XBRL Extends Its Reach--Downward

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An emerging technology pursues a wider audience.

by Richard McCausland

Largely the pet technology of enterprise-class financial software developers and their multinational corporate clients, eXtensible Business Reporting Language is beginning to raise its voice in the middle market.

Partner Insights

Such a development is overdue, insist many mid-market participants.

“This is not a Fortune 1000 issue; this is a business issue,” observes Daniel Roberts, Grant Thornton’s national director of assurance innovation. Although there may be differences in scope, “the middle market has all the same financial management and reporting concerns” as global companies have, he says. After all, even smaller private businesses have to document their financial health when applying for bank loans or a credit line or venture capital.

Louis Matherne, director of business assurance and advisory services for the American Institute of CPAs and also president of XBRL International, comments, “It’s pretty clear XBRL is real and is happening.”

He notes that accounting vendors with software targeted to larger enterprises are “setting the pace” in pushing XBRL technology, but sees this as a “natural progression” since these enterprises typically have complex compliance reporting needs. “As they shake it out and make [XBRL tagging] easier to do, we will see the adoption among smaller companies. It’s only a matter of time,” since they too have to share their financial information with various third parties, he predicts.

That wider adoption could well come sooner than later.

Microsoft is poised to launch an Office Solution Accelerator for XBRL that will allow business users of any size to create, modify, and publish XBRL content from within Word 2003 and Excel 2003, Professional Editions. It will be available for download before year-end, according to the XBRL-US newsletter, Xchange. The Accelerator will make use of two new features within Microsoft Office 2003: XML Schema support and Smart Docs functionality.

Taking advantage of what Rob Blake, director of emerging technologies for Microsoft Finance, labels “drag-and-tag” functionality, users can map financial information to the appropriate XBRL terms based on the domain-specific taxonomy or “dictionary” they have selected. Additionally, users can generate graphs and charts, trends and comparisons, and ratio/metric calculations based upon this XBRL data.

“The knowledge of XBRL is starting to spread; however, the catalyst hasn’t been there yet” to trigger widespread adoption, says Blake. That is, until now, with the pending launch of the XBRL Accelerator. He also cites an ongoing FDIC call report initiative as “the kind of event that gets people moving.”

In a major move, the Federal Deposit Insurance Corporation is implementing a new $39 million call report system that is primarily XBRL-based. When completed in the second half of next year, it will result in approximately 9,000 banks operating in the U.S. submitting quarterly financial status and performance data in XBRL.

For those new to the scene, XBRL is a derivative of eXtensible Markup Language, a tool that allows variously structured reporting and transactional documents within different applications to be “marked up” in such a way that they can interact with each other. XBRL is specifically for financial statements. For reporting and analysis purposes, XBRL-compliant data may be rendered in diverse forms such as a printed balance sheet, an HTML document for the corporate Web site, an Edgar filing with the Securities and Exchange Commission, or other specialized formats such as credit reports or loan documents.

Blake is confident that XBRL, which originated with the AICPAs will appeal beyond public mega-corporations that need to issue periodic financial reports to government regulatory bodies and the global investment markets, where accuracy and timeliness are paramount concerns. “There’s the same value proposition in the mid-market,” he says, where small and medium-sized firms interact with banks and investors and trading partners.

Enlisting CPA Support

Blake is relying on accountants to enroll in the campaign for boosting XBRL adoption. As he sees it, “This technology will enable the CPA to focus more on value-added opportunities rather than cutting-and-pasting and rekeying data.”

CPAs have “at least two critical roles” to play in ensuring widespread XBRL adoption, contends Matherne. First, in their role as business consultants, “they can help their clients recognize the economies that can be achieved by the electronic exchange of business information,” including less data entry, greater accuracy, speedier transfer of information, and a shift toward a paperless environment. In fact, preaching by example, CPAs can benefit from using XBRL-enabled applications in-house for smoother communication with their own business partners and clients.

Also, in their more traditional attest role, CPAs can verify that the XBRL-formatted financial statements presented by a client to the capital markets or to lending institutions are in fact a “fair presentation” of the firm’s economic health.

Not surprisingly, the Big Four accounting firms are all represented on the XBRL U.S Committee, an arm of XBRL International, a consortium of vendors and financial institutions that are developing XBRL. But a select handful of Group B practices—BDO Seidman, Crowe Chizek, and Grant Thornton—are also on the committee.

GT’s Roberts is anticipating an “uptick” in XBRL demand in the next six to 18 months from mid-market public companies. “This is going to be important, and we want to be positioned to assist them,” he says.

According to a survey conducted by the AICPA, two-thirds of accounting software vendors have already XBRL-enabled at least one product or will do so by the end of next year. These vendors include Accpac, Microsoft, Oracle, PeopleSoft, and SAP.

Fourteen of the vendors surveyed indicated their applications will initially focus on being able to export XBRL-formatted data; XBRL import functions will come later as organizations automate more and more of their business reporting processes. In all, 21 vendors representing 59 products responded to the telephone survey, conducted during this past second quarter.

Clearly, there’s been a lot of progress on the XBRL front, but much of it has occurred in the high-end, Enterprise Resource Planning space that caters to global public corporations. For example, Oracle is using the Financial Statement Generator within its E-Business Suite as its XBRL vehicle, while PeopleSoft has tagged its Financial Management Solutions. Neither company has disclosed plans to migrate that functionality downward to, respectively, the NetSuite/Oracle Small Business Suite and the PeopleSoft Mid-Market/Accelerated Solutions.

Similarly, SAP—which provides XBRL functionality within the Strategic Enterprise Management component of mySAP Financials and mySAP.com—has no immediate plans to extend that capability to its SAP BusinessOne or the mySAP All-in-One offerings for small and mid-sized businesses.

Demand for XBRL capability remains largely confined to larger enterprises, which need to improve both their internal and external reporting, says Philip Say, product marketing manager for mySAP Financials. However, he continues, “As our solutions evolve and mature for the small and medium-sized business market, we will probably leverage this technology as the demand becomes relevant for these companies.”

And there’s no doubt in his mind that XBRL is relevant to the mid-market. “As the standard becomes more mature and widespread, I certainly think there’s a tremendous productivity improvement for merger-and-acquisition planning, as well as for tax and audit services, that small and medium-sized companies can take advantage of,” observes Say.    

In Search of Momentum

Since May 2001, Pleasanton, Calif.-based Accpac International has offered the Advantage Series XBRL Financials as a free, downloadable add-on. Despite the give-away, “it’s difficult to get any momentum to happen” until customers have business partners with whom they can productively swap the XBRL-mapped data, points out product management vice president Craig Downing.

He adds, “Where you have a closed loop, you do see people making it happen”—such as the transfer of financial data from a subsidiary company to the corporate parent for consolidation reports, or between a firm and its lending institution. “One of the conditions of the bank [for a loan] is easy access to your information” to make sure the firm’s financial practices conform to the covenants of the loan, notes Downing. The FDIC initiative is likely to foster these kinds of XBRL data exchanges.

Microsoft has been an especially vigorous evangelizer for XBRL. Corporate has begun publishing and filing its financial statements in XBRL format. On its Web site, it even invites visitors to do their own what-if manipulations of its XBRL-enabled SEC data. Meanwhile, its Microsoft Business Solutions Navision software offers built-in support for the technology in Navision Financials 3.70. And the FRx Software unit provides its own support in Financial Reporter 6.5. Users can create instance documents that comply with the XBRL 1.0 standard, as well as add XBRL tags to existing FRx reports. The reporting tool is currently bundled with both Great Plains and Solomon editions, and will interface with Axapta in the near future.

Plans call for supporting the 2.0 standard in the next Financial Reporter release, scheduled for the first quarter of next year. “We’re still definitely in the forefront” of XBRL advocacy, says FRx product marketing director Laura Pettett. “This is going to be important in the mid-market as we start to see it get more traction.”

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