategic Direction
Strategy • Capital Expenditures
• Investment Product • Cash Flow
Performance • Investment in • Market Growth
• Market Growth
• Quality of Technology to • Customer Churn Rate
• Gross Margins
Management Improve Business • Regulatory Environment
Processes • Quality/Experience
• Asset Growth from of Management • Pricing Strategy
Investment • Assets under
Team • Network Reach,
Performance Management
• Market Size Quality & Capability
• Asset Growth from • Enterprise Risk
• Competitive • Earnings
Product Cash Flow Management
Landscape • Revenue Metrics by
• Employee Retention • Market Share
• Earnings Driver (e.g. Average
• Compensation Levels • Experience & Revenue per user)
Quality of • Speed to Market
of Professional Staff • Significant Operating
Investment (first to market)
• Asset Retention Costs by Category
Research • Market Share
• Competitive Professionals • Sales & Marketing
Landscape Strategy
• Product Diversification • Cash Flow by Business
Strategy Segment

Source: PwC ValueReporting Capital Markets Survey 5

PwC ValueReporting capital markets research

Pharmaceuticals Petroleum
• Market Growth & Potential • Market Growth by • Supply, Demand and • Performance by Business
by Therapeutic Area Geographic Market Prices for Petroleum Segment
Products by Region • Exploration Success Rate
• Product Focus Strategy • Partnering Strategy
• Cash Flow • Return On Average Capital
• Earnings • Cost/Revenue Ratios
• Unit Cost by Refinery Employed or Similar
• R&D Pipeline • Quality of Selection of
• Value of Proven & Return Measure
• Market Share by Development Targets
Probable Reserves • Quality of Management
Therapeutic Area • Recruitment & Retention
of Talented People • Refinery Margins by • Petroleum Product Sales
• Regulatory Issues
Region by Volume by Refinery
• Product Innovation Strategy • Risk Profile of Product • Capital Expenditures • Risk Management
• Performance by Business • Efficiency of
Manufacturing Facilities • Strategic Direction • Quality of Workforce
Segment
• Profitability of Licensing • Reserve Replacement • Hedging Strategy
• Effectiveness of Product
Arrangements Costs • Market Share
Launch
• Refinery Utilization • Operating Profit per
• Reputation with Prescribers • Economic Profit
• Value of Key Intellectual • Refinery Acquisition Equivalent Measure by
• Quality of Management
Assets Cost of Crude Geographic Location
• Market Growth & Potential
• Brand Awareness of • Earnings
by Geographic Area
Levels with Patients • Supply, Demand &
Prices for Crude Oil &
Natural Gas
Source: PwC ValueReporting Capital Markets Survey 6
PwC ValueReporting capital markets research
Chemicals Metals
• Free Cash Flow • Market Share
• Strategic Direction • Energy Prices & Supply
• Manufacturing Costs • Earnings
• Earnings • Costs per Ton Delivered
• Market Growth • Market Growth
• Performance by Business • Metals Prices
Segment • Capital Expenditures
• Product Quality
• Performance by Business Segment
• Quality of Management
• Potential Supply Globally & Locally
• Capital Expenditure
• Utilization of Facilities
• Utilization of Facilities
• Product Quality
• Market Share
• Free Cash Flow
• Customer Loyalty • Age & Quality of Plant
• Strategic Direction
• Value of Tangible Assets
• Implementation of
New Processes & Technologies
• Quality of Management
Source: PwC ValueReporting Capital
• Regulatory Environment
Markets Survey
Mining
• Strategic Direction
• Cash Cost per Ounce/Kg/Ton
• Capital Expenditures
• Earnings
• Existing/Potential
Environmental Liabilities
• Health & Safety
Performance Statistics
• Metal Prices
• Quality of Management
• Acquisition Strategies
• Ounces/Kilograms/Tons
Produced per Year
• Performance by Business Segment
• Cost per Ounce/Kg/Ton
• Labor Relations
• Sustainable Development Strategy
• Environmental Policy/Risks
• Potential Supply/Production
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Globally & Locally
PwC ValueReporting capital markets research

Diversified Manufacturing Consumer Goods

• Free Cash Flow • Capital Expenditure • Earnings

• Performance by Business • Free Cash-flow • Sales & Gross Margins
Segment • Sales Volume by Product Category
• Market Growth • Quality of Strategy • Market Share
• Earnings • Growth of Strategy • Product Innovation
• Manufacturing Costs • Performance by • Marketing Costs
• Quality of Management Business Segment • Brand Portfolio
• Strategic Direction • Market Growth Management Date
• Capital Expenditures • Performance by • Percent of New
• Market Share Geographic Market Products in Sales
• Marketing Strategy • Employment,
• Product Quality
• Customer Loyalty & Environmental Policies
Advocacy • Product Range
• Customer Service Development
• Stock Levels in the
• Weighted average cost
Supply Chain
of capital
• Distribution Channel
• Employee Satisfaction
Complexity
& Advocacy
Source: PwC ValueReporting Capital Markets Survey 8
PwC ValueReporting capital markets research

Retail Real Estate

• Market Growth • Quality of • Financing Strategy

• Earnings Management • Occupancy Rate
• Same Store Sales • Capital • Macro-Economic Factors (e.g., GDP
Expenditure growth, inflation, population & job
• Gross Margins
• Sales per Square growth, interest rates)
• Free Cash-Flow
Foot • Investment Strategy
• Market Share
• Inventory Turns • Return on Invested Capital
• Performance by
• New Store • Revenue from New Developments or
Business Segment
Formats Tested Acquisitions
• Store Portfolio Changes & Performance
(e.g., new stores) • Investment in New Acquisitions &
Data
Development Properties
• Weighted Average Cost • Brand Value
of Capital • Earnings
• Product
• Customer Satisfaction • Market Rental Rate
Availability
• Expected Return on • Quality of Management
New Stores • Free Cash Flow
Refurbishment

Source: PwC ValueReporting Capital Markets Survey 9

PwC ValueReporting capital markets research

Automotive Entertainment Utilities

• Earnings • Market Growth • Cost reduction

• Free cash flow • Market Share • Investment/acquisition strategy
• Market Share • Free Cash Flow • Margin improvement
• Strategic direction • Performance by Business • Market growth
• Product quality Segment • Operating cash flow growth
• Customer satisfaction • Customer Demographics • Operating profit growth
• Market Growth • Quality of Management • Quality of management
• Facility or capacity • Earnings • Regulatory environment and
investment strategy • Strategic Direction price controls
• Sales volume • New Business • Risk Management processes
• Performance by business • Capital Expenditure • Strategic direction and focus -
segment integrated vs. specialist player
• ROIC

Source: PwC ValueReporting

Capital Markets Survey 10
 Everyone needs better information

• Management… to optimize allocation of capital and people

resources
• Boards of directors… to provide the level of oversight that
shareholders demand
• Investors… to more efficiently and effectively allocate and
price capital
• Regulators… to ensure that the capital markets are
functioning as efficiently and effectively as possible

The net result is a higher return on capital for society as a whole

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What makes information better?

• Information which is more relevant

– Content matters – not the normal boiler plate
– Management’s perspective
– Different users have different needs
• Information which is not overly costly to produce or consume
– Format matters
– Timing is important
– Focus on analysis not data gathering and validation

Both content and format of information enhance transparency

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What do you mean… content and format?

• Enhanced Business Reporting is about content

– Provides information that is actually used for decision-making
– It is information that is not always disclosed
– Business community may want to develop standards for this type of
content (rather than waiting for territory regulatory actions)
• XBRL (eXtensible Business Reporting Language) is about
format
– Current taxonomies are based on accounting standards
– Taxonomies for MD&A/OFR content are very high level
– Taxonomy extensions will provide more relevant information

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What is Enhanced Business Reporting?

• Enhanced information for consumers

– Internationally recognized, voluntary guidelines for industry-specific
value drivers and key performance indicators (KPIs)
– A framework for disclosure of non-financial information, e.g.,
opportunities, risks, strategies and plans and about the quality,
sustainability and variability of cash flows and earnings

• Simplified report preparation

– Stronger focus on quality of information, not quantity
– Prepare and disseminate information using efficient and effective
business processes

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A standardized format matters if information is to
be more useful

• Management… to quickly populate a wide range of

analytical and reporting tools with relevant information
• Boards of directors… to access and analysis of
information buried deep within the enterprise
• Investors… to more efficiently and effectively access and
analyze information in business reports
• Regulators… to more effectively analyze information in
business reports

The net result is greater transparency of business information

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The challenge

• CEOs and management must resolve to report externally

the same information that is used to manage the business

• Boards of directors must determine the optimal level of

transparency required to ensure that all stakeholders have
the information needed to make decisions

• Investors must demand and use qualitative, non-financial

information and key performance indicators

• Regulators must be willing to trade long-time requirements

for more relevant and useful information
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The benefits are worth the effort

• Better Management
– Improving the ability of companies to benchmark performance against all
key performance indicators
• This level of benchmarking is impracticable in a paper-centric world

• Better Governance
– Directors can better fulfill their fiduciary responsibilities to shareholders,
e.g., more appropriate executive compensation through benchmarking
• Better Markets
– The over-emphasis of quarterly earnings will decline, as companies provide
richer information that enables to investors take a longer term view
– More efficient and cost-effective regulation

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One possible model for business reporting…

Tier Three
Company-
Specific
Information

Tier Two
Industry-
Based
Standards

Tier One
Global Generally Accepted
Accounting Principles

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One possible framework enhanced business
reporting…

The Market Strategy Performance Financial

• Competition • Overview • Summary • Financial
• Regulatory • Strategic • Supply chain statements
• Macro- priorities • Customers • Segment
economic • Operational • Acquisitions analysis
goals • Innovation
• Risks and risk
• People
management
• Sensitivity
• Opportunities
analysis
• Value drivers
• Estimates
• Projections

Source: Report of the Public Company Task Force to the

AICPA Special Committee on Enhanced Business Reporting, June 2004 19
What do we need to do?

• Work together along industry lines to create thoughtful

proposals for greater transparency involving both
simplification and enhancement
• Lead positive change, through a collaborative solution, by
establishing an international Enhanced Business Reporting
Consortium of diverse stakeholders to improve the quality
and transparency of information used in decision-making

Market collaboration is the best solution for all participants

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Are there any alternatives to the EBR Consortium?

• Do nothing and…
– Live with uncertainty in the markets about strategic intent and future
performance, but remember, uncertainty breeds market volatility
– Fail to demonstrate that users and providers of market capital are
committed to hold themselves accountable for the quality of the
information provided to the capital markets
– Fumble an opportunity to build upon the SEC's interest in a market-
led effort
• One thing is certain…
– Failure of the business community to develop and present
constructive proposals will result in future regulatory mandates

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Companies are trying to explain why they did not make a
target that they didn’t set in the first place

“Enhanced Business Reporting will help

companies move beyond the earnings game; placing
more emphasis on measures that give a better
picture of their value, their risks, and their
opportunities.”

Bob Herz
Chairman
Financial Accounting Standards Board

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What does the SEC think of the Enhanced
Business Reporting Consortium?

“I am encouraged by the Enhanced Business Reporting Consortium's

efforts to develop a voluntary, internationally recognized framework for
presentation of industry-specific key performance indicators and
disclosure of non-financial information about opportunities, risks and
management's strategies and plans.

This effort represents the type of discussion and action that should be
occurring in the marketplace as we all seek to continually improve the
value of information for the sake of investors.”

Don Nicolaisen
Chief Accountant
Securities and Exchange Commission
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 We are on the verge of a fundamental
transformation of business reporting practices

Will you join us in providing leadership for change?

www.ebrconsortium.org

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XBRL & Enhanced Business Reporting:
A Consortium Approach

Dr. Robert G. Eccles

XBRL International
April 27, 2005

Boston, USA