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.

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