XBRL Grows Up

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Every technology goes through a "hype cycle," which shoots up to a peak of inflated expectations, drops down to a trough of disillusionment, climbs the slope of enlightenment, and ultimately reaches a plateau of productivity. That's a description from Gartner, the Stamford, Conn.-based research firm.

And it applies to eXtensible Business Reporting Language, an international standard promoted by the American Institute of CPAs and the Security & Exchange Commission.

In mid-2005, Gartner placed XBRL deep in the trough of disillusionment. Now it is heading toward the plateau of productivity and positioned to be transformational over the next two years.

Partner Insights

Gartner's characterizations are reflected in XBRL's slow, but continuing, progress since its conception by CPA Charles Hoffman in 1998. Today, the set of letters represents a promise of greater ease of financial reporting, one that will work its way into day-to-day operations of both public and private businesses.

Industry pundits predict that eventually banks, credit card agencies, and mortgage lenders will require small businesses to submit information to them in this format, pushing down the need and desire to speak the language from large global corporations to private firms.

"Even smaller, private businesses have to share financial information with various third parties such as regulators, banks, and investors," says Andy Kamlet, director of marketing for FRx Software at Microsoft. "As XBRL tagging becomes easier to do and more readily available, it is inevitably going to make its way downward into the mid-market. This is not a Fortune 1000 issue, this is a business issue."

SEC Chairman Christopher Cox, an avid proponent, expressed his optimism at the 14th International XBRL Conference in Philadelphia in December.

"It is already possible to imagine that XBRL taxonomies, written without bias toward any particular set of accounting rules, could be used to instantly translate any given set of financial data from one accounting system to another," Cox said.

Attempts to establish a lingua franca for business reporting are resulting in the production of taxonomies, dictionaries of terms agreed upon by industry experts to provide more detail on various reporting items. For example, the word "revenue" can have several labels attached to it to indicate that the number is expressed in U.S. dollars and that it is net revenue for fiscal year 2006.

These taxonomies continue to be developed as software vendors, including those in the tax and accounting world, XBRL-enable their tools and enter into partnerships to help make their applications XBRL compatible when their clients finally ask for them to be.

Microsoft became one of the first high-tech companies to report financials in XBRL in 2002. Then it brought what it learned to its clients with Microsoft FRx 6.7, allowing them to create XBRL reports and analyze data. And many other vendors have recently announced XBRL add-ins for Microsoft Excel.

Creative Solutions entered the game early on as well, deploying XBRL functionality in the 2001 year-end releases of its write-up and trial balance solutions in hopes of getting ahead of the curve.

But they were so far ahead that no one used it, according to Brian Vroom, Creative Solutions' vice president of software development.

In 2006, CSI partnered with Rivet Software (an XBRL and financial management software developer) to enhance the capabilities within the CS Professional Suite so users can create and view XBRL documents within Excel.

CCH entered a similar partnership last year so its customers can create and review XBRL documents based on CCH ProSystem fx data.

Right now, these vendors admit the need for XBRL hasn't hit their clients, but they're ready and waiting for demand to trickle down from larger public companies to smaller firms, which Vroom predicts will not occur until the banks take the leap of requesting information in this format.

As XBRL Global Ledger (XBRL GL) develops further, it is expected to help companies of all sizes manage their internal data and reporting. Several ERP vendors are working to provide XBRL tagging at the general ledger transaction level, and as that happens, CCH expects its clients to reap the benefits.

To date, roughly two dozen U.S. organizations are filing their quarterly and annual financial statements in XBRL under the SEC's voluntary program. Although they report more pros than cons, with limited investment of time, money, or even technology knowledge, most have yet to see a return on investment because they still must submit reports through the commission's conventional Edgar filing system.

Hoffman and others who have been involved with creating XBRL taxonomies see endless possibilities for companies, both public and private, to use the XML-based language for internal budgeting and sharing of information that lives within disparate accounting systems, as well as for competitive analysis.

But even Hoffman admits that the software vendors need to create better tools before accountants can realize the language's full potential. (See related story, "XBRL's Father Sees a Long Road Ahead.")

The obvious starting point seems to be quarterly filings and earning statements.

More than half of recent public company restatements were the result of misapplying basic accounting rules; about 5 percent were due to deliberate errors or fraud, according to Cox. Automating the reporting process can help corporate finance staffs and auditors avoid such mistakes.

"By scrapping our 1980s-error Edgar system and moving to a 21st-century interactive data platform, we're not leading the XBRL revolution, we're just observing what's happening all around us, and all around the world, and keeping up with the times," says Cox.

In September, the SEC awarded three contracts totaling $54 million to transform that vintage system to one with interactive, searchable capabilities so that companies' earnings reports can contain explanations behind the numbers, make more sense, and provide more transparency.

XBRL International formed in 2000 and has expanded to include 19 jurisdictions and more than 490 members worldwide working to build the language and promote and support its adoption.

U.S. supporters cite the SEC's monetary contribution as one of this nation's largest milestones in 2006, along with the declaration of XBRL-US as an independent not-for-profit organization in September. Initially formed as a volunteer committee of the AICPA, the new entity will serve as the U.S. jurisdiction of XBRL International.

Mark Bolgiano took over as president and CEO of XBRL-US in December as the first staff member. His goals focus on the business processes of being an independent organization, as well as spreading awareness and encouraging cooperation among competing companies for the "common good."

"Our value-add is to provide a trusted neutral ground for organizations to adopt XBRL and make sure the intellectual property is there for anyone who wants to use it, and true to a global standard," Bolgiano says.

Still, many organizations see a looming cloud, destined to burden them with the costs and time necessary to learn a new technology if the SEC mandates they report in this format, which Bolgiano and others say simply is not the case.

Time and Money

Most of the investment occurs during the initial filing process-getting familiar with the terminology, learning how to tag, seeking third-party support, and checking that everything is accurate, according to voluntary filers.

United Technologies filed seven quarters' earning releases in XBRL during the past two years. Initially, the investment was $300 for the technology and 80 hours for the filing. Now filing takes about four hours. Because it is such a large corporation, United Technologies eventually chose to invest in a more sophisticated tool by Fujitsu, which costs roughly $10,000, bringing the total investment to $40,000 and 600 hours. But as a result, the company anticipates saving about 160 to 200 hours per quarter on the filing process, especially with the latest release of Hyperion Financial Management, which allows companies to build XBRL reports within the system rather than having to extract information first.

Other XBRL report-building tools, like Rivet's Dragon Tag, cost less than $1,000. Several applications for users simply to view and analyze XBRL data are free, including those by Rivet, SavaNet, and even the SEC.

"Before people conclude it's going to be timely and expensive, get the tool and try it out," advises John Stantial, director of financial reporting for United Technologies.

Another hurdle comes when companies fear they will have to change the way they do their reporting or reveal information they don't want to share. The truth is just the opposite.

"XBRL does not set out to make you report more than you report. It's simply the technology to enable the consumer of information to do so more efficiently," says Dan Roberts, chairman of the XBRL-US Steering Committee.

Currently, intermediaries gather the data, truncate it, and sell it to analysts and investors. This information is estimated to be incorrect up to 30 percent of the time and incomplete 100 percent of the time. Reporting in XBRL allows companies to stop others from getting the information about them from someone else, allowing them to tell their own story.

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