Identifying, Monitoring & Responding to Corporate

VulnerabilityPerspectives on the Future of Corporate Reporting

March 22, 2004

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Predicting systemic corporate crises Is elusive for public & private sectors today

Several elements are needed to improve the ability of both public and private sector companies to effectively predict systemic corporate crises:

RelevantEconomic

Trend Data

RelevantEconomic

Trend Data

Timely, Accurate

Financial Data

Timely, Accurate

Financial Data

ReliableMarket Data

ReliableMarket Data

PredictCrises!PredictCrises!

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Quality data serves as the foundation for better predicting systemic corporate crises

Reliable, timely data is foundation upon which methodologies and analytics for predicting and analyzing corporate crises are built.

Analytics

Methodology

Data

Most financial institutions are not dependent on a single methodology or model

Depth, quality and breadth of data are key drivers of credit capabilities

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Solutions do exist, but are primarily limited to areas where data is readily available

Where data is abundant, commercially available and proprietary tools provide a big part of the answer.

AM Best Bureau Van DijkCreditAnalyzer LLCCrisil (India)Dun & BradstreetEgan Jones Ratings CoFair Isaac & CompanyFitch RatingsICRA (India)IQ Financial (Misys ’04)

Comml. Services Providers

Primarily limited to North

America, Europe and

Industrialized AsiaTools/Services

• Probability of Default Models• Bankruptcy Prediction• Early Warning Models• Ratings Service• Risk Scoring• Data Services (Ratings, LIED,

Recoveries, etc.)

KamakuraMoody’s/KMVMoody’s Investor ServicePhillipines Ratings Svcs Corp.RiskMetrics GroupStandard & Poor’sThai Ratings & Info ServicestradeRadar.netUBS Warburg

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Availability of consistent, reliable data is hampering improvement efforts There are several key reasons why consistent, reliable data to improve the ability to predict corporate crises are not widely available:

Standards – There is a broad lack of global and/or regional standards for collecting and presenting market and financial data, particularly among global companies

Timeliness – The amount of time between when companies report financial performance and when it is audited (or verified), released and consumed is too long

Processes – Despite significant expense in automating reporting processes over the past 10 years, manual and spreadsheet driven-processes still prevail, increasing complexity and the possibility for errors

Availability – In certain developing regions, consistent, reliable economic, market and financial data is not readily produced, accessible or usable

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Improving the availability of critical data is possible…but not overnight

Improving availability, reliability and usefulness of data will require focused efforts in addressing the following areas:

Development and adoption of global financial reporting standards.

Use of open data standards such as XML/XBRL to describe data elements and facilitate validation

Increased automation in the production, dissemination and consumption of data

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Regulators & Exchanges around the globe are leading efforts to streamline reportingAustralian Tax Office

Autoriteit Financaiele Markten (Netherlands Authority for the Financial Markets)

Banco de Espana

Bank of Japan

Bundesbank

Danish Commerce & Companies Agency

Dutch Tax Authority

Dutch Water Authority

The Irish Revenue

KOSDAQ – Korea

Luxembourg Stock Exchange

National Tax Agency of Japan

New Zealand Exchange

Patent and Registration Office (PRV – Sweden)

Shenzhen Exchange

Tokyo Stock Exchange

Toronto Stock Exchange

UK Financial Services Authority

UK Inland Revenue

US Federal Financial Institutions Examination Council (includes the FDIC and the Federal Reserve Board)

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Case Study: US FFIEC Call Report Modernization Project…Today

Today

8900 Banks

FDIC OCC FRB OTS NCUA

Multiple copies of data exist inside multiple agencies (error prone)

Avg of 60 – 75 days to receive, validate + publish filings (not timely)

Estimated processing costs over next 10 years - $65 million (costly)

March 2003 reports had nearly 18,000 errors that needed to be corrected (integrity issues)

• 1,000 basic math errors• 17,000 quality (validation) errors

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Case Study: US FFIEC Call Report Modernization Project…the Project

The FFIEC awarded a $39 million 10-year project to modernize its Call Report (principal regulatory filing) process to a combined team of Unisys, PwC and Microsoft. The project involves:

Standardization of call report data among agencies

Creation of standard instructions and validations

Construction of Central Data Repository

Establishment of metadata management capability for providing context to call report data using XBRL

Web services applications to transmit and receive secure XBRL-formatted report data

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XBRL open source data standard used for communicating report requirements, validations, instructions (timeliness/flexibility)

Filers required to submit data in XBRL format over the web (automation)

Multiple sources of data SINGLE SOURCE (integrity)

Processing Time 60-75 days 2 Days (timeliness)

Processing Costs $65M $39M, a savings of $26M (cost/efficiency)

Future

8900 Banks

FDIC OCC FRB OTS NCUA

FFIEC

Case Study: US FFIEC Call Report Modernization Project…Future

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What is XBRL?

XBRL (eXtensible Business Reporting Language) is:

An information format designed for the Internet.

Freely available

Developed and maintained by over 250 supply chain participants

Based on accepted reporting standards

The convergence of:

Technology = XML-based specification

Language/dictionary = Terms by jurisdiction/industry

Consortium Participants = Supply chain members

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Scope and role of XBRL

ExternalFinancialReporting

BusinessOperations

InternalFinancialReporting

Investment,Lending,

RegulationProcesses

Participants

AuditorsTradingPartners

Investors

FinancialPublishersand Data

Aggregators

Regulators

Software Vendors

ManagementAccountants

Companies

Economic Policymaking

CentralBanks

XBRLLedger

XBRLFinancial Statements

XBRL International is a non-profit consortium

Manages the royalty-free intellectual property

Facilitates knowledge sharing with members

Provide a framework for further development

Japan

UnitedStates

Australia

GermanyCanada

UnitedKingdom

IASB

China

Sweden

Denmark

Switzerland

Netherlands

NewZealand

Brazil South Africa

Korea

Colombia

Argentina

SingaporeSpain

Ireland

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Here is how this works

http://www.nasdaq.com/xbrl

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XBRL Links to other concepts

XBRL adds to XML: Multi dimensional financial data

representations

Financial reporting vocabularies (taxonomies)

Aliases and other definition relationships

Mathematical relationships between concepts

Flexibility about how to present items to users

Structure for authoritative policies and guidance

Reporting apps need these even when using XML

CalculationsCash = Currency + Deposits

CalculationsCash = Currency + Deposits

PresentationCash & Cash Equivalents

PresentationCash & Cash Equivalents

FormulasCash ≥ 0

FormulasCash ≥ 0

ReferencesGAAP I.2.(a)Instructions

Ad Hoc disclosures

ReferencesGAAP I.2.(a)Instructions

Ad Hoc disclosures

DefinitionscashCashEquivalentsAndShortTermInvestments

DefinitionscashCashEquivalentsAndShortTermInvestments

LabelUS $

FY2004Budgeted

LabelUS $

FY2004Budgeted

XBRLItem

“200”

XBRLItem

“200”

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The Growing XBRLFamily

Over 250 and growing

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Benefits of XBRL for Preparers

Lower cost of producing information

More timely, accurate, data for decisions

Enhanced analytical capabilities

Better control environment

Tell your own story (precise & clear)

Accelerate adoption of reporting models

Enhanced functionality

Ease of use

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Benefits of XBRL for Consumers

Lower cost of consuming information

Faster access to information

More timely, accurate, data for decisions

Enhanced analytical capabilities

Enhanced functionality

More useful access to information

Ease of access to definitions enhance comparability

Facilitates language translations

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Benefits of XBRL for Regulators & Standard SettersReduced Reporting Burden on regulated entities

Improved data timeliness

Improved data accuracy

Enhanced validation

Simplified programming efforts

Improved flexibility in handle changes

Enhanced inter-connectivity of standards content

Enhanced consistency of data for analysis

More proactive use of standards and regulations within the market

Enables more efficient research

More effective way of identifying changes and/or relationship with other standards

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XBRL – Ready for Prime Time

“Some critics have suggested

that XBRL is not ready for

primetime. In fact, it is.”

Hon. Richard H. BakerChairman, Capital Markets Subcommittee

Identifying, Monitoring & Responding to Corporate

VulnerabilityPerspectives on the Future of Corporate Reporting

March 22, 2004