Accounting & Tax

XBRL: From Tags to Riches?

The SEC is offering limited liability relief, the ability to file using Form 8-K, the freedom to tag just a portion of data, and other incentives t...
CFO StaffMarch 15, 2005

It’s been a bit of a slog for XBRL, the computer code that “tags” a wide range of financial data so that it can be more easily shared and analyzed. Although proponents of the technology have been banging the drum for years, not much has happened. That may change this month, when a voluntary program launched by the Securities and Exchange Commission takes effect.

Beginning March 16, companies can file, as exhibits, a range of financial data that’s been tagged in XBRL. According to the SEC, this will provide, in theory, a standard way for “registrants, investors, the commission, and the marketplace” to understand and analyze that data, because XBRL facilitates an apples-to-apples comparison. Many of the components of a “property, plant, and equipment” listing on a balance sheet, for example, may be described differently by different companies, but when tagged in XBRL, a straight comparison becomes much simpler.

The benefits of XBRL don’t end there. It also eliminates rekeying or similar duplication of effort: a financial statement that’s been tagged in XBRL can be filed with the SEC, filed on a company’s Web site, shared internally for all sorts of analysis, and more, without worrying that one version doesn’t jibe with another. And when it comes to analyzing your next takeover target or the performance of your competitors, importing XBRL-tagged data should make such analysis far simpler.

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But lacking a need to do so, and with plenty of other things to worry about (like Sarbox), few companies have begun to seriously kick the tires on XBRL. As well, the taxonomy, or vast list of specific tags, has continued to evolve, adding impetus to the wait-and-see approach. “We truly hope that over the next year we get a significant amount of participation,” Donald Nicolaisen, chief accountant at the SEC, told attendees at the AICPA National Conference in December. To facilitate that, the SEC offers limited liability relief, the ability to file using Form 8-K, the freedom to tag just a portion of data, the freedom to start and stop versus continuously filing in XBRL format, and other sweeteners to encourage participation.

“The SEC program will be a definite catalyst,” says Paul Penler, a principal at Ernst & Young and chairman of the XBRL U.S. Consortium. “When I began working with XBRL in 1999, I knew it would take 6 to 10 years to take off. It’s like building an airport — there is a huge amount of infrastructure needed before planes can take off and land.”

Software such as Dragon Tag from start-up Rivet Software allows for quick conversion of spreadsheet data into XBRL format, and many existing vendors have or will soon modify existing programs to add XBRL capabilities.