VideoIt has been heralded as an invention that rivals the bar code and color TV. Internet pioneer Leonard Kleinrock believes we will be "surprised and even amazed" by it. Xerox CEO Anne Mulcahy has drawn a link between it and the French Revolution, invoking Victor Hugo's famous line that "no army can resist an idea whose time has come." Securities and Exchange Commission chairman Christopher Cox has been a tireless booster, mentioning it in more than a third of his public statements since taking office. What is it? It's XBRL, or Extensible Business Reporting Language, a system for encoding the data found on financial statements. Proponents say it will speed reporting, aid analysis, reduce errors, and improve audits. Some claim that it may ultimately streamline the gap between internal and external reporting by uniting disparate information across ERP and other core IT systems.
If this comes as news to you, you're not alone. Few CFOs seem aware of what XBRL can do, where it stands in its development, or how a company might take advantage of it. Few, in fact, seem even to have heard of it, and if you're among the many executives who complain that the world of information technology is riddled with too many "TLAs" (three-letter acronyms), then this four-letter monstrosity will do little to win your interest. It's no wonder that the SEC chairman often uses the more colloquial phrase "interactive data" when trying to sell the benefits of XBRL.
First conceived in the late 1990s, XBRL has been perpetually on the horizon, its promise always a day away. That's been partly due to technological complexity. Conceptually, XBRL is simple: a string of computer code, dubbed a "tag," is assigned to every line item in a financial statement, essentially identifying net income as net income, EBITDA as EBITDA, and so on. Once those figures are properly tagged, they can be reassembled into other reports at the push of a button, or pulled into software for analysis, or imported to or exported from any number of software packages, reports, databases, or other systems.
But creating the tags for thousands upon thousands of different fields has taken years, and the effort is not yet complete. At the same time, procedures have had to be created to allow companies to develop customized tags for numbers that they feel don't map to any existing standardized XBRL tag.
Today, the work is sufficiently advanced to suggest that XBRL may be ready for widespread adoption. And no one says that more often or more fervently than SEC chairman Cox. He has devoted at least four speeches to the topic and presided over an all-day XBRL roundtable in June. XBRL is "truly a revolutionizing and exciting topic," Cox has said, with "the potential to slash hours of waste, cost, and inefficiency — not just for users of financial data but for the companies that prepare it as well."
The SEC has stopped short of mandating XBRL for public filings, but there is a growing sense that the carrot may soon give way to the stick. So far, only about 25 companies have joined an SEC pilot program to file select reports in XBRL, and many of those appear to have some commercial interest in its widespread adoption. Executives at Oracle and Microsoft estimate that fewer than 10 percent of their customers use the XBRL features embedded in the companies' products.
There is a major disconnect between the companies that must generate numbers, few of which see much benefit to bothering with XBRL, and the organizations that analyze or audit those number, which see plenty. "The payback is difficult to quantify," said Comcast controller Lawrence Salva, during the SEC roundtable. "XBRL really doesn't do that much for the company, for the registrant," says Bill Ferko, CFO of Genlyte Group, adding that, to the extent that it enhances transparency, he supports it. At the other end of the spectrum is R. Christopher Whalen, managing director of investment research firm Institutional Risk Analytics, who says that "any company that can't get itself organized to submit tagged documents will soon be worthy of investor skepticism."
The incentives to get organized are increasing, but appear well short of reaching a tipping point. The SEC says that companies that file documents in XBRL format will receive expedited reviews. Adhering to the standard may win a company new fans on Wall Street, as well: with the efficiencies of XBRL, investment analysts should be able to cover more companies, a boon to CFOs in small or niche companies. "Right now, analysts track only 8 to 10 companies, in part because they have to rekey data into Excel spreadsheets. With XBRL, that's all done for them, so they have time for more companies," says Brad Homer, XBRL technical manager at the American Institute of Certified Public Accountants.
Audit Booster?
Competitive analysis may also get a boost. While there may be no inherent improvement in comparability — your competitors may still obscure their calculations for operating expenses or segment data — the technology makes it faster and easier to work with financial reports. In fact, Edgar Online says about half of its clients for a new XBRL data feed are corporations looking for a tool to analyze competitors and screen potential acquisitions. (On the flip side, such transparency means investors — particularly individual investors — will be more empowered to take CFOs to task. "The interactive data highlights differences, gaps, and inconsistencies that you never would have been able to see in an efficient way before," said Trevor Harris, client-services vice president at Morgan Stanley, during the SEC's June roundtable.)
Reader Comments» Post a comment