As many readers know, Walter Hamscher is an XBRL pioneer and one of the smartest people in the field. He recently gave us a wide-ranging interview in which he discussed a host of XBRL topics, including the SEC’s proposed mandate, the pace of XBRL adoption in the US and abroad, assurance issues, and Inline XBRL. The fourth part of the interview, which begins with question (9), appears below. The first, second, and third parts were published over the past few weeks; the final installment will appear next week.  

(9) At the recent XBRL International Conference in Eindhoven, you gave a presentation on how Inline XBRL can simplify some of the problems that arise for regulators seeking to encourage preparers to submit full financial statements and other formatted documents. Could you give us some idea of what Inline XBRL is, along with some examples of what it can accomplish?

Most people have been using Internet browsers now for years. They are familiar with the notion that you can be looking at a page, rolling your mouse over parts of it, and it may pop-up things or may change colors — things can happen in my browser as a consequence of that.

People are also very familiar with the notion that when you send an email and, say, you attach a file to it, they don’t know anything about how it actually might work inside, but they know conceptually the notion of attachment and those related functions.

Inline XBRL is really a way of saying: “Here’s an HTML page on a website and it contains financial information you can extract and use immediately.” Inline XBRL is a way of putting the XBRL right into that web page, so that if you have a browser or other application that understands that it is there, you are going to get a new, additional, and better behavior. You will be able to extract the data from it at the consumption end.

From the production end it solves an important process issue that we’ve had really for quite a while. If I am a preparer today, and I’m in the voluntary filing program, I have to produce my 10-Q or my 10-K, and then I have to do this bolt-on process where I have to take that document, make a new XBRL document, and then manually check each one of the hundreds of individual facts back against the original.

This is terrible; it would make a lot more sense to do it the way you would do it in Word or something like that. That is, initially put the data right on to the original file itself, put it into Word the way you already put bookmarks in the file, or put styles on characters; things you already know how to do well. That way, there’s no checking to do; it can’t be wrong, because you’ve actually put the tagging of a fact or number into the file right at the same place.

So in my mind, it solves two adoption hurdles for XBRL in the US. My only regret for Inline XBRL is that we didn’t get it done six months earlier.

(10) Could you talk a little bit about the development of Inline XBRL?

Sure. It goes back to a very early conversation we had in 1999 when we were first designing XBRL. We were making the observation that it would be nice if you could take any news story — because in 1999 it was kind of a new and novel idea that news stories were being posted on the web — and actually stick XBRL right into the web page. That was an initial thought about how XBRL could work. Then we went off for six years and did other things.

Now in the course of building more XBRL taxonomies for other agencies around the world — and in particular for the mutual fund industry’s Investment Company Institute — it became clear to me that there was a comfort level that people will need with the XBRL document. They needed to be able to see it on their computer screen, and the appearance needed to be familiar — it needed to be what they intended to put in there. And they were okay with the idea that “OK, I am going to put some tags in here.” But the idea that the tags were all scrambled up in a random order and that they then have to be re-assembled causes a lot of understandable discomfort in the minds of people who were working with it.

So what I did was to say, when we do the US GAAP taxonomy, we should take out from the taxonomy all the stuff that’s oriented toward that presentation problem and put it over into a separate module, which at the time we called Mixed XBRL. This was kind of an early prototype that actually used XBRL itself in a strange way but the basic idea of using HTML syntax was central.

But then, the folks from DecisionSoft and CoreFiling, who  are just tremendous XML experts in our community and have done tremendous work for us, refined that notion and said, “We can actually take this one step further, and make it even better by saying let’s not try and reinvent presentation at all, let’s just embed the XBRL directly into HTML.” They put a huge amount of voluntary work into the specification and into making that work; that specification is actually now in its last call for public comments and will soon in fact become a recommendation.

So what I would say is that if I had been working with DecisionSoft directly from the outset around this time last year we probably could have gotten to the whole thing faster. I still think Inline XBRL has a key role to play.

(11) You are one of the true pioneers of XBRL and have played a major role in its development almost since its inception. As you look back over the past several years, has the pace of XBRL reception been about what you had expected? Have there been any major surprises for you in the nature and pace of XBRL adoption, either positively or negatively?

It sounds strange to say but I actually think we’re about where I expected to be and that is just because as a software engineer I understand that you make project plans… and then “stuff happens.”  The stuff that happens hardly ever makes things go faster.

Mark Schnitzer, he is now with Microsoft, told us in 1999 that it was going to be about ten years before XBRL was mandatory for all filers in the US. That was a heluva good prediction. In some sense, I think that that’s about the right pace.

I guess the thing that really has surprised me — and once again I will admit it as a younger person in 1999 I really didn’t understand it – was a political point, and that is, how differently other countries view their government. I didn’t realize that there were other countries where people trusted their own government a lot more than we do. I think the Dutch, the Japanese, the French, the Spanish, I think they trust their government more than Americans, and so consequently they can move faster. I think in other countries it’s going to go more slowly.

The other thing I was very surprised at was that the investor relations community, the people who are responsible for selling their company’s story, have not been a lot more active. I am mystified by it and I think it just has to do with the fact that the software is still not quite there to make it easy for them.

I don’t think they’re the kind of people who are comfortable kind of hacking the code and looking at the angle brackets. But it is surprising to me that you don’t find companies that specialize in building investor relations websites doing much more with XBRL. It surprises me, because I think there’s a big value proposition for companies in participating in XBRL development and being on the leading edge.

I don’t think there are many people who get into IR from the software side. They’re professional writers, financial people.

Agreed. You look at what that culture is, and it is about language and communication, it’s not about the data. But if you look at Microsoft’s Investor Central, I think that’s a great example of what can be done. My point is that I expected it to be done around 2003 not 2007. It’s not a disappointment, I just didn’t understand that part of the world at all. I do think that the investor relations groups need to go look at sites like Investor Central and think about what they could be doing with fundamental data and linking it to supporting detail, or portions of the analyst briefings, or other material that would be so much more effective.

Written by Toshinori Kobayashi     Posted on July 1, 2008

Toshinori Kobayashi is director for enforcement of corporate disclosure at JFSA, the Financial Services Agency of Japan. He was responsible for the XBRL renovation project of EDINET, the JFSA’s electronic disclosure system. In his previous articles, Toshinori offered a brief introduction to adopting XBRL for EDINET and described the JFSA’s voluntary filing program.  In this post, he discusses why he thinks the implementation of XBRL in Japan went smoothly. 

Last November, when SEC Chairman Christopher Cox met in Japan with the Financial Service Agency’s (FSA) cabinet minister and managers, he asked about the EDINET renovation project. Specifically, the Chairman wanted to know how the implementation of mandatory XBRL filings had proceeded so well.

We discussed the details of our experience with him.  The new EDINET system requires some 5,000 listed companies and 3,000 funds to submit their financial reports in the XBRL format. So far, we’ve heard few voices of protest or dissatisfaction. How was EDINET able to introduce the new reporting regime so smoothly?

First of all, when we originally began discussing incorporating XBRL into the EDINET system, the act of making XBRL statements mandatory beginning in fiscal 2008 was not a fait accompli. Starting in 2004, several reports were issued on the project through March 2006, but these reports didn’t clearly touch upon the issue of making XBRL mandatory.

For me personally, since becoming the EDINET project leader in July 2006, I was uncertain about the mandate issue for six months or more. I thought that XBRL reports offered a useful tool for high-level analysis for investors. Whatever the timing, I didn’t doubt that making XBRL mandatory was a necessity. But could implementing a mandate in one fell swoop beginning in 2008 be done smoothly?  How do you go about starting with a successful voluntary program and run it for some time, and then switch over to making XBRL mandatory on all fronts?

This confusion was symbolized in what was being written about the project. During the time the renovation project was underway, there were two articles in major Japanese newspapers about introducing XBRL. The first was on November 15, 2006; the second on June 10, 2007. The 2006 article said that “Depending on the spread of the use of XBRL, the FSA is looking at making it mandatory for reporting companies.” An accompanying chart in the article said that XBRL would be implemented under “a voluntary system.” In other words, the 2006 article implied that the new EDINET would be launched as a voluntary XBRL system at first, and then the FSA would consider the transition to a mandatory system. Clearly the mention of a “voluntary system” was misreported, but the fact was that in the interview I didn’t say that beginning in 2008 the program would be mandatory.  By contrast, in the June 2007 article, the headline said “mandatory.”

In the second half of 2006, XBRL still wasn’t well-known in Japan. Would filers’ cognizance of XBRL and their preparations be sufficient by 2008 for an interactive data mandate? Would they be able to absorb the costs for moving to XBRL? Beginning in autumn 2006, there were several months to sweep away the confusion surrounding these questions and decide whether or not the go-ahead should be given for mandatory XBRL filings in 2008.

During this time, the FSA was explaining the issues regarding the transition to XBRL to those affected by a mandate and inviting them into discussions.  At this point, we did not discuss macro policy issues such as whether XBRL should be mandated. Rather, our discussions were conducted on a practical level to come up with workable solutions for the various problems an XBRL mandate would create. Our talks were aimed at dispelling the psychological resistance and anxiety that users would feel upon introduction of the new system, and sharing practical information about the move to XBRL with users and other key stakeholders .

The primary vehicle for moving the discussion forward and accomplishing these goals was the Working Group (WG) of the EDINET Advancement Council. This WG was initiated when the decision to introduce XBRL was initially made, but had been inactive for about a year; it was reorganized again for the next level of discussions.  Its members were key players in the business world: the Keidanren, which represents Japan’s major industry leaders; the Securities Analysts Association of Japan; the Japan Securities Dealers Association; the Japanese Institute of Certified Public Accountants, or JICPA (which includes all CPAs and auditors); the Financial Accounting Standards Foundation (the accounting rules-making body); the various stock exchanges (the Tokyo Stock Exchange, the Osaka Stock Exchange, JASDAQ); the Bank of Japan (which had already introduced XBRL and whose cooperation was very important); and the National Tax Agency.

Besides all the key stakeholder representatives, XBRL Japan and the financial printing companies (mentioned in my previous post) also participated as observers. From October 2006 to February 2007, the WG debated important technical and technological issues, including the selection of accounts under the EDINET taxonomy and related user issues; the display method for XBRL data; and formats (with the introduction of XBRL filings, formats would be different from those existing under HTML). Concurrent with the general activities of the WG, there were active discussions of specific issues with members knowledgeable about those problems. The WG’s work and discussions were forwarded to individual members of the participating organizations, the representatives of which take part in the WG.

Of course, it was impossible to exchange views with all of the 5,000 companies and 3,000 funds that would submit XBRL filings. But as a vehicle for airing and debating the issues, the WG functioned as a window through which its member organizations, companies, and other interested parties could efficiently exchange information and have their voices heard. (And to be frank, I also think it was a way to justify that the FSA could pursue debate with valid representatives of the various stakeholders involved.)

Also, individual discussions were held with the associations of 23 industry sectors for which separate taxonomies needed to be prepared, taking into consideration the particular accounting rules for the specific industry (banking, utilities, insurance, construction, etc.).  Information was exchanged and opinion was solicited also from the relevant government agencies (such as METI; the Ministry of Land, Infrastructure, Transport and Tourism; and others).

We requested the members of the Working Group and the industry associations and government agencies of the 23 sector groups to review their respective taxonomies from a real-world perspective to ensure they were viable. At the same time, from January to February 2007, the first pilot program was conducted with about 50 of the filing companies testing the taxonomies. Based on the results, upgraded versions of the taxonomies were prepared. 

Regarding user costs for XBRL implementation, our major concern was the expense of the software tools for the filing entities. In 2006, Japan’s software market did not offer XBRL tools with good cost performance, and for a period of time, the FSA looked at providing software with minimum functionality at no cost to users. But discussions with software vendors revealed that they were planning to develop and make available to users good XBRL software tools at low cost by 2008.  In addition, we were informed by the printing companies (which more than 90% of reporting entities use) that they plan to offer XBRL filing services at a cost not significantly higher than that for HTML statements.

Through a concentrated six-month effort, we were able to take a fresh approach to the issues raised by an XBRL mandate and became confident with the solution we developed by the time the renovated EDINET system started up operations in 2008. Through improved relations with stakeholders, information was provided to them on the changes that would be introduced by XBRL filings and the essentials for preparation. These efforts served to heighten stakeholder recognition about the new system and was extremely effective in enlisting the cooperation of the business community.

With no indication of broad opposition to the goal of introducing XBRL by 2008, the FSA became confident that sweeping changes that incorporated XBRL into the new EDINET system could be put into place this year. In a speech I gave at a symposium in March 2007 sponsored by XBRL Japan, the JICPA, and the TSE, I said for the first time that “XBRL filings would be made mandatory from the time the renovated EDINET system was put into operation.”  That was the start of the FSA beginning to make an aggressive appeal through various media for a mandate, and, as I described in my previous post , that was the environment in which the second pilot program proceeded.

There was yet one more decision that had to be made regarding the mandate: the timeline for submission of financial reports in XBRL format.

The new XBRL-enabled EDINET system would be inaugurated on March 17, 2008; at the beginning of April it was possible to require that financial statements be filed in XBRL. Because the vast majority of Japanese companies have a March fiscal year-end, the most recent yearly financial reports were for March 2008 and would be filed in June.  We had to consider whether the XBRL mandate would apply for March 2008 yearly reports. Within the FSA, there were those that championed “mandate XBRL from fiscal years ending in 2008″; with the systems now in place, requiring XBRL for the vast amount of yearly reports for March 2008 would well symbolize the renewal of the EDINET system.

However, as a result of our discussions with the business community, we understood that the June date for submission of March 2008 reports made for a tight schedule. Indeed, there was a lot of sentiment that it would lead to chaos (this was the only issue where companies had a truly negative reaction during the whole XBRL project).  Because quarterly reports have relatively few disclosure items, the burden of kicking off the XBRL mandate with three-month statements was not heavy. This viewpoint prevailed, and the mandate for XBRL filings began with reports for companies’ fiscal first quarter of 2008.

Looking back, I think there were two major “keys for success” in the smooth XBRL implementation in Japan: close cooperation with the stakeholders and the timing. Our method of gradually formulating consensus through a conversation with the business community may be uniquely Japanese. It also helps that Japan’s corporate culture is relatively accepting of unilateral regulations. In any event, I think creating an environment that focused on the stakeholders, and making sure key players recognized the significance of the interactive data mandate and were well prepared for the changes that it would impose, were both essential to the smooth introduction of Japan’s XBRL mandate.
 

Compliance Week just completed a survey that suggests many firms are ill-prepared for an XBRL mandate. “Of the 236 publicly held companies surveyed, nearly 80 percent say nobody on their staff is well-versed in XBRL. More than half (59 percent) of respondents say they either have just begun reading up on the technology, or have done no research at all.”

The press release has additional details, and we hope editor-in-chief Matt Kelly will provide additional insight in his next article for us. (Matt’s posts on April 21 and May 28 on the SEC’s XBRL actions have been terrific.)   

As many readers know, Walter Hamscher is an XBRL pioneer and one of the smartest people in the field. He recently gave us a wide-ranging interview in which he discussed a host of XBRL topics, including the SEC’s proposed mandate, the pace of XBRL adoption in the US and abroad, assurance issues, and Inline XBRL. The third part of the interview, which begins with question (6), appears below. The first and second parts were published over the past two weeks; we’ll publish two more installments over the next two weeks. 

(6) There’s been much discussion about the use of extensions in XBRL. From one point of view, they allow companies to adopt the language to their particular circumstances; from another, they allow companies to indulge in creative accounting and make financial statements less comparable.

The Pozen Committee’s Progress Report stated that, because of the development of US GAAP taxonomies, there will be less need for customized extensions. Do you agree with that assessment? Do you think the extension issue poses the major problem for preparers and users of financial statements? Or will it now be only relevant for a limited number of companies?
 
Actually, I disagree with a premise of the question. When I hear that it’s going to make financial statements less comparable — less comparable than WHAT? Less comparable than the mess that you have today? No, you can’t make it any worse. So it may be the same, it may be better but it can’t be any worse.

That said, I do think that the Pozen Committee is absolutely right. We invested a huge amount of effort in the US GAAP taxonomy with a large vocabulary with that intent and architecturally designed it in such a way that the extensions would be not only less necessary but a lot more predictable, easier to do them the right way, if you will. Does the extension issue pose a problem for preparers? No. It’s actually the solution, not the problem.

There’s a very interesting phenomena I’ve observed which is if you talk to people who are in the business of supplying data or tools to investment analysts, they say extensions are a problem.

Yet I have not heard any sophisticated, professional analyst, who is actually doing financial modeling, who is actually making business decisions, who has ever indicated that that was actually a problem. On the contrary, they see it as actually a huge step forward from the mess that we have today.

So I think you have got to be cautious when you hear people who are not professional analysts speak on behalf of analysts and give you the hearsay this will make analysis more difficult. First of all, ask if that person is really an analyst or a software vendor supplying to an analyst — that’s a very different perspective. Then ask whether widely held stocks are the ones that will have the most extensions. If you actually look at the last five years of data — and like all computer people that’s kind of the way I look at things, I always want to see the data first — look at the distribution of unique line items (never mind tags, but just unique line items used in financial statements), it’s actually the smaller companies that have much more need for extensions than the large ones.

Here’s why. If I’m Van Camp and my business is frozen foods, my revenues are so aggregated that you can say, yeah, this is the food industry and these are foods — you don’t need to distinguish between the different types of fish. If I am a small salmon importer, however, I may very well need to distinguish revenues from West Coast salmon and East Coast salmon.

I think we may be seeing people commenting on XBRL and extensions without really every having done anything with it. They have never actually tried modeling companies, and they’ve never actually read, for example, the US Taxonomies Preparers Guide, which spells out what constitutes a good extension. How do you do it so as to minimize your own effort and maximize the usefulness of your statements? There’s a lot of good information in there, and I confess that it frustrates me that we have people commenting on things who haven’t taken the time to actually go and read how it’s done or tried it.

I find it very interesting that Jeff Diermeier, head of the CFA Institute completely understands why it’s going to make things easier than they are, whereas software vendors who are worried about “this is not normally the way that XML works” or “this is not a flat finite table of standardized line items” are just missing the point. They don’t understand how much of an improvement it is over the current text-based mess.

(7) On May 14, the SEC voted to propose a rule for the adoption of XBRL for financial reporting. Was the proposal more, less, or about as aggressive as you had expected? Was there anything in the proposal that surprised you? [NOTE: The interview with Walter was conducted before publication of the proposed rule on May 30.]

I guess it was more a sense of what was left somewhat open in the proposal. I wouldn’t say it was a surprise; it was more of a recognition that they are seeking to fully understand all the implications of alternative proposals. For example I think people are going to be very dissatisfied with text blocks as a method for notes, even if the phase-in schedule allows it only for the first year of a company’s filings. I don’t think that’s going to last very long. Preparers are, frankly, more likely to make tag selections for the face of their financials that might have to change later to line up with tag choices in the notes, and that’s not good. Most definitely, analysts certainly don’t get any benefit from block text. That’s a part that I hope will evolve in the next few months to a more refined, sophisticated notion of how it can be done.

My understanding was that block tagging would be for the first year, but then for the second year you would have detail tagging.

Yes, I guess what I am driving at is that feedback will drive the SEC to a clearer understanding that will evolve to the point where they will be able to be a lot more specific about what those detail tags would look like, how they should be done. What I would predict is that there will be commentators who will start to look at the new filings, look at the text blocks and say, well, this is dumb, and they will be right.

I also was more surprised it didn’t say very much at all about attestation standards or assurance standards around the XBRL document. It seems perfectly clear to me what to do, and I guess there’s just been a communication gap or something, and a lot of people attending to other things. But I think it’s a solvable problem and I think it would tremendously increase the value of XBRL documents if they did have an assurance standard associated with them and a clearly defined mechanism for doing that. So, they are seeking input, and I believe it is another thing where the SEC needs to have a solution; because I think people will point at it and say “I can’t use this XBRL data — it does not have an opinion on it.”

(8) Could you describe that assurance mechanism, and how you think it could be accomplished?
 
The basic idea here is, if you look at some of the proposals that have been made about how to indicate assurance in an XBRL document, they have a major flaw: they presume that the person preparing the document is the one saying that he has assurance on its contents. That flies in the face of the whole notion of assurance; assurance is a comment on somebody else’s document. I have a webpage hosted which shows exactly this.

Basically, you would take the opinion and have it point to all and only the facts in another report to which your assurance should apply. So when you say this report taken as a whole [presents fairly the financial position…], there is a very specific technical notion of what it means to “take it as a whole.” You point to all of the facts that are included, and you don’t point at any that are not included. You can take that document containing the opinion — it lives separately from the original, you can sign it, you can encrypt it — and do all those fancy things that you want to. But it’s under the control of the auditor rather than under the control of the publisher of the document.

So what I did was create a little example in which I simply took a hypothetical attestation that someone might give on one of the Microsoft filings. I posted it on my website and it has pointers to all of the facts in a Microsoft filing on the EDGAR site.

So that way a user can look at the document and follow every one of those links and basically construct just a document with just the numbers and the facts and the assertions that the management has actually made to which I am actually attesting.

So it’s a very important notion here. You don’t want preparers to be applying a tag that says that this was or was not audited…it’s not their job to do that.

Jack Ciesielski kindly granted us an interview which appears below. Through his ownership of R.G. Associates, Jack publishes The Analyst’s Accounting Observer, a research service focused on accounting issues and trends as they affect financial reporting and investment analysis. His public AAO Weblog is one of the best accounting blogs on the Web. He has been a member of the Financial Accounting Standards Advisory Council and FASB’s Emerging Issues Task Force; he currently belongs to FASB’s Investors Technical Advisory Committee. Jack was formerly an analyst for the Legg Mason Value Trust and spent his early career in public accounting.

(1) It’s generally agreed that the analyst community has not been vociferous in demanding XBRL. Some observers attribute that to a lack of knowledge about the benefits XBRL can deliver. Do you believe that’s the case? Or do you think there are other, more substantive reasons why analysts haven’t shown greater interest in XBRL? 

I think the investor interest is latent; it is something that will appeal to them, but right now, there isn’t much to grab one’s attention. You can’t start doing the kind of analyses – cross-industry, cross-company - you’d like to be doing five years from now once this is off the ground, simply because the technology isn’t there yet. Neither is the breadth of companies adopting XBRL.

Don’t take the silence as disinterest. Analysts do their work in the here and now. When there’s a wide variety of interfaces and entire industries of firms that have adopted, they’ll show more interest. I don’t think it will be hard to convince them, if you can show them that it might enhance their abilities to make comparisons.

(2) How important do you believe assurance is for getting analysts to use XBRL data? Do you think they will be convinced by arguments that interactive data has essentially already been audited and that XBRL merely presents audited data in a much more flexible format?

The data may already be audited. Its integrity needs to stay sound in the format in which investors use it. I think that the “assurance tag” won’t be a priority – at first. Once there’s an intentional snafu (a bias or outright lie) in some firm’s data that has been tagged – something that I don’t look forward to, but there’s bound to be someone who will cross the line of propriety – I think users will start to be wary and it could actually hurt the image of XBRL data.

You know the old saying “garbage in, garbage out”? You could hear that a lot among users if there’s an accounting blowup linked to XBRL.

(3) Under the SEC’s proposed XBRL rule, approximately 500 of the largest companies will be the first to submit XBRL exhibits. But some say it’s smaller firms seeking to lower their cost of capital who would benefit most from an interactive data mandate, and thus they should be involved earlier. In this aspect of the phase-in of an XBRL requirement, do you think the SEC took the right approach?

I think most investors would prefer to see all-at-once adoption. Think about the promise of XBRL: it’s supposed to enable comparisons of all companies against each other, not just one big company against another. While the staggered adoption approach makes sense, I think investors would be badly served and would become unsettled if the staggered approach starts staggering – with repeated deferrals for small firms. We saw this with Section 404 – the deadlines for small firms were repeatedly extended. It was shameful.

As for lowering the small firm’s cost of capital, I hesitate to generalize. It’s too easy to see expanded facility for analyzing also having the opposite effect.

(4) Do you see some segments of the financial community benefiting more from XBRL statements than others? Among (a) portfolio managers, (b) quantitative analysts, (c) buy-side analysts at a major fund, (d) sell-side analysts at a major broker, and (e) knowledgeable retail investors, which should benefit most, and which will benefit least?

It’s all a guess at this point, but it seems most likely that the quantitative analysts would gain the most, since their work is generally the most data-intensive and this should make data more fluid. After that, I’d say buy-side analysts at major funds would benefit the most: they generally have the most companies to follow, and the data-flexibility in XBRL would help them work smarter with less effort. The same holds true for perhaps knowledgeable retail investors. As for the sell-side analysts — they usually have a smaller universe. And I don’t think the portfolio managers would benefit much: they usually don’t do a lot of detail work. They’re relying on the analysts for that. I wouldn’t rule out the possibility that XBRL could tempt portfolio managers to wade into data, however, and change the way they do their jobs.

(5) How do you see the future of XBRL? Do you think most companies will adopt it only to the extent that the SEC requires them to do so? Or do you think many companies will move to adopt XBRL throughout their information supply chains to realize the greatest possible benefits?

I tend to believe that firms don’t willingly adopt new standards unless there’s something in it for them – even  if there’s something in it for their investors. SOX 404 was a good example: good for the shareholders, but viewed only as a compliance cost that didn’t help the company’s managers. That’s not an easy mindset to change, and I think that’s an obstacle for XBRL adoption. Until tangible results show up – lowered IT costs, lowered cost of capital, or both – I think it would be tough to get adopters without an SEC mandate.
 

As many readers know, Walter Hamscher is an XBRL pioneer and one of the smartest people in the field. He recently gave us a wide-ranging interview in which he discussed a host of XBRL topics, including the SEC’s proposed mandate, the pace of XBRL adoption in the US and abroad, assurance issues, and Inline XBRL. The second part of the interview, which begins with question (4), appears below. The first part was posted last week; we’ll publish three more installments over the next three weeks.

(4) Arnold Hanish, Chairman of the FEI’s Committee on Corporate Reporting, recently said that he expects most companies will stick with the bolt-on (as opposed to integrated) method of furnishing XBRL exhibits, thus “yielding no benefits to preparers.” Do you agree with that assessment? Do you think that companies’ use of XBRL will naturally evolve from bolt-on to an integrated approach where they can realize the full benefits of XBRL adoption — or are you concerned that many firms will seek merely to comply with the SEC mandate and continue with the bolt-on approach?

There is a whole spectrum of interpretation as to what that statement means. At one very simple level, he is saying: nothing ventured, nothing gained. He also in some sense is jumping past the software to the XBRL, recognizing that in the short-term right now, corporate software tends not to have XBRL fully integrated into it — and it’s not even particularly easy to locate the plug-in module for whatever enterprise software or reporting product you happen to have at the moment.
 
But there are indeed separate products, products that are really XBRL native; but these other products are not necessarily aimed at Fortune 500 sized companies, and they don’t have nearly the mindshare that some other products that we’re familiar with. It’s also a difference of perspective. For Fortune 500 companies, it is so easy to do the bolt-on approach, in the same way that it’s easy for them to hold an office Christmas party. It is just an expense, and they put down their money and they move on; it doesn’t really impact their operations.

On the other hand, if you look at an Eli Lilly [NOTE: Arnold Hamish is Lilly’s Chief Accounting Officer], you notice that in the past couple of months, they actually are going through a rather large internal transformation centering around streamlining and making more efficient what they regard to be the core of their business, which of course is patient care and patient health. Naturally that is where Eli Lilly is focused as a consequence of its size. Access to capital markets is not an issue for them.

But now stop and think about smaller companies. It may be that in big companies, the preparers feel very much divorced from the fate of the company itself; the smaller the company, the more it is obvious that the preparer benefits from financial transparency — for the simple reason that financial transparency is what lowers their cost of capital. Eli Lilly’s cost of capital is probably not nearly what it is for a smaller company.

So the consequence of that is, of course, the larger the company, the more they regard the process as “this is just a burden, we already have all the access to capital markets that we need.” The smaller the company, the more XBRL is going to look like a bargain as the software comes online to actually make this work.

Consequently, the way I look at Arnold’s statement is that it’s true for large companies at this particular point in time. But I also think it’s focusing on the high end of the spectrum where I agree that a big company could get a short term benefit from XBRL, whereas as a midsize or a smaller enterprise is probably in a much better position to do that.

(5) Well, to make sure I am understanding you correctly, are you are saying that a smaller company would be more likely to move more quickly to an integrated approach for XBRL as opposed to the bolt-on approach?

I believe that if they were looking at it just from a cost of ownership and business value of the implementation that’s true. Of course, small companies have lots of other things on their mind. But if you start with the premise that for smaller companies access to capital markets and transparency have greater marginal value to them than it does to large well-known companies, apart from that you say, “we want to get these XBRL reports out, we want to get them out efficiently… but the bolt-on approach doesn’t look very efficient, does it?” No, and it’s not.

Let me just expand on this a little further. I know this mid-size company in Connecticut which has about 40 subsidiaries.  For a small- to mid-sized company, that data integration problem is fairly significant and it’s a cost to them; yet they are small, and so access to capital is always a problem. So for them, it seems to me that the trade-off to using XBRL to get control of their internal data is a much better value proposition, given that it also enables as a side-effect they are reporting in XBRL to the capital market. (By the way, Ralf Frank from the German Society of Investment Professionals had a very good presentation at the recent international conference at Eindhoven that spoke to these issues.)

I think that, once again, if you look culturally in the US, people are focusing on, “The damn government is forcing us to do this thing we don’t want to do.” Instead of saying, “well, if you move beyond the regulatory mandates there is actually a streamlining opportunity here.”

Now, the fear factor is exactly what I said before, which is if you don’t have a working application sitting there in front of you that you can understand in 15 seconds or 15 minutes, it is going to be a stretch for somebody to see benefits. But I think that once again some of the companies that are in this market do understand what that opportunity is. I think that once XBRL becomes an accepted part of the landscape — rather than a new regulatory mandate — it will be a lot more obvious and a lot easier to sell.

My point here is I think that when people look at the big Fortune 500 companies and say well, if they don’t benefit from a bolt-on, yeah that’s right, nothing ventured, nothing gained. Now, what about the other 9,500 US listed companies, how about them?

Written by Greg Zegarowski     Posted on June 18, 2008

Greg Zegarowski, President of Financial Leadership Corporation, is a member of the XBRL US Communications Steering Committee and a voting member of the international XBRL GL Working Group.

Now that the SEC-mandated XBRL phase-in has been announced, what can we expect? For the next three years in the U.S. there will be well-deserved attention paid to complying with the SEC’s requirements. Simultaneously, XBRL implementations will continue to flourish globally. Applications of XBRL will be manifested that have not yet been invented. In short, the XBRL revolution will continue to gain momentum.

Revolutions often start at grassroots levels. The beginning of XBRL was no different but the technology was quickly harnessed by regulators, tax authorities, and stock exchanges around the world. In the relatively near future, though, the benefits of XBRL will accrue more fully to the grassroots, that is, individual organizations, investors, and other stakeholders in the business reporting supply chain.

How will all of this happen? One of the primary models for disruptive technologies from Silicon Valley is to share/publicize the new technology and have a low barrier to entry. Downstream products and services that advance the technology get developed and monetized. By its nature, XBRL provides a low barrier to entry since it is open-source and license-free. The needed ingredient now is broader awareness and understanding of XBRL in the marketplace. This is certainly part of the mission of XBRL US, which is energetically promoting XBRL in numerous business venues around the country. The anticipated SEC mandate itself will open many doors and be a great discussion starter. Real work will continue to be needed at local levels, chambers of commerce, and industry groups. The results of such widespread knowledge will be new XBRL solutions and applications.

Also taking a leading role in the ongoing revolution are solutions that drive the use of XBRL deeper into the corporate DNA. One such solution is the XBRL Global Ledger (GL) Framework. It is a vehicle that can facilitate the preparation of financial statements plus a myriad of tax, sustainability, statistical, statutory, and management reports. XBRL GL is a standardized, generic, and holistic way of representing business facts that flow from transactions and business events. It can be used internationally since it easily adapts to multiple languages and currency requirements, and its generic structure allows it to be readily tailored to specific requirements. To modify an adage, XBRL GL allows one to “think holistically and act locally.”

Another way of driving XBRL into the corporate DNA is already occurring in the software community. Software vendors have begun the process of embedding XBRL capability into their product offerings. XBRL can help companies with their consolidation processes and some vendors have recognized the specific value of XBRL GL as a data exchange format supporting data migration and integration across multiple platforms.

As knowledge of XBRL spreads, the reality of dealing with regulatory requirements will give way to increased activities focused on value creation at the grassroots level. Chairman Cox and the SEC have given the XBRL revolution a great boost. During the next three years, over ten thousand public companies will get to know XBRL. When the XBRL revolution permeates the millions of private businesses in the United States, the value propositions will be enormously exciting.
 

As many readers know, Walter Hamscher is an XBRL pioneer and one of the smartest people in the field. He is a co-author of the XBRL specification and several other XBRL International publications, a member of the XBRL International Board of Directors, Past Chair of XBRL International, and consultant to XBRL US contributing to the XBRL US GAAP Taxonomies.  Walter is President and CEO of Standard Advantage, a consultancy that helps organizations to achieve the cost savings and increased flexibility available to them through strategic commitments to technology standards.  He holds a PhD in Computer Science and Electrical Engineering from MIT. 

In this wide-ranging interview, Walter offers both specific detail and broad perspective on key XBRL topics, including the SEC’s proposed mandate, the pace of XBRL adoption in the US and abroad, assurance issues, and Inline XBRL. Below is the first part of the interview; we’ll publish four more installments over the next four weeks.

(1) You once said that XBRL will allow financial data and those using it to assume “a content management view of the world.” Could you expand on what that means and how XBRL accomplishes that?

What it means is that, when you look at documents and documents being passed around and posted on sites and so on, you’re really viewing them in terms of their component parts and their linkages to each other. Notably, one particular part of what’s considered “a document” may actually change its content continuously.  Different parts of the document may have different timeliness.

The canonical example is a website. You go to CNN.com or something like that and you see that in some sense the page never changes. But in another sense, the pieces, the headlines, the images and so on are constantly being updated within that framework. What makes that happen behind the scenes is a lot of either simple or complex workflow in which the pieces of the documents are essentially passed from hand to hand, from person to person, going through review cycles, and being checked for consistency with others, and tested, and so on.

When you look at accounting, it is striking that most accountants don’t really think about data as data in a database. It is actually much more about the report and the treatment of the accounting.  Using the right accounting treatment is almost like a lawyer putting forward the argument for why a certain event should be looked at in a certain way.

So consequently, the way I look at XBRL documents is that they are much more oriented toward the integration of free-flowing text with numerical data that could stand on its own (“stand on its own” in the sense that you don’t have to have the original layout of the table in order to understand the data in it). That allows you to take a more content management view in which a single document, say, can really be a combination of three or four other documents all put together.
 
In other words, it is another perspective on reporting that says, yeah, the “reports” really are reports. They have some narrative, they have some explanation, they have some structure, and the data gets filled into the framework of that report. It is not just a data dump.

(2) It’s been about two years since you gave your fascinating XBRL GL webcast titled XBRL and SOA, in which you discussed how “XBRL taxonomies embedded within a Service-Oriented Architecture (SOA) are effective across a wide range of compliance processes both within the enterprise and within the related supply chain.” Have you seen any evidence that companies are beginning to recognize the usefulness of XBRL for meeting the enormous compliance challenges they now face?

I have, although not so much in the U.S. oddly enough. Let me explain why I think that’s true; this is obviously a personal viewpoint.

One of the things I have learned recently is that it seems to be very difficult for users –- i.e., almost anyone who is not a software engineer or computer scientist by trade, even some CIOs — to think about anything other than either an application or a database. But what’s key is actually the notion of data structure, of reference data that structures other data, and the formats it appears in as it moves from file into application, across a network, back into a file, and so on. How data is structured, as distinct from a particular structure such as a set of relational tables, is somewhat of an abstract concept, really, if you’re not a software engineer.

Yet XBRL is that third category. It’s not an application, it’s not a database; it’s conventions and a vocabulary for organizing data for a variety of applications. I think it’s hard for people to visualize, unless they are actually seeing something happen on the screen in an application. It’s also hard to visualize or appreciate what the possibilities are.

So what I see some companies doing in other markets like France and Italy, where the regulators have adopted XBRL for bank reporting, is that the software vendors there have begun to integrate XBRL as an input format into their consolidation packages. I would not say that any of them put XBRL front and center, but it’s no longer just an output format.

I think it’s just a question of timing; they are two or three years ahead of us here in the United States. I am not that familiar with the situation in Japan, but I do know there are companies there, the vendors themselves, who have started to use XBRL internally. Although, of course there are many other factors involved in any specific XBRL implementation that complicate that story a lot.

(3) Let me continue with that international perspective. Some observers have said that the pace of XBRL adoption in the US lags that of overseas, while other say comparing implementation and regulatory climates as different as those in the US and China is comparing apples with oranges. What is your opinion? How do you see the pace of adoption in the US vis-à-vis that overseas? Is there anything the US can learn from adoption in another countries?

Looking back on the beginning of XBRL in 1999 or so, I can look at my younger self and realize that I had a very US-centric view of all this. One of the things I didn’t appreciate was that some other countries have a much stronger culture of values like thrift and efficiency than the U.S. does. Consequently, it is a lot easier for some countries — the Netherlands has a thrifty culture, as does Japan — to look at something like XBRL and figure out pretty quickly that, yeah, this is good for everyone; it will be more efficient and therefore we will all benefit, so let’s do it.

Now, I am not saying it is trouble-free and that everybody in these countries has jumped on the bandwagon right away. But by contrast in the United States, so many other things pile on to our considerations around business and government decisions, things that really have nothing to do with thrift or efficiency. They have to do with history, and they have to do with fear of litigation that doesn’t exist so much in other countries.

In all my conversations in China, Hong Kong, and Taiwan, it was very clear that they had no concern at all about legal issues or anything like that.  It was just a matter of:  “Is this a better way of doing it? Can we take advantage of the fact that the standard has been developed?… Yes, let’s do it.” The words “safe harbor provision” never came up in the conversation. It was just something that they understood instinctively was a more efficient way.

There is such a strong cultural difference that I can easily see why someone would say apples and oranges. But it is really not apples and oranges; it is really the difference between engineers and lawyers, and that’s an attitude difference.

By Neal Hannon     Posted on June 10, 2008

Neal Hannon is an XBRL consultant and the former Director, Financial Reporting Technologies for the Financial Accounting Foundation (FAF).  Active in the XBRL community since 2000, he served on the first XBRL US steering committee and has written over 60 articles on XBRL. You can contact him by email.

About a week ago, as I was finishing my post on how an XBRL mandate would help the SEC review more corporate filings, the Commission released details of the proposed rule. Companies with a market float of $5 billion or higher with fiscal years ending after December 15, 2008, will be required to file, in addition to all normal EDGAR filing requirements, a new exhibit containing “certain interactive data” for quarterly reports, annual reports, registration statements, and transition reports.  The exhibits would contain interactive data for financial statements, accompanying footnotes, and any applicable financial statement schedules. 

A couple of key provisions of the proposed rule, however, are specifically designed to take some of the starch and sting out of the XBRL requirement, thus rendering it simply a mandatory extension of the voluntary filing program.  Consider the following passage from page 19 of the “Interactive Data to Improve Financial Reporting” rule:

Data in the interactive data file submitted to us generally would be subject to the Federal securities laws in a manner similar to the voluntary program and, as a result, would be:

• excluded from the officer certification requirements under Rules 13a-14 and 15d-14 of the Exchange Act;

• deemed not filed for purposes of specified liability provisions; and

• protected from liability for failure to comply with the proposed tagging and related requirements if the interactive data file either

• met the requirements; or
• failed to meet those requirements, but the failure occurred despite the issuer’s good faith and reasonable effort, and the issuer corrected the failure as soon as reasonably practicable after becoming aware of it.

The proposed rule contains no officer certification; the exhibits are furnished, not filed; and no additional liability will be assessed to the filer for errors in tags that are applied in “good faith and (with) reasonable effort.” 

Additionally, auditors are specifically not invited to the tagging party.  Consider Section II. C. 3 of the proposed rule (page 67-68):

As the technology associated with interactive data improves, issuers may integrate interactive data technology into their business information processing. When this integration occurs, the preparation of financial statements may become interdependent with the interactive data tagging process. As this occurs, an issuer and its auditor should evaluate these changes in the context of their reporting on internal control over financial reporting.  However, the evaluation would not require an auditor to separately report on an issuer’s interactive data provided as an exhibit to a filer’s reports or registration statements.

In this section it seems that the SEC is alerting companies and their auditors to the strong likelihood of XBRL tagging becoming an essential part of the financial control and reporting process.  Auditors and the management team may be very interested in the process and the results, but they are not required to separately report their findings to the SEC.

I remember back in my youth when the early morning swimming instructor, coaxing us into the outdoor pool, would say “jump in, the water’s fine.” We all got a nice shock and eventually adjusted to the cold water before settling down to the serious business of learning how to swim.  Companies will learn to swim in the interactive data waters during the mandatory voluntary filing program.  Let’s hope they learn enough before they face the shock of XBRL filings with full legal liability.

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Written by Toshinori Kobayashi     Posted on June 6, 2008

Toshinori Kobayashi is director for enforcement of corporate disclosure at JFSA, the Financial Services Agency of Japan. He was responsible for the XBRL renovation project of EDINET, the JFSA’s electronic disclosure system.
 
In my previous post, I offered a brief overview of the process of introducing XBRL to Japan’s EDINET system. With many countries and related agencies now looking to add XBRL to their own reporting regimes, there’s been heightened interest in our second pilot program that was successfully conducted in the summer of 2007. Even though it’s been about a year since the program was instituted, we are still receiving many inquiries. I’d therefore like to address some of the key points about the program.

While the first pilot in January/February 2007 was an offline program for some 50 companies (chosen by Japan’s Financial Services Agency, or FSA) to check the taxonomy, the second pilot effort was a large-scale online program in which 1,233 companies voluntarily took part. For us on the EDINET team, the second program thus became a major event that propelled the XBRL effort forward. Its implications were threefold:

(1) Many companies showed a high level of interest in the adoption of XBRL to the EDINET system, with one-quarter of all listed companies voluntarily participating.

(2) The results gave us much confidence about the successful completion of the project. No major problems were detected in the EDINET system and the taxonomy themselves. Moreover, the taxonomy was found to cover over 95% of the tags needed for filings of the participating companies.

(3) Issues to be faced in the remaining half-year of the project became clear. Along with the positive results noted above, we did find some problems that needed to be addressed.

Let me focus on Point (3). As mentioned above, 1,233 companies participated.  Among them, 962 companies (about 80%) were able to complete electronic transmission of their financial reports in the XBRL format. Up to now, when Japanese companies needed their financial reports prepared, over 90% contracted with specialty printers for support. In the second pilot program, 78% of participants received support from financial printers. While 97% who used financial printers were successful in electronically filing their statements, 82% of companies who didn’t receive help were unsuccessful.

Thus, we learned that one essential for ensuring the smooth introduction of XBRL-mandated statements in the current fiscal year was to have printing firms with the skills to handle XBRL filings available on a wide-scale basis for companies to use.
 
Regarding the companies that were unsuccessful, we have to recognize that this was their first attempt at such filings. Nevertheless, it became clear that filing XBRL reports is a significant challenge for companies without sufficient skills, which made us recognize that it would be necessary to adopt several measures quickly (as I will discuss later). 

A survey conducted by the FSA of the firms that failed revealed two major reasons for their lack of success, each of which was reported by more than 30% of the companies.  One was difficulty in using the software tools and insufficient information about obtaining those tools (the specific answers were “We didn’t understand the methods for producing XBRL data” or “We didn’t have tools or services for creating XBRL data”). The other was time constraints (i.e., “Because our people were busy with other work, we weren’t able to devote sufficient personnel and hours to preparing the statements” or “It was taking more hours than we had allotted for the task”).

As expected, when all companies in the pilot program were asked about the issues they faced in preparing statements, they mentioned the problems of tools  (i.e., “the cost of tools and services”, or “difficulty in using tools”). Others cited “difficulty in determining the account title (since many choices were possible),” or “the large amount of preparation materials and the big manual” and “the manual was hard to understand.” Interestingly, some companies mentioned the difficulty in coming to an agreement with the auditor on the selection of account titles.

Companies which successfully completed the filing were also asked about the estimated amount of work involved (i.e., number of hours X number of people) in creating the statements. For the first year of preparing the statements, 22% of respondents said the amount of work would be twice that for the HTML statements used up to now, and 50% said it would be 1.5 times to 2 times. Thus nearly three-quarters of successful firms said they estimated that in the first year the amount of work involved would be 1.5 times or more than previously.  On the other hand, some 14% said the amount of work would be unchanged; no companies said there would be a decrease.

Looking toward the second and subsequent years, however, only 6% of companies estimated there would be twice as much work as there was in preparing HTML statements, and the proportion who said 1.5 times to twice as much effort fell to 28%. Those anticipating the amount would remain the same was 50%, while 4% said it would fall.

Finally, it is worth noting that, if we analyze the data submitted, 30% made some sort of error in FRTA rules, and 30% made an error in FRIS rules.

The problems from the pilot program listed above had been generally anticipated. However, rather than EDINET system and technology issues, the question that was most urgent was how we at the FSA could support the reporting companies so that the transition to XBRL would go quickly and smoothly.   Given this imperative, in the second half of the fiscal year, we took the following steps — concomitant with the development of the system and taxonomy — to ensure smooth operation of the new EDINET system:

(1)  Improvement and Completion of Guidelines
We had been providing three types of guidelines for users: (1) creation of a taxonomy tailored for each company; (2) creation of instance documents; (3) selection of the right account item. We made these guidelines easier to understand based on the feedback from users in the pilot program.

(2)  Extensive Meetings on XBRL
We had already conducted meetings on XBRL with companies in the past, but we arranged 30 more in January-February 2008 to help reporting entities gain a deeper understanding of interactive data. In total, 4,000 companies participated.

(3) Outreach to Software Vendors
We exchanged information closely with software vendors and pushed them to develop tools that were easier to use. Specifically, we provided ideas about tools handling FRTA/FRIS violations in a better way (in order to reduce the number of violations).

There are various challenges to overcome to introduce XBRL successfully to a system such as EDINET. While we tend to devote much of our energy to technical issues, such as taxonomy creation, a smooth XBRL introduction is realistic only when the business world is completely prepared. We also need to devote our efforts to the needs of actual users. It was this point that gave the pilot program particular significance.

Let me now focus on the very high level of participation in the second pilot program, which I noted exceeded 1,200 companies. The high number has surprised observers outside Japan, and to be honest, it surprised me, too.  Initially, we thought at best 400 to 500 companies would participate. Even that level seemed very high, given the few dozen in the SEC’s voluntary program (VFP). Participation in the Japanese program was completely voluntary. There were no restrictions, either direct or indirect, placed on those who didn’t want to participate. At the same time, there were no limitations placed on those who wanted to participate. 

Why, then, did over 1,200 companies voluntarily choose to join?  The answer to this question – on which we have received many inquiries from overseas agencies – appears to be embodied in the following four points:

(1) The Prospect of an XBRL Mandate in April 2008
Companies pondering whether or not to join the pilot program knew well that XBRL would be adopted for financial reporting in April 2008.  For many firms, this expectation gave them the sense that participation in the pilot program was a necessity.  The appeal of the pilot program to reporting entities was that it would be an online test of the system and taxonomy, which would give them practice and experience in XBRL filings.

(2) Aggressive Outreach by the FSA and Others
The FSA aggressively sought to recruit companies to the program, conducting ten meetings for the purpose. In addition, we also relied on the Keidanren, the Tokyo Stock Exchange, the Japanese Institute of Certified Public Accountants, the Investment Trusts Association, and other associations to spread the word. The printing firms noted earlier also were important in informing their client companies about the program.

(3) Enlisting Software Frims and Printing Companies for Support
Detailed information on the pilot program was provided to software vendors and printing companies early on. The former were able to provide cost-free tools for pilot program use and the latter were able to offer support services, thereby reducing the burden to participating companies.

(4) Filed XBRL Data Was Not Made Public
Most of the filed data was not made public (with the exception of that for ten companies that agreed to release it for reference purposes). In addition, since it was a pilot program, we were lenient in accepting data that was not of the highest quality. Thus, companies didn’t need to be concerned that their reputations might suffer from the publication of XBRL data of insufficient quality, which stemmed from a lack of experience with interactive data.

Needless to say, the environment and terms under which any country or agency introduces and mandates XBRL can vary greatly from those in Japan. Nevertheless, I hope that some of the details and implied suggestions I’ve related about the Japanese experience will be useful to those who are seeking to introduce XBRL in their specific jurisdiction. 

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Written by Neal Hannon     Posted on June 2, 2008

Neal Hannon is an XBRL consultant based in Stamford, Connecticut.  He was the Director, Financial Reporting Technologies for the Financial Accounting Foundation (FAF) and a member of the accounting departments at the University of Hartford and Bryant University. He has been an active member of the XBRL consortium since 2000, serving as the first education committee chairman and later serving on the first XBRL US steering committee.

With all US public market participants — including foreign filers — faced with the prospect of an SEC mandate to report in XBRL beginning this December, it is time to look at what the preparers and consumers of financial information will gain and lose with interactive data.   The largest companies (those with market capitalization over $5 billion) are currently scheduled to begin furnishing their required SEC filings tagged with XBRL if their fiscal year ends after December 15, 2008.  Companies with market capitalizations greater than $75 million with fiscal years ending after December 15, 2009, are slated for mandatory furnished XBRL filings in 2009.  All other filers including foreign filers will follow suit in 2010. 

Good News for Analysts and Shareholders
Compared with current EDGAR filings, retrieving financial information from SEC filings will be simple.  First, the new proposed rule regarding XBRL requires companies to send the XBRL forms to the SEC and to post same on their company websites.  In this day and age of automated RSS feeds and email updates, newly filed data will be immediately available from both the SEC and the company in a format that will be directly consumable by analytic software. 

There are two direct benefits to this development.  First, the data will be immediately usable without the error-inducing activity of re-keying data.  Second, the data will contain the original markups of the company to a national taxonomy or dictionary of terms that will be in common use over the industry.  Look to XBRL-specific analytical tools to get the most out of SEC filings in XBRL.  According to the XBRL US website, just under a dozen vendors have XBRL-specific analytical tools ready for use today.

Another major benefit to the tagging of financial information for users of SEC filing data will be the coming tagging of the notes to financial statements.  Most people agree that the key to understanding a company’s financial data is presented within the language of the accompanying notes.  Up to this point, the information in the notes has been difficult to dissect and understand.  Starting in 2009, however, large companies will be required to use the new US GAAP taxonomy to tag the required disclosures commonly contained in the notes to the financial statements.  This means that, for the first time, individual pieces of the notes to financial statements will be parsed by the SEC filer into standard computer consumable tags.  In other words, you will be able to see which US GAAP regulation a particular company used to determine its revenue recognition disclosures and thereby gain new insight into the corporation’s financial reporting.

The SEC Will “See” Every Filing
Why might some companies be unhappy about XBRL tagging?  Ever since the first SEC  chairman mentioned XBRL (namely, Arthur Levitt in 2000), the march toward marking up SEC filings in an electronic format has been steady and predictable.  The SEC sees tremendous benefit from the technology.  In his opening remarks on May 14, 2008, Chairman Christopher Cox declared:

Like ASCII and HTML before it, XBRL can be viewed as nothing more complicated than a computer language. But if we embrace its potential, it can truly revolutionize the benefits that investors derive from corporate disclosures. It will enable analysts at the SEC and in private industry to vastly improve their comparative capabilities.

Clearly, the