The Securities and Exchange Commission has made it clear through its recently proposed rules that XBRL, or the Extensible Business Reporting Language, will be mandatory for all filers beginning in 2009.The SEC's rules will kick in for about 500 of the largest filers (those defined as having a public float of $5 billion) when they report for years ending after Dec. 15, 2008. In the second year, all other large domestic filers with a float of over $75 million would need to file. By 2011, all public companies that file in accordance with U.S. GAAP would be subject to the same reporting requirements.


In March 2005, the SEC established a voluntary filing program; one year later, the regulator established a test group where participants would provide feedback on various aspects of XBRL-based filings in return for timelier, expedited reviews. Approximately 50 companies, representing more than $1 trillion of market value, have joined the SEC's test group and have agreed to voluntarily submit their annual, quarterly and other reports with interactive data for a period of one year.


Most companies file a balance sheet, income statement and the statement of cash flows. Footnotes to financials and just about any other type of disclosure can be submitted as supplemental XBRL data. Earnings release information may also be filed in XBRL.

The key advantages of XBRL include:

* For financial analysts and accountants who need to analyze and interpret the information within a set of financial statements, the benefit will be consistency in the data extracted, and a reduction of time needed to re-key information. Once an item is identified by its XBRL tag, that information can be read directly by numerous other applications, and consequently will not have to be re-keyed into that application, eliminating potential errors and reducing the time that would have otherwise been needed to extract the information from financial statements that are filed before transferring to another application for analysis.

* For issuers, the main advantage will be time and cost savings. Over time, internal reports will be easier to generate. Comparisons to industry averages can be done automatically, and information for accountants and auditors can be stored and produced in a manner such that analytical reviews and analysis can be performed much more easily.

The SEC also predicts that the costs of filing will be significantly reduced over time for filers, since it will be cheaper and faster to file information with the SEC. Smaller filers may also benefit more because analysts may begin to give them more coverage if the information is just as easy to access and use.

* For investors, several benefits are expected from XBRL. Rather than manually sifting through the volume of financial and non-financial information within an annual report, software can easily extract directly the information that is needed and produce any number of customized summaries of information. Overall, time will be reduced when examining an annual report to get at the information needed.

Also, by pulling out exactly the information they want, the average investor can more easily make comparisons across different companies or over a period of reporting periods for the same or a similar company.

Regulators and government agencies will also see benefits with information more easily accessed, extracted and analyzed, resulting in similar time and cost savings.


The challenges involved with XBRL include:

* The main challenge within the move to XBRL involves the change itself. Even in today's business world, there is a natural resistance to change by many. The thought of giving up something with which one is already familiar for something new is often met with some level of reluctance. The approach to implementation must be proactive and uniform, and many more in industry will need to become more comfortable with what XBRL is all about.

* Education is needed within the various affected business communities. Many are still not "XBRL-aware," and the fact that people within the affected groups (investors, filers and analysts) are still uninformed about XBRL at this point remains a problem. Even with the requirements only months away for the largest filers and only about two or so years away for smaller filers, many are still not aware of XBRL, what it means and how it affects them. More resources will need to be placed into education and training - this is especially critical for accounting and finance personnel within the companies themselves who will need to file XBRL reports.

* Cost for some of the smaller public companies will be relatively more significant than for others. Larger companies generally have more resources in the finance and accounting function, and may be able to implement it more efficiently and cost-effectively via internal training and concurrent test runs.

* There also remains a disparity in views and preferences related to a company's ability to create new tags. The XBRL format as we know it allows new data tags to be created by companies when they prepare their financial statements. This begs the question of just how much flexibility should be allowed when allowing companies to create data tags. Some feel none at all, while others say that the ability should be limited, and still others say that companies should be able to create as many new tags for data as they deem appropriate.

This could prove to be a key challenge, because users, particularly analysts, may be skeptical of just how comparable companies can be if their XBRL information, outside of the standard information, is significantly different from one to the next. This could be viewed as requiring more time to analyze. Opinions are varied in this area. Numerous additional tags could make the information more relevant and reflective of a company's financial position and results of operation, but could also make it much less comparable to similar companies without similar additional information.

* What level of assurance will be needed to ensure that tags are properly assigned? How will users of the financial information ensure that the tag for marketing expense, for example, was properly assigned? Should this be a separate audit procedure by the independent auditor? Will there be an additional cost, and if so, how significant will it be? Audit standards may have to be revised. Will XBRL cause users of the financial statements and annual reports to focus on the wrong information?

* It can certainly be argued that the narrative and other information within an annual report is just as valuable, if not often more so, than just the financials. XBRL may, over time, cause analysts to de-emphasize this important aspect of the reporting and possibly overlook important information relevant to conclusions and resulting decisions about a company.

* There may still be challenges, and specifically a lack of comparability, as long as there are differences in global accounting standards. While many countries have adopted International Financial Reporting Standards, the reality is that many, including the U.S., have not. U.S. GAAP still has numerous differences from IFRS and these differences could result in the same inconsistencies when trying to compare U.S. companies to their international counterparts.


Regardless of where you stand on XBRL, the SEC has been successful in making its case, and as the proposed rules indicate, it will become a requirement for U.S. public companies beginning in 2009 and over the next three years. Progressive companies should finalize their implementation plan and affected parties should do what they need to to become familiar with this new reporting format.

Rob Miller, CPA, CFE, is a shareholder at Braver PC in Newton, Mass., where he specializes in audit and attest services.

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