Xtreme Accounting — It’s Coming

xBRL could dramatically alter the retrieval and manipulation of accounting data.
Alix StuartOctober 1, 2001

Time to learn another acronym. Later this month a new version of xBRL, a subset of the XML Internet language intended to standardize how financial data is shared among Web-based applications, will be released. Leading makers of accounting software say they will incorporate xBRL-tagging capabilities into their products by the end of the year. This will go a long way toward transforming xBRL from a promising concept to a useful reality, but experts caution it will be several years before the code reaches its full potential. Until then, companies that want to exchange and analyze financial data over the Internet must continue to rekey or repackage much of it.

To date, only Morgan Stanley Dean Witter has filed xBRL-tagged data with the Securities and Exchange Commission, having filed its February 10-K in xBRL format as a one-time pilot project. Given that the firm filed nearly 2,000 documents with the SEC last year, it’s not surprising that it is adopting xBRL cautiously.

Ditto for Fidelity Investments, which is looking into possible applications of xBRL but has yet to file an xBRL-coded document. On the receiving end, financial statement analysts like Moody’s and Bank of America say they are readying internal systems so that they can pull in and analyze xBRL documents. For investors, Edgar Online already has xBRL-tagged documents from more than 80 companies in its repository as a result of a research project, and is eagerly seeking more. “This is an opportunity for companies to show they are truly investor-friendly,” says Liv Watson, director of xBRL at Edgar.

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Adopting new technology is rarely easy, but companies have plenty of incentives. Today a company rekeys data into separate reports for bankers, the SEC, and other constituencies. If all those reports were sent via the Web in xBRL, they could be pulled from a single meta-report. And since each item, such as net income, would need to be entered and tagged only once, the chance of typographical or other errors would be greatly reduced.

Despite those advantages, most firms are likely to take a wait-and-see approach. “At this point, there’s no great advantage in using xBRL,” says Miklos Vasarhelyi, an accounting professor at Rutgers Graduate School of Management. “You need a critical mass of users and analytical tools to make the data really useful.”

The good news is that software vendors want to make the xBRL tagging of financial data as painless for finance departments as possible. “The user has to know literally nothing about xBRL, except how to point and click on appropriate tags,” says Rob Blake, director of product strategies at FRX Software, a wholly owned subsidiary of The Microsoft/Great Plains Business Solutions division. FRX’s next release, slated for the end of the year, will let users tag data with version 1.0 xBRL code in a single step, he says. Efforts are also under way to perfect a tool that can retroactively convert text-based data into xBRL. Companies can try it out at bin/demo/online/

Some international government officials, especially Singapore’s, are looking to make xBRL mandatory for public companies within the next two years. Such requirements are much less likely in the United States, however. “We do support the idea of a standard for reporting financial data, and are carefully watching xBRL evolve,” says SEC spokesman John Heine. “However, until it becomes widely accepted and there are [sufficient] products on the market, it would be premature for us to endorse xBRL.”