XBRL: What’s It Good For?

As public companies strive to make their financial statements XBRL-compliant, questions about the value of doing so remain.
David RosenbaumJuly 28, 2011

On July 12, XBRL US, a nonprofit consortium for XBRL (extensible business reporting language) standards, announced a contest with a $20,000 grand prize to be awarded to whoever submits the “most inventive and useful application leveraging XBRL-formatted data from the U.S. Securities and Exchange Commission (SEC) EDGAR database” for business benefit. The contest can be read as a way to answer the question CFOs have been asking ever since the 2008 SEC mandate that all publicly traded U.S. companies and mutual funds — first the big ones, then the smaller ones, and finally the little guys — had three years in which to tag all their SEC financial filings with XBRL:

What’s in it for me?

The SEC’s compliance window will close in August, as all financial statements for periods that end on or after June 15 must be XBRL-tagged. So far approximately 1,800 companies have filed in the new format, but for many CFOs the question of what’s in it for them remains unanswered.

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Ed McDonnell, executive vice president of global sales and business development at EDGAR Online, a leading XBRL provider, says he regrets the compliance-focused nature of XBRL efforts to date, and appreciates “where CFOs are coming from” in terms of regarding XBRL as an investment without a return. But as an XBRL provider, McDonnell believes that once XBRL is fully and universally implemented, the benefits will emerge.

“It’s like Sarbanes-Oxley,” says McDonnell. “At first CFOs said, ‘I’m going to spend a lot of money; where’s the value?’ Today, we’re seeing lots of benefits from Sarbanes from process improvements and efficiencies.

“The phased approach with XBRL,” McDonnell continues, “mitigated against the value because the pool of information was small and you didn’t have critical mass. What you’ll start to see this year, now that all public companies will have filed primary financial statements in XBRL, is that companies will be able to leverage the information in the metadata — now that there’s full transparency in the financial statement — to benchmark [themselves] against others, improving their peer analysis.

 “One of the CFO’s jobs is to get out in front of investors and help them understand if you’re outperforming, say, your three largest competitors in certain aspects of your business. XBRL will help you make that clear.”

Helping investors to compare and contrast companies was one of the SEC’s stated goals when it issued its XBRL ukase, but McDonnell waxes most enthusiastic when speaking about the advantages he believes XBRL can offer CFOs for running their businesses.

“It’s not a filing language,” insists McDonnell. “It’s a business information language.”  A CFO could, he says, more easily analyze the financial health and performance of every partner in his value chain by using XBRL to build customized reporting tools that would allow the finance department to compare apples with apples. (“Your supplier’s debt, revenue — you’ll be able to see more clearly whatever is important to you to understand your supplier’s financial health,” McDonnell says.) He also foresees an uptake in internal uses for XBRL as business intelligence and other software tools come onto the market taking advantage of the easy configurability of XBRL metadata.

Hard sell?
But Mathew Watson, senior director, external reporting and corporate accounting at retailer Best Buy, isn’t buying.

“The argument that reporting language can be leveraged internally? We don’t think that’s the case,” says Watson. “We think our internal mechanisms work well. XBRL is just a compliance need. The internal use of XBRL is not even on our horizon.”

And according to Charles Best, CFO of BlackLine Systems, a provider of enterprise software to manage the financial close, “Most CFOs and comptrollers I know outsource the [XBRL] reporting process and so far have found this to be more a necessary evil than anything else. They view it as part of the SEC reporting process and have not felt that it’s a format that would be integrated into their in-house processes.

“With all the tools out there today to manage data and information,” Best continues, “it would take some strong selling [by XBRL vendors] to get businesses to structure their internal analysis and metric capabilities in an XBRL format. Any benefits that may arise out of using XBRL as an internal reporting language would be outweighed by the [purchase and implementation] expense.”

“What good is automation,” another finance executive asks, “if someone puts the wrong numbers in the bucket? Ultimately, the financial close is manual and can never be fully automated.”

Still, it’s indisputable that information technology thrives as scale and standardization increase, two factors that have contributed mightily to driving SaaS (software as a service) and cloud adoption. Whether XBRL becomes a successful tool for improving internal processes is open to question but, if nothing else, the ubiquity of XBRL augurs favorably for its eventual utility.

In any event, it would behoove CFOs to keep an eye on who and what wins that $20,000 in the XBRL US contest.