Despite the Securities and Exchange Commission giving the okay for companies to voluntarily file reports using XBRL, and the Federal Deposit Insurance Corp. being poised to require quarterly call reports in the tagged data format, the United States still lags behind Europe, Asia and Australia in the adoption and implementation of the Extensible Business Reporting Language.Now more than five years old, XBRL is the financial reporting derivation of Extensible Mark-up Language, or XML - a framework that establishes individual "tags" for elements in structured documents, allowing specific elements to be immediately accessed and aggregated.
For accountants, analysts, bankers, auditors, regulators, managers and investors, the implications are potentially staggering. An event as basic as a transaction at a cash register could take on a tag that eventually makes its way to a consolidated financial report, to an 8-K filing and, ultimately, to the comparative graphs and spreadsheets of investors and financial analysts.
Such a data trail traditionally involves uncountable transmutations of information, each an opportunity for error, each a delay in the information supply chain that branches out through the global economy, each an aggravation for the people who have to take information that was created for one use and apply it to a subsequent use.
"The fundamental, powerful idea is the automation of the business information supply chain through standardization," said Walter Hamscher, at-large vice chair of XBRL International, a not-for-profit consortium that is helping develop XBRL technology and promote its use around the world. "The ability to push electronic documents containing XBRL from one participant in the chain to another, without losing crucial information, distinctions and relationships among data points within those documents, is akin to the impact of containerization and bar-coding in the movement of physical goods."
The FDIC is the only U.S. regulator that is ready to require all of its regulated entities to file reports in XBRL. The implementation moves the process of filing call reports from 19th century technology - phone calls and paper - to 21st century technology - the electronic report in XBRL.
The recent interest of the SEC may inspire public companies to gear up for XBRL. Based on comments on a concept release and proposed rule that were issued in September 2004, the commission decided earlier this month to allow registrants to file reports in XBRL for 2005. Some 200 companies are expected to participate before the end of the year.
A trial run
Daniel Roberts, national director of assurance innovation at Grant Thornton, viewed the SEC program as a big and crucial step.
"The SEC's Voluntary Filing Program is, for the U.S. markets, effectively an endorsement of XBRL as the standard for the provision of tagged business information," Roberts said. "This will enable the SEC to evaluate the use of tagged data in support of their analysis of company filings, and to encourage and improve transparency in the markets."
Participants in the SEC program will file under slightly loosened rules.
They would enjoy limited liability for their XBRL displays and would be able to file the information using Form 8-K. They can tag only part of their disclosures. They can file with XBRL once without being obliged to keep doing so.
Currently, 14 countries have what's known as "jurisdictional involvement" with XBRL, including the U.S., Canada, the U.K., Australia, Germany, Japan and Spain, while others have obtained provisional jurisdiction, including Korea and Sweden.
The XBRL U.S. membership currently stands at roughly 50 - comprised of accounting, software, banking and media disciplines.
In June 2003, the FDIC began work on a $39 million call reporting modernization system that used XBRL. And the Federal Financial Institutions Examination Council, an oversight body that prescribes principles, standards and report forms for financial institutions, is requiring that U.S. banks submit quarterly reports tagged with XBRL "metadata" taxonomies.
Still, with stock exchanges in China, New Zealand, Canada, Japan and the Netherlands already accepting, or at least developing, XBRL systems, the world's predominant economy is still lagging behind a host of cutting-edge countries.
"The U.S. is about two years behind Japan, and maybe a year behind the U.K.," Hamscher explained. "In securities regulation, about a year behind China. I think in terms of government-wide vision, we are three or four years behind the Netherlands. But when you look inside the enterprise, which is where the really big impact is going to be, there are more companies in the U.S. and, to a lesser extent, the U.K. - multinationals mainly - that are looking at XBRL very seriously as a way of improving financial effectiveness throughout their organization."
The United States should take a giant leap forward this year as the U.S. jurisdiction of XBRL International completes a U.S. financial reporting taxonomy framework for several key sectors. Taxonomies are the sets of labels for each type of data that can receive an XBRL tag. Consistency and completeness are essential. Exposure drafts have been issued for commercial/industrial, banking and savings, and insurance, and investment management should be done soon.
The Financial Accounting Standards Board is checking the taxonomies against its standards, while the International Accounting Standards Board has already issued an exposure draft of its own taxonomy.
While countries outside the United States have taken a lead in XBRL implementation and research at government agencies, U.S. companies are showing earlier interest in using XBRL to make the internal reporting of business information more efficient and, perhaps most important, consistently accurate through its permutations through the information supply chain.
Hamscher said that the consistent accuracy of information translates into less risk, and thus a more efficient market.
"In the capital markets alone, the impact of uncertainty, delay and miscommunication imposes a risk premium on business reports that, even if only a few basis points, translates to billions of dollars," Hamscher said. "That's the visible part; the impact of alleviating problems caused by manual intervention, the continual reworking and reworking of business reports within organizations of all kinds - government agencies, multinationals and enterprises of all sizes - it's just incalculable."
