Written by Gary Purnhagen    Posted October 25th, 2006

Gary Purnhagen is vice president of strategic planning at Merrill Corporation, a leading provider of outsourcing solutions for business communication and information management requirements. Merrill has been a leader in helping companies comply with the SEC’s Voluntary Filing Program.

I tip my hat to the SEC for their brilliant promotion of the adoption of XBRL. They were, after all, the logical champion of this enabling technology. As the government regulator of corporate disclosure, which includes financial information, they could get the attention of corporations; as a consumer of financial information, they needed a better way; and as a disseminator of financial information, they wanted to improve the quality of the data being disseminated. I say the SEC, but in reality it’s the SEC’s Chairman Christopher Cox who has been the champion of XBRL. He gets it! He understands that XBRL can help the SEC with their requirements to review and disseminate corporate disclosure and can make the capital markets operate more efficiently. And he has used his position to promote XBRL.

Let’s look at where we currently are. As of October 10, 2006, 29 companies have submitted 74 sets of XBRL exhibits in participating in the SEC’s Voluntary Filing Program. Some only once, some up to seven times. Not a huge number, but when you look at those participants, many of them Fortune 500 companies, it’s a number not to be ignored.

Three reasons there aren’t more participants are:

1. Lack of awareness on the part of company executives.
2. The taxonomies for the Management Discussion and Analysis section and footnotes to the financials are not yet completed.
3. There currently isn’t much that small or large investors can do with XBRL, so it isn’t useful or valuable.

The SEC is addressing all three issues:

1. The SEC’s roundtables, especially the last one on Oct. 3 and the upcoming one that will spotlight the current participants experience, is helping to keep attention on this subject.
2. They are funding the completion of the taxonomies required for SEC filings; this will make the available XBRL financials more complete and useful.
3. The SEC is planning to make available on their EDGAR web site a viewing/analyzing tool for XBRL data. This will allow investors to begin searching and comparing corporate information far more easily than is currently possible. This will allow investors to begin to understand the value of XBRL and demand more of it from companies not yet making it available. Once the institutional investors begin taking advantage of XBRL-tagged financials in their modeling software for investment decisions, the stampede will have begun.

The SEC’s mandating of XBRL for 2008 (my estimate) will just be a sweep-up of companies who haven’t begun making their financials available with XBRL tags. Hence, the SEC will have helped expose all public companies to XBRL, and will make the existing corporate information on EDGAR far more valuable. And this will only be the beginning as to the impact XBRL will have on the entire business reporting supply chain.

Written by Bob Schneider    Posted October 18, 2006

The following predictions no doubt betray a flair for the obvious. But it is still a useful exercise to identify the forces that will propel XBRL forward:

SOX Will Be Mended, Not Ended No matter which political party is in power, the regulatory burden on U.S. firms continues to grow. According to a study by AMR Research, companies will spend more than $6 billion this year alone on Sarbanes-Oxley (SOX) compliance. SOX continues to receive much hostile fire; several days ago, former Fed Chairman Alan Greenspan called for most of it to be scrapped. But while the SOX burden on smaller companies may be eased and other tinkering is possible, it’s unlikely that the law will be rescinded. As firms seek out longer-term solutions that require new technology to minimize SOX costs, they will focus on XBRL and the common platform it provides for business information.

The BRICs Will Keep Flying U.S. companies face increasing competition from emerging economies, especially those of Brazil, Russia, India, and China (BRIC). Together, these countries represent some 40% of the world’s population, and they are expected to be among the world’s largest economies in the decades ahead. In most cases, BRICs have well-educated populations, substantial natural resources, and relatively low wage costs.

U.S. business leaders and policymakers are asking: What competitive advantages can the U.S. economy sustain? America ranks at or near the top in global surveys of information technology adoption, but its continued supremacy is by no means guaranteed. To remain an IT leader, the US must continue to work at adopting the most important technology innovations. These will include XBRL, particularly in its Global Ledger (GL) variety. Information drives modern economies, but data transfer both within and outside the corporation is often impeded because of different IT systems and formatting. With its ability to incorporate all types of business data — from journal entries to product descriptions to employee timesheets – and to move it easily among different entities, XBRL-GL promises to be a boon to productivity.

Financial Markets Will Become More Globalized The world’s financial systems are much more accessible to companies and individuals than they were ten years ago. Moreover, as regulatory barriers come down and communication channels speed up, financial markets are increasingly globalized. To give one example, in 2005 Americans put $8.47 billion into mutual funds dedicated to small and mid-size foreign companies, up more than 40% from record 2004 levels. These trends are likely to accelerate as countries raise corporate governance and transparency standards.

At the same time, cutbacks at the major equity research firms have reduced the number of security analysts and, in turn, the number of equities followed. As U.S. firms compete for capital and investor attention, there is an incentive to provide financial information in formats notably XBRL — that analysts will be able to dissect economically. With other nations moving toward adopting XBRL-enabled financial statements, U.S. firms will want to make their own releases of financial information similarly easy to manipulate and analyze.

The Pace of Business Will Accelerate Information that used to lie happily dormant for months or even years is now made instantly available to the whole world through the Internet. Firms and individuals have come to expect that their information needs will be immediately satisfied; the investor’s attitude toward financial reporting is the sooner, the better. In the same vein, security analysts are under increasing pressure to perform financial statement analysis faster. XBRL-enabled statements can provide real-time financial reports that are instantly available for analysis and can help companies keep up with the faster pace.

Written by Mike Willis    Posted October 14th, 2006

Mike Willis served as the Founding Chairman of XBRL International. He is a partner with PricewaterhouseCoopers and has more than 24 years of accounting experience.

One day, while discussing shareholder communications with a client, I proposed they consider reporting in a new Internet language format for their annual and quarterly reports. My initial argument was that this new language would increase the visibility of their reports and therefore was good for shareholders. Management countered that they mailed their reports to all shareholders and were not convinced of the transparency argument. As a result, I asked “how much does it cost to print and mail all of your reports to shareholders?” The answer: “$750,000 annually.”

Finally!! A concept that any accountant can understand: cost reduction.

We agreed that publishing company annual and quarterly reports on the company web site in the new language — which, as you may have guessed, was HTML — would save them printing and mailing costs. But that was over 10 years ago. What does that have to do with XBRL The message is the same, except that the impact is more pervasive across a broader range of compliance processes and the cost savings are larger.

XBRL is designed to enhance recurring supply chain processes including access, validation, analysis, and reporting, regardless of whether they occur at the investor, regulator, corporate controller, or corporate operational levels. XBRL provides a software application agnostic platform to describe business information and critical relationships, thereby enabling the information to be more efficiently transferred, managed, validated, analyzed, and reported across the diverse set of software applications used by enterprises and their stakeholders.

How significant are the cost savings that a company might expect? It depends on the current degree of manual controls and interfaces applied to process business information as it moves across, between, and around the disparate applications. You can assess this by looking closely at your own processes to determine the level of:

(1) Manual information access points. Spreadsheet templates are a typical indicator;
(2) Manual validation efforts. Typically the responsibility of the user rather than the preparer, and often occurring at the data warehouse;
(3) Manual analytical and business rules. Often hard-coded within disparate software applications (e.g. a spreadsheet macro) requiring significant resources to manage, audit, and/or change;
(4) Manual compliance quality control assessment processes. Performed repeatedly for each and every report;
(5) Time and resources applied to these process areas.

The benefits realized are a continuation of the cost savings generated by HTML a decade ago — except they are now focused on business information and are thereby more pervasive across the full range of supply chain processes, and not just printing and delivery. To determine if XBRL might be useful to your company, assess your current processes closely for manual interfaces, manual process steps, and manual controls. There may be more opportunity for cost reduction than you think.

Written by Bob Schneider    Posted October 9, 2006

There are two varieties of interactive data. One is XBRL for Financial Reporting (XBRL-FR), which is used to express the summary information found in financial statements and has only a limited amount of detail.

The other is XBRL-GL, which was designed to represent any data item that that can be reported through a general ledger. XBRL-GL can detail data and documents, including accounting entries, trial balances, payroll info, receivables and payables, inventories, statistical indicators, and more. It can bring together data from disparate operational, reporting, and accounting systems and consolidate it through Web Services, high bandwidth networks, and petabyte storage systems. It is therefore ideal for system integration, consolidation, data migration, and data archiving.

In the interactive data world, most of the focus thus far has been on XBRL-FR; but within the organization, XBRL-GL will be of much greater relevance. Traditional management accounting, with its emphasis on the allocation of costs among company functions, tends to erect walls between departments that create information silos. The adoption of XBRL-GL can break down the barriers in function-based organizations and enable data integration. As the emphasis of management accounting shifts to the analysis of business processes and workflows throughout the organization, the role of cost accountants is being transformed. Rather than focus on cost allocation, the emphasis will be on analyzing the firm’s business processes to ensure the timely flow of quality information necessary for effective operations.

Moreover, XBRL-GL is one of the pillars of Next-Generation Architecture which, coupled with Web Services and Service-Oriented Architecture (SOA), allows data to perform multiple business reporting tasks, both within and outside the organization. Potentially, anyone will be able to access, edit, and validate data wherever it resides and from whatever application it came from.

Can ERP systems, as they are now constituted, offer similar results? ERP is essentially a closed system that does not work well in this kind of distributed environment where data from different systems serves users both within and outside the entity. Even in high-level ERP systems, there tends to be “spreadsheet sprawl” and other operational tools that require manual integration. XBRL, in contrast, integrates information systems to serve both internal and external users.

It should be emphasized that XBRL is simply a data standard, and thus interactive data itself is not a replacement for the infrastructure of ERP systems. But XBRL can be used successfully both in conjunction with ERP and as a means for implementing ERP alternatives.

Written by Bob Schneider    Posted October 9, 2006

The current impetus to adopt XBRL is improved financial reporting. The extraordinary advantages of interactive data for government agencies, stock exchanges, and other regulatory bodies are encouraging them to adopt XBRL for their reporting requirements. In their effort to implement XBRL as a data standard, they should be supported by a host of financial statement users — ranging from security analysts to small investors — who will enjoy the benefits of real-time reports and easy data manipulation that XBRL offers.

But the potential of XBRL extends far beyond financial reporting. The flexibility of XBRL-enabled data makes it similarly desirable for everyday use throughout the organization in areas like manufacturing, procurement, and human resources. The reach of XBRL beyond the financial realm will be strongly supported by crucial business needs.

One such need is internal control. Sarbanes-Oxley (SOX) now requires that management state in its annual report its responsibility for maintaining an adequate system of internal control. According to the definition provided by the COSO framework, which the SEC suggests for SOX compliance, internal control encompasses the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.

While SOX specifically limits internal control to financial reporting, for independent auditors the line isn’t so easily drawn. For practicing CPAs, all three parts of the COSO definition are vital to their attest function. Absent a sound system of internal control that includes all three definitions, auditors would have to review a stunning number of transactions to ensure the integrity of financial statements. By necessity, internal controls need to be implemented on a companywide basis, and they are greatly facilitated by the easy interchange of data that XBRL offers.

Another trend that leans heavily toward XBRL adoption is the increasing integration of business activities among different companies and business entities. These associations range from supplier relationships to tie-ups and, at the top of the integration scale, to mergers and acquisitions. The ability to exchange data is a key ingredient in combining business activities. As businesses push to optimize efficiency, there is a need for a data standard that makes the exchange of information easy and seamless. While remaining vigilant about the security exposure such openness entails, companies will be eager to adopt XBRL because of the advantages it affords in data interchange.

Moreover, as globalization proceeds, companies want to be able to optimize their use of resources both human and nonhuman — wherever they are located. Thus XBRL fulfills the need for a data medium that clears the barriers presented by different tongues and business cultures.

The full-scale implementation of XBRL as a universal data standard remains several years away. But the spread of interactive data to everyday business activities is inevitable.

Written by Bob Schneider    Posted October 5, 2006

The technology challenges financial professionals have faced in the past several years have (mostly) come from bad stuff happening to (mostly) good people. The Y2K problem derived from early computer programs that understandably but inimically used only two digits to store years. Sarbanes-Oxley was a reaction to scandals that were large in size but few in number. The threat of terrorism developed from cultural and political problems that have little to do with deferred taxes and accounting for leases.

XBRL is happily different. It wasn’t developed in response to calamitous events, but rather to make working with financial and business data more productive and efficient. Thus the natural constituencies for XBRL adoption are not limited to the relatively small groups of financial and IT pros that have done yeoman’s work in combating problems they did not create. Rather, they include the full cast of actors on the financial stage.

With XBRL adoption, securities analysts can look forward to real-time release of financial statements that can be analyzed in spreadsheets without re-keying. Auditors can grab company data off the Internet and immediately get to work on comparing their clients’ data to their peers’. Bank officers can spend far less time checking loan applications for mathematical error and far more time on analyzing what’s happening in their clients’ businesses. And staff at regulatory agencies like the SEC will be able to focus less on reviewing the accuracy of company filings and more on what they contain.

XBRL will benefit individuals too — big time. In their current format, company financial statements at the SEC’s EDGAR website require lots of manipulation before they are ready for analysis. XBRL-enabled statements will be a boon to small investors, who will import data directly into their spreadsheets and be able to view financial ratios and operating data immediately.

Of course, most small investors purchase shares through mutual funds. Here the SEC is also moving forward, pushing ahead to make key data of mutual funds available to the public online in easy-to-grasp, one-page summaries. Financial professionals and sophisticated investors could drill these documents for more detailed fund data.

We like the idea that XBRL benefits individuals for two reasons. First, spreading financial democracy by making investment data easily obtainable and transparent is a good unto itself. Second, creating a wider class of XBRL beneficiaries builds the political momentum for wide-scale interactive data adoption.

For the financial community, often seen as party-poopers, it’s nice to be part of the in crowd.

Written by Bob Schneider    Posted October 5, 2006

Business professionals already have too much to read every day. So anybody even thinking of starting a blog aimed at them better have an awfully good reason.

We do. Over the next five years, XBRL will become one of the most important and exciting IT innovations for financial reporting and everyday business operation. Yet most people, including more than a few CFOs, will read the preceding sentence and say “What’s XBRL?”

That’s not surprising: Coping with Sarbanes-Oxley and other tough challenges have given CFOs and their staffs more than enough to contend with these past couple of years. And even for those who’ve heard about XBRL — or interactive data, as we’ll often call it — it hasn’t been viewed as a top priority.

That’s about to change. The interactive data playing field is becoming as action-packed as Yankee Stadium in October. Every week there are new developments, as governments worldwide move to adopt XBRL as a universal data standard. The U.S. effort is steadily picking up pace too. The adoption of XBRL-enabled call reports by the FDIC has been a major achievement. Building on that success, other Federal agencies — most notably the SEC — are moving ahead to expand the use of interactive data throughout government. Over the next few months, we anticipate major news that will make XBRL as familiar an acronym as ASAP.

This blog is aimed at business professionals who want to learn more about XBRL and who want to keep current with key XBRL issues as they emerge. We’ll offer both news and opinion. We’ll discuss how governments and companies are implementing XBRL. We’ll keep you abreast of the technology, in non-techie language you understand. (In other words, we figure you know a bit about taxable income and nothing about taxonomies.) We’ll stay on top of the literature and tell you what’s worth reading. And we’ll let you know about meetings, webcasts, and other events worth listening to.

Undoubtedly, many of Data Interactive’s most useful entries will be written by our guest bloggers. These are XBRL pros, working at the front lines, who are spearheading the effort toward XBRL adoption. Their experience and insight will make the war stories they tell valuable and compelling. We thank them for their vital contribution. And we want to thank you for reading. All of us bookmark lots of web pages, but very few of them ever get us back for a second visit. We intend to make Data Interactive one of those Favorites you return to regularly. We invite you to contact us with your thoughts, suggestions, and criticism.