Most intriguing of all to CFOs is the potential for improved (and perhaps cheaper) audits. Some auditors are already using XBRL-coded data for client risk-assessment purposes. The tagged data "allowed us to do more analysis, do it quicker, and allows our people to spend time looking at results rather than just manually assessing and validating the data," says PricewaterhouseCoopers partner Mike Willis, a founding member of XBRL International, a consortium of hundreds of companies, banks, accounting firms, and other parties developing XBRL standards. PwC began converting documents for its 50 largest clients into XBRL for analysis purposes last fall. Willis says that XBRL provides more-efficient access to and analysis of company data, and "will allow us to do better audits at lower cost," although he says it's too early to comment on how much costs may drop.
Who's in Charge?
But it's premature to ponder the auditing issues posed by XBRL-encoded statements when there are so few of them being produced. If the many potential benefits of XBRL can't win the technology enthusiastic acceptance, what can? Perhaps, some say, a changing of the guard. Currently, responsibility for developing the XBRL taxonomy rests with the private, volunteer-based XBRL-US, which says it has about a year to go to finish the project.
That arrangement may crumble if XBRL is widely adopted and new tags need to emerge concurrent with new accounting standards. "We are actively seeking additional resources," says the AICPA's Homer, who bears the distinction of being the only person to pull down a full-time salary for his work on XBRL. He says the consortium hopes to add up to eight full-time staff positions to the project.
One possible source for those additional resources: the Financial Accounting Foundation (FAF), which oversees the Financial Accounting Standards Board. While no official pronouncements have been made, in May FAF received permission from its board of trustees to conduct a feasibility study on funding and overseeing the development of the XBRL taxonomy, and it has hired a new director of financial-reporting technologies to carry it out. The hope, says Robert DeSantis, FAF's chief operating officer, is to figure out how costly and contentious such an effort would be, and make a recommendation to the trustees by the end of the year. Questions as to whether FAF involvement would complement the work of the voluntary consortium or supersede it remain unanswered.
The specter of having the same organization that writes accounting standards also write the code that complements that effort has some worried that widespread adoption of XBRL will be a backdoor way for FASB to dictate the chart of accounts that companies must report. "The fear is that once you have built out a taxonomy," says research director Robert Kugel of Ventana Research, "it becomes possible to, at a very granular level, mandate that certain kinds of items roll up in a specific hierarchy that would be common across all businesses." But Kugel draws a big distinction between what is possible and what is likely. The current SEC leadership, he says, appears to be "absolutely opposed" to mandating a common chart of accounts. And FAF officials insist that the technology and accounting standards will remain separate efforts with separate staffs. "At the end of the day, we are in business to establish reporting standards," says DeSantis. "We're not going to take our eye off that... [and] the FASB staff won't drive XBRL, because they've got their own work to do."
But that leaves unanswered the question as to whether the SEC will mandate the use of XBRL in the filing of financial reports. Given that FAF and FASB are funded by the SEC, wouldn't their direct involvement be tantamount to an SEC mandate? While the AICPA's Homer says that the SEC has been "very upfront in saying it doesn't want XBRL to be a mandate," others believe it's only a matter of time. Mark Link, chief administrative officer of EMC; John Stantial, director of financial reporting at United Technologies Corp.; and Whalen of Institutional Risk Analytics all predict that the SEC will eventually take a firmer stand. "I think you'll see a rule-making or comment process within the next 12 months," says Whalen.
Getting There from Here
Even amid the uncertainty, companies that have adopted XBRL say the difficulties have been minor. When computer-storage vendor EMC decided to adopt XBRL, its biggest challenges were in shopping for the right software package (it ultimately chose Rivet Software's DragonTag) and tapping the vendor's support team for a fair amount of hand-holding. UTC began its project with the same software but had to upgrade to a more sophisticated (and expensive) product from Fujitsu as it sought to code financial data beyond that found in its 8-K.
That said, embracing XBRL is still simpler and less costly than nearly any other data-standardization effort one could cite. UTC has spent a total of about $35,000 and 500 hours on all of its filings to date, but that included about $10,000 for the Fujitsu tool. EMC's Link estimates the cost at about $2,000 per quarter plus a few days of internal staff time. A brief survey of software vendors finds that costs are generally under $1,000. Companies will likely require a few hours to a few days to set up the first template document for a filing, which can then be reused.
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