Technology

Ready for a Test Drive: XBRL Financial Tags

Up until now, the development of data tags for GAAP has been a slow-moving process because of the complexity of American financial reporting standa...
Alan RappeportJune 19, 2007

The future of interactive data will be a lot nearer next month. The reason: A user-ready version of XBRL labels for information reported under generally accepted accounting principles will soon be ready for a test run.

Speaking before the Financial Accounting Standards Advisory Council, Rob Blake, vice president of domains and taxonomy at XBRL US, said Tuesday that regulators would launch a preliminary, or “alpha,” version of the taxonomy— the data-labeling information needed to run extensible business-reporting language — in three to four weeks before distributing a user-ready version on July 24.

XBRL US is currently working with FASB, FAF and the Securities and Exchange Commission to review the GAAP taxonomy before it goes public in July. XBRL US is the local jurisdiction of XBRL International – a not-for-profit consortium of about 450 companies and agencies worldwide working together to build XBRL language and push its adoption.

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The development of data tags for GAAP has been a slow-moving process because of the complexity of American financial reporting standards. According to Blake, the GAAP taxonomy will be comprised of up to 12,000 different elements. The International Financial Reporting Standards, by contrast, has just 1,000 different elements, he said.

Some have expressed concern about the complexity of using XBRL across U.S. and international reporting standards. Members of FASAC also wondered about the logistics of implementing XBRL and creating a “critical mass” of users.

Even if the taxonomy is skillfully executed, it won’t have much of an impact if the number of users remains small. “It’s not going to be all that meaningful until it’s being used in the market,” says Robert DeSantis, president of the Financial Accounting Foundation (FAF).

While results from the pilot program have been largely positive thus far, the system must perform so automatically as to be invisible, accord to Blake. “XBRL needs to be like the plumbing,” he says. “It doesn’t need to be at the forefront, but it needs to make things happen faster and better.”

Some accounts of time saved via the use of financial data-tagging are already in. An article published in the June issue of the Journal of Accountancy reported, for example, that United Technologies Corp., a producer of industrial products, saved 145 hours by using XBRL in its most recent 10-Q filing.

But will XBRL have to become a requirement to entice all companies to adopt it? “We could be living in a world, two to three years from now, where Moody’s is demanding this information,” says Blake. If ratings agencies and analysts assess companies based in part on their transparency, companies may find it in their interests to report in XBRL regardless of whether it is mandatory, he adds.

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