Written by Gianluca Garbellotto     Posted on March 30, 2009

Gianluca Garbellotto is current Chair of the XBRL Global Ledger Working Group and is a past member of the XBRL International Standards Board. He  is deeply involved both in XBRL standards development and in their practical implementation, with a specific focus on internal reporting requirements. His current professional engagements include some of the major global XBRL projects. His GLG Repository site features his newly inaugurated blog.

Earlier this month, the Institute of Internal Auditors (IIA) Research Foundation published my white paper XBRL: What’s In It for Internal Auditors, which I had the privilege to write with the invaluable review and advice of a number of individuals quoted in the paper.

This paper was initially conceived to address the results of an XBRL awareness survey among chief internal audit executives worldwide conducted by The IIA at the end of 2008. The survey showed only a partial awareness of XBRL by internal audit professionals. In addition, auditors were minimally involved in the actual process of generating XBRL filings even in those companies that are already using XBRL, either in voluntary or mandatory projects.

One of the objectives of the white paper is to fill this awareness gap by providing a comprehensive overview of what XBRL is, how it is being used in various programs across the world, and how it will have to be used to meet the SEC’s interactive data mandate, which starts in the second half of this year.

However, this is only one part of the story. Obviously, internal auditors need to be able to contribute to, and provide professional assurance on, the process of generating XBRL filings as they do with any other corporate reporting process. Still, XBRL’s value proposition in internal auditing processes goes far beyond being an additional format to which to convert financial reports. The white paper highlights the uses of XBRL that go beyond regulatory compliance, demonstrating how it enables the enhancement of critical processes in the internal space:  data integration, reporting assembly, application of validation rules, controls, and visualization templates in a consistent way across the whole corporate information system.

Simply put, internal auditors should consider XBRL — and I am not referring here just to the US GAAP XBRL taxonomy used to report to the SEC, but to the standard as a whole in its various flavors as described in the paper — as a key tool to perform their functions more efficiently, rather than simply an additional reporting burden that requires their professional attention. XBRL enables moving from widespread manual, error-prone processes to automated and standardized ones in key data-related activities. It is something that businesses can leverage internally as a key technology and not just see as an additional compliance burden.

This concept is relevant not only for internal auditing, but for internal corporate processes in general. It can help executives making crucial decisions today on how to comply with the SEC’s interactive data mandate over the course of the next several years.

The white paper also examines different approaches to XBRL adoption, where XBRL can be either bolt-on at the highest financial report generation level, built-in deeper into the reporting layer of the corporate information system, or deeply embedded at ledgers level.

If a company sees XBRL as just another format in which financial statements have to be submitted for compliance, its management is likely to consider only the easiest options to create its filings: either create them under the existing process and convert to the new format at the end, or outsource as much of the process as possible. These choices not only represent a missed opportunity on the "internal" benefits that XBRL enables, but will actually be put to test by evolving reporting requirements. Additional reporting concerns like IFRS convergence and the “Year 2" requirements already set in the SEC mandate, which extend the depth at which information will have to be tagged in notes and schedules, are reason enough to consider all of the options available and their implications very carefully.

In short, even if you are not an internal auditor,  I think it may be worthwhile for you to get the white paper from The IIA website.

Olivier Servais is Director of the XBRL Activities at the IASC Foundation, which is responsible for the development of the IFRS taxonomy. He has been European Director of XBRL International and has served as a member of the XBRL International Steering Committee, the Consultative Working Group of CESR Transparency, and the Eurostat XBRL Pilot Task Force. He is the author of various publications about XBRL.

This is the second part of a two-part interview. The first part contains questions 1 to 7.

(8) Do you perceive any differences in business cultures around the world that make it harder or easier to implement XBRL in individual countries? Or put another way, are there certain conditions that make it easier to adopt XBRL in some countries than others?

I believe that most of the requisite conditions for the efficient implementation of XBRL are now in place: political decisions have been made, taxonomies are available and software solutions, including ERPs, are affordable. The financial crisis is playing an ambiguous role. Few people doubt XBRL’s potential to improve information exchange and therefore restore market confidence by providing transparency. Yet at the same time few, if not forced, are willing to dedicate the time and money to implement it.

This applies to all countries and regions as all are affected, though some have been quicker on the uptake than others. I recently spent a week in Japan and was highly impressed that XBRL as a concept or idea is no longer discussed because it is already implemented. It is a similar situation in Belgium, where all non-listed/non-financial companies (approximately 280,000 of them) have been filing in XBRL for almost two years.

In this sense, XBRL is becoming a nonissue. Why? Dedication and endorsement from high level decision-makers, who want to see XBRL embraced in their markets. As well as Japan and Belgium, there are interesting examples of XBRL adoption in Australia, China, India, Spain, and the US.

(9) The IFRS taxonomy recently released a simplified Chinese translation of the complete label linkbase for the IFRS Taxonomy 2008. As the IFRS strives to provide taxonomies in so many languages, what kinds of problems or issues arise? Are language and translation issues a significant problem for IFRS taxonomy development?    

I am not sure if there is a “problem.” Providing IFRSs in English only would delay their adoption around the world. Therefore translation of the IFRSs is considered vital by the IASC Foundation and its Trustees and a dedicated team is now devoted to this effort. Since January this year, the translation effort of the IFRS Taxonomy has been integrated with the translation effort of the IFRSs, and IFRS translators/reviewers are also reviewing the taxonomy. This change in the translation process will significantly reduce the term, hopefully to no longer than six months and also make translations of the IFRS taxonomy more quickly available. Currently we are preparing translations in Chinese, Dutch, French, German, Italian, Japanese, and Spanish. Other languages will be made available, depending on resources and market demand.

(10) The SEC issued its Roadmap for IFRS adoption in November. One of the milestones the Roadmap provides is that:

In order to realize the improvements in the usefulness and comparability of financial information anticipated upon the widespread use of interactive data, U.S. issuers would have to be capable of providing IFRS financial statements to the Commission in interactive data format at a greater level of detail than is currently available. Therefore, the state of development of an IFRS list of tags for interactive data reporting will be a consideration in the Commission’s determination of whether to require the use of IFRS for all U.S. issuers….The Commission staff is actively involved in the improvement and monitoring of the IFRS list of tags via participation in the IASC Foundation’s XBRL Advisory Council.

How do you view this requirement, and could you tell us how that work is proceeding?

There is another important element of the SEC Roadmap: the use of two sets of accounting requirements, US GAAP and IFRSs as published by IASB. If you consider the very first standard, IAS 1, you will see that the IFRS taxonomy can be used to file with the US SEC. However, there are concerns over the differing number of elements in the US GAAP taxonomy and the IFRS taxonomy and the need for more detail in the IFRS Taxonomy. Indeed, during my recent trip to Tokyo the Japan FSA expressed concerns about the level of detail in the IFRS Taxonomy in comparison with the EDINET taxonomy.

The XBRL Advisory Council and Interoperable Taxonomy Architecture (ITA), a joint initiative by the European Commission, the Japan FSA, and the US SEC, are forums where such improvements are being discussed. However, despite such demands from stakeholders, our role remains focused on producing a high quality product that reflects the IFRSs, and does not currently extend beyond that. It’s fair to say that things could change.

(11) In a recent KPMG survey, some 65 percent of investment executives and analysts surveyed expect that U.S. adoption of IFRS will make U.S. capital markets more attractive to foreign investors. Fifty-seven percent of the investors and analysts surveyed believe the timeline proposal announced by the SEC in November to be “about right,” while 18 percent said it wasn’t aggressive enough. Why do you think IFRS apparently enjoys such strong support in the US financial community?

Transparency and comparability are definitely the main reasons. Some years ago, it was commonly believed throughout the XBRL community that XBRL adoption was a matter of “when” rather than “if." I believe that the same statement applies now for the adoption of IFRSs in the US, and that the 18 per cent would like to see IFRS adoption now.

(12) Have you seen an impact from the global recession on the pace of adoption of IFRS standards? Do you think IFRS implementation will slow because policymakers (a) put their energies elsewhere (b) fear IFRS will only complicate recovery, or (c) cynically use the downturn as an excuse not to adopt IFRS? Or alternatively, do you think policymakers will see adopting IFRS as part of the long-term solution to stable economies, financial transparency, and a step toward averting future financial crises?

From my perspective, I haven’t seen a slowing down in the pace of IFRS implementation by the US. Without wanting to congratulate my colleagues too much, the IASB has been globally recognised as having made appropriate decisions and providing effective resources when needed. Even with growing staff numbers, we remain a relatively small organisation with a limited budget. Also it should be noted that developing accounting standards is a necessarily lengthy process. Furthermore the IASC Foundation is governed by a Board of Trustees that represents international business sensibilities. Therefore without wanting to sound complacent, I truly believe that IFRSs are ready to be applied as part of the solutions being drafted by governments to protect financial markets in the future, and I am confident that XBRL will be part of those solutions as well.

(13) The IASB is located in Europe, it has much interaction with European institutions, and a quick review of the staff roster would indicate most or all are European. Do you have any concerns that the final IFRS and XBRL products will be too Eurocentric? Even if that’s not the case, do you fear they may be perceived as such?

Do you ask the question because I’m Belgian and come from the heart of Europe? More seriously, the Trustees and staff of the IASC Foundation and the members of the IASB are drawn from almost 30 countries across the world. Our Director of Technical Activities (aka accounting matters) is from New Zealand, the Chief Operating Officer and the Director of International Affairs are both American, and the membership of the IASB and the Board of Trustees is managed to ensure that there is geographical diversity and representation. Of course there is much interaction with European institutions, mainly because the European Union was the first region to adopt our standards. However recent adoption decisions in Canada, China, India, Japan, and Korea have directly affected the diversity of our staff, and citizens of each of those countries are to be found in the IASB and IASC Foundation.

(14) Are you concerned that global implementation of IFRS will undermine traditions in business culture that are reflected in the accounting standards of individual nations? Do you think that national accounting and business communities may come to resent IFRS because it has superseded national accounting standards? Or do you think that ultimately local bodies will see that the advantages of international standardization more than offset this negative?  

The heterogeneity of the IASC Foundation staff, the IASB and also the Trustees is the best warranty that local “flavours” are considered when developing IFRSs. Even if some communities attempt to use the crisis as a pretext for protectionism, capital markets are interconnected and therefore solutions need to be global, and all of us at the IASB, and the IASC Foundation are working together to ensure that we perform our duties and meet our responsibilities.

Olivier Servais is Director of XBRL Activities at the IASC Foundation, which is responsible for the development of the IFRS taxonomy. He has been European Director of XBRL International and has served as a member of the XBRL International Steering Committee, the Consultative Working Group of CESR Transparency, and the Eurostat XBRL Pilot Task Force. He is the author of various publications about XBRL.

This is the first part of a two-part interview. The second part of the interview contains question 8 through 14.

(1) In one of your presentations you state that the mission of the IASC Foundation XBRL Team is “to provide users an IFRS XBRL taxonomy with the same quality, in the same languages, and at the same time as the IFRSs are available.” What are the greatest challenges you face in achieving that mission, and what are the greatest satisfactions?

I joined the IASC Foundation two years ago and the objective was very clear: develop the International Financial Reporting Standard (IFRS) Taxonomy as a framework for the consistent adoption and implementation of IFRSs. Timeliness and efficiency were key considerations. Business and technical requirements were also high priority, along with global usability, interoperability (between different software platforms), extensibility, comparability, and stability.

In 2008 the IFRS Taxonomy was released together with the IFRS Bound Volume. Despite this and other achievements, we are conscious that there is still much to be done, such as securing the recognition of the IFRS Taxonomy by the IASB, and implementation of the taxonomy in countries where IFRSs are adopted, and we are continuing to work toward these and other goals.

(2) The IASB website states “The mission of the XBRL Team is part of the IFRS adoption and implementation strategy and is fully integrated with the IFRSs development.” Could you explain to readers some of the IASB’s thinking in choosing to align IFRS development so closely with XBRL? What are the advantages of this approach for IFRS development? Do you see disadvantages as well?

Today, IFRSs are permitted or required in over 110 countries around the world, and many more have already communicated a roadmap to adopt (or to converge with) IFRSs in the next few years. Interestingly, in most cases XBRL is considered the enabling technology to ease reporting of and transition to (and also the understanding of) IFRSs.

It’s hard for me to tell you if there are disadvantages. All that I can say is that in order to provide a high quality taxonomy we work closely with the technical staff of the IASB to ensure that their concepts are accurately reflected in the Taxonomy, and also to ensure that XBRL is integrated in the development of accounting standards.

(3) In a recent article you wrote for IR Magazine, you state “It is no coincidence that the main expected benefit of Belgium switching to XBRL [as the format for her 270,000 companies to file its annual accounts with the National Bank of Belgium] was to ease the transition to IFRS.” Could you expand on that and explain how XBRL smoothes the changeover to IFRS?

In that article I was referring to public statements made by the management of the National Bank of Belgium, which clearly indicate that one of the reasons for moving to XBRL was the prospect of moving to IFRSs in the future. I remember a senior level representative of the European Commission remarking a number of years ago that XBRL is able to provide the structure and flexibility required to present financial statements in IFRSs. Being able to map concepts between different sets of generally accepted accounting principles (GAAP) is clearly an asset of XBRL.

(4) Traditionally, there has been the assumption that US GAAP is “rules based” while IFRS is “principles based.” Is that distinction still accurate or useful? If so, has it had an impact on the nature of the taxonomies that have been created for each set of standards?  

It is important to remember that the IASB / IASC Foundation is not a regulator but an accounting standard-setter. The IASB’s predecessor, IASC, actually started as a think tank producing International Accounting Standards. The IASB’s International Financial Reporting Standards were adopted in 2002 by the European Commission for implementation by public companies in 2005. Today, the IASB continues to develop and publish accounting and financial reporting standards that are now adopted (permitted or required) in over 110 countries around the world.

Since the beginning, the IASB has chosen to provide principle-based standards. By creating an IFRS Taxonomy that is consistent with the IFRSs, we have identified and tagged the elements available in the annual IFRS reference document known as the Bound Volume. The result is that the IFRS Taxonomy reflects the Bound Volume, standard by standard. Today, we have an IFRS Taxonomy that contains approximately 2,700 elements that are generally regarded as high quality.

(5) In a recent interview with this blog, Gerald Trites of XBRL Canada discussed some of the issues surrounding taxonomy extensions:

….Too many extensions by different companies contribute to noncomparability, because each company is likely to do an extension for basically the same problem in a different way. So the results become difficult to compare. One way to address this is to develop very robust taxonomies, such as those in the United States. However, the problem this creates is that the more robust the taxonomy, the more difficult it is to do the mapping required. So robust taxonomies can be an impediment to adoption.

Do you see the same tradeoffs Mr. Trites sees in taxonomy creation? How have these factors influenced the choices you’ve made in creating the IFRS taxonomy?

As mentioned, one of our basic requirements was to remain true to the IFRSs and in particular to the Bound Volume. Some might consider the level of detail contained in the IFRS Taxonomy insufficient for company filings, for example, with the US SEC. However, we have multiple cases of company filings in IFRSs where the number of extensions is less than 15 percent of the total number of elements required by, for example, a Form 10-Q. Nevertheless, facilitating extensions of the IFRS Taxonomy was also a key technical requirement when building the architecture of the 2008 version. Today, we receive comments from many preparers around the world that extending the IFRS Taxonomy and creating an Instance Document is quite easy, especially when using our IFRS Taxonomy Guide, without necessarily encountering incomparability. However, the outcome isn’t always perfect comparability and providing a set of common industry standards and extensions could help to increase comparability.

(6) There’s been much discussion about how XBRL will change the nature of financial reporting by facilitating EBR, real-time delivery of KPIs, and enhanced narrative reporting. How do you see the impact of XBRL on innovative methods in financial reporting? How does that effort dovetail with your work in IFRS taxonomy creation?

Our mandate is clear: produce the Taxonomy in line with the Bound Volume, and this remains our focus. However, there are some initiatives – such as WICI, EBR, or GRI – that we are paying attention to, even though most of them relate to nonfinancial information. Therefore, though our priority is to provide the IFRS Taxonomy, we endeavour to ensure that the taxonomy is flexible enough to integrate such new reporting mechanisms in the future.

(7) Besides creation of the IFRS taxonomy, the XBRL team at the IASC is involved in numerous projects that readers might not be familiar with. Specifically, could you describe your team’s work with ECCBSO and IFAC/IPSAS?

One of our key challenges was to make our Taxonomy global. Learning from the experiences of European Companies Registrars like ECCBSO, CEBS, and the FINREP taxonomy, or from public authorities using the IPSAS set of reporting (which is based on IFRS) was a great help to ensure flexibility. Furthermore, we participate in working sessions and receive feedback, comments, and suggestions. In order to fulfil our mission statement, we also provide tools, guidelines, and translations, which these organisations also help us to improve.

Written by Matt Kelly     Posted on March 17, 2009
 
Matt Kelly is editor-in-chief of Compliance Week, a magazine and online newsletter on corporate governance, risk, and compliance. Prior to his role at Compliance Week, Kelly was a reporter and contributor on corporate compliance and technology issues for magazines such as Time, Boston Business Journal, eWeek, and numerous other publications.

Now that the U.S. Securities and Exchange Commission has put a mandate in place for corporations to start filing financial statements in XBRL, Corporate America is dutifully churning away. We can expect the first instance documents to start appearing sometime in July, but the curiosity and drama surrounding XBRL and U.S. financial reporting has faded to a dull background noise.

Thankfully, other voices in the XBRL world are turning up their volume.

A new wave of XBRL enthusiasts has now begun a campaign to bring that same promise of XBRL — transparency and homogeneity — to business risks in the banking sector. Yes, many leaders of this movement are XBRL software vendors who have a vested interest in its success; and no, the path to achieve this new XBRL taxonomy isn’t yet entirely clear. But the idea has merit, especially with the banking system going down the tubes like it is these days.

Start with the IBM Data Governance Council. The council has begun holding seminars and webcasts on its vision of an XBRL risk taxonomy, which would identify risks in the banking sector the same way XBRL’s taxonomy for U.S. GAAP identifies data in financial reports. Such a system might, for example, allow a regulator to peer through a bad-debt line item and see the individual loans feeding it; that would take hours of diving through spreadsheets today.

Other parties throwing their support behind the XBRL risk project include the Enterprise Data Management Council and a variety of XBRL vendors.

Unto itself, the idea of applying XBRL to risk management makes plenty of sense: risk management is still much more art than science even at the best of companies, and the financial sector has proven to be a disaster at knowing what its risks are. Sometimes that has manifested as a company whose risks suddenly explode and wreck the balance sheet; just as insidious is the drag it places on truly healthy companies now too scared to dabble with markets they no longer trust. The end result is less liquidity, less clarity, and less prosperity. We are in dire need of a solution to that problem, and XBRL seems to be an attractive candidate for the job.

Still, this idea needs to travel a long road before it reaches the same conclusion as XBRL in financial reporting. In that instance, we had a reasonably well-understood realm of data (U.S. accounting terms) to match to an XBRL taxonomy. We had a single authoritative regulator (the SEC) that would lead the way for companies and investors to follow. We had clarity of goal and leadership.

That clarity is still severely lacking here. Financial institutions are overseen by many regulators — the Federal Reserve, the Federal Depositors Insurance Corp., state banking commissions, and even state insurance commissions — and Washington is poised to overhaul that whole system, dramatically, in the near future. And finding a taxonomy of risks in this realm strikes me as nearly impossible, considering how fast and furious new risks emerge in this sector.

How will this effort all end? I don’t know. But it’s a conversation worth listening to.

Written by Bob Schneider     Posted on March 12, 2009

I recently reviewed this blog’s content for the past few months and was not surprised that more than half was devoted to the SEC’s XBRL mandate. The final rule for interactive data has certainly been the big story, a major milestone in XBRL implementation.  But there have been other developments that, while not as historic as the final rule, are notable and significant. These include:   

• The IBM Data Governance Council — which comprises more than 50 companies that have pioneered best practices around risk assessment and data governance — announced in December that it was exploring the use of XBRL for risk reporting. Steve Adler, Chairman of the Council, reported on the follow-up meeting in late February.
• The Open Compliance and Ethics Group established a provisional XBRL jurisdiction in September.
• In October, the World Intellectual Capital Initiative (WICI) published “…a comprehensive information framework and XBRL taxonomy to help companies improve communications with investors and other stakeholders about business strategy and performance.”

Thus we see significant advances for XBRL in key areas: risk reporting; the entire governance, risk, and compliance (GRC) field; and nonfinancial reporting, including Key Performance Indicators (KPIs).

At the same time, cognizance of XBRL is spreading from a narrow confine of specialists to the broader business and IT communities, as evidenced by this article in Wired. CFAI surveys have consistently recorded relatively low recognition levels of XBRL among its members, but I would expect the next report to show a significant jump in their knowledge.

Following the December 2006 international XBRL conference, I wrote a post called The XBRL Moment. The meeting had been attended by the heads of arguably the three top accounting standards-setters, namely, the SEC, FASB, and IASB; the top guns at the AICPA, CFAI, and International Federation of Accountants came too. To me, the assembly of so many accounting and regulatory luminaries signified a special moment, a coming of age, for the obscure data standard with the highly forgettable acronym.      

I don’t think a single article in Wired compares. But, coupled with the other developments I’ve noted, I do sense that we’re entering a new phase for XBRL adoption that extends beyond external financial reporting to general business reporting. XBRL is — as heard every ten seconds on ESPN – taking it to the next level.    

This transformation, of course, is most welcome. Nevertheless, XBRL faces the challenge of  all new technologies, i.e., managing expectations. I see some signs of XBRL being caught between the Scylla of  “this changes nothing” and the Charybdis of “this changes everything.”  The low-end extreme is represented in this post by veteran IR pro John Palizza, who argues:

Maybe I’m just a skeptic…but I don’t see what all the fuss is about with XBRL. It’s just rearranging the data that we already had, which to me seems like a lot of work for not much benefit. Better understanding and benefit come from working through the data.  Balanced against this we seem to have given companies yet another opportunity to spin the data.

I’m reminded of that Comcast commercial where the guy who just got their service phones his brother; he thinks their calls will now ooze brotherly affection, but instead he finds they are as awkward as ever. I don’t see how XBRL can be expected to eliminate the natural inclination of management to put the best face on bad performance. In an XBRLized world, it’s still unlikely any CEO’s letter to shareholders in an AR will begin “We lost a ton of money last year. Part of the reason was the lousy economy. But mostly it was our poorly executed strategy; studied indifference toward our customers and suppliers; and general all-around stupidity.” 

At the other extreme is Mark Cuban’s statement “In fact, President Obama’s use or lack of use of XBRL for government will be a beacon as to just how much transparency we can expect from his administration.” A beacon? A useful indication, maybe. XBRL may provide a fillip to open government, but the best thing a President can do to aid transparency is to be honest and forthcoming in his own statements.

Coupled with the issue of realistic expectations is the question of realistic evaluation: How should we judge whether an XBRL project is a success?” In a recent Tweet, Dominic Jones of IR Web Report asked “If XBRL is so great, why didn’t its use in bank Call Reports prevent the current banking crisis? Just asking.”

I put a similar question to Christian Dreyer in our interview in November. His reply:

The credit crisis has causes that are outside of the domain of financial reporting and reported numbers as per today’s reporting standards. XBRL is "just" an efficient vector for such data. I’d be very reluctant to use the crisis as an argument to promote XBRL, because the linkage is marginal at best. We’ll hopefully see improved reporting standards with more transparency, less Held-To-Maturity trickery, and a lot more fair value as a consequence of the crisis. At that point, we’ll see all that information using XBRL.

I think Christian’s reply is wise, and it is augmented powerfully by an answer Neal Hannon gave to a question in our interview: “Was there anything important [in the XBRL world] you believe was not reported or underreported [in 2008]?” He answered:

The biggest underreported story about XBRL in the US is the FDIC. During the recent financial crisis, the almost two years’ worth of quarterly data collected in the XBRL format has given the Treasury Department valuable insight into which financial institutions have suspect holdings. Secretary Paulson is in a much stronger position to make correct bailout allocation decisions because of the landmark work accomplished at the FDIC.  I understand that since the crisis began, the FDIC has expanded the number of questions asked of over 10,000 U.S.banks each quarter. Kudos to the FDIC! 

Neal’s response isn’t necessarily the last word on the matter. It can still be asked whether XBRL adoption at the FDIC for call reports should have been expected to help more to avert the financial crisis, and whether the returns have been worth the cost.

But his answer suggests that, even if XBRL doesn’t result in persistently stable economies or totally transparent financial statements, it still can make important contributions toward those goals at reasonable expense. Instead of all-or-nothing-at-all expectations and questions — like the one I put to Christian — his reply points to a sensible, useful, and realistic approach to evaluating XBRL projects.   

Written by Andy Greener     Posted on March 5, 2009

Andy Greener is a software architect at Her Majesty’s Revenue & Customs with responsibility for, among other things, interoperability and the use of standards. He is also strategy architect for HMRC’s Company Tax online service, which has mandated the use of XBRL for the accounts and tax computation components of all company tax returns filed after March 31, 2011. He is a Chartered Engineer and Chartered Information Technology Professional with over 27 years experience as a software engineer.

This is the third installment of a three-part post. In Part 1, Andy looked at why it’s much more difficult for computers to discern meaning than it is for humans. In Part 2, he  showed how display- and meaning-oriented markup languages culminate in the Semantic Web, which opens the information content in web pages to intelligent applications. In this final installment, Andy discusses how, in the financial world, Inline XBRL serves both human and computer in ways best tailored to each of them.

Over the course of 2008, the XII Rendering Working Group produced the Inline XBRL Specification, now an XII Candidate Recommendation — which means it is deemed capable of implementation (and already implementations have appeared in commercial products). The purpose of Inline XBRL is to allow XBRL marked-up data to appear in HTML documents in such a way that the XBRL mark-up is ignored by the browser, while leaving the essence of the report, the data, to be presented to the human reader in the manner described by the surrounding HTML mark-up. A two-for-the-price-of-one capability that serves both human and computer in the way best tailored to each of them.

Inline XBRL is not just fragments of XBRL mark-up embedded in HTML — there are some technical and rendering constraints that make this approach too naive — but it is similar to, and easily transformable into, real XBRL. A software processor conforming to the Inline XBRL Specification can take an Inline XBRL financial report published as a web page (or set of web pages) and turn it into a complete and correct XBRL document. Inline XBRL is "orthogonal" to the other mark-up standards of the mainstream Semantic Web — it is possible to identify a data item as both a piece of XBRL data, with all its associated meaning defined by a particular taxonomy, and the subject or object of a "traditional" piece of Semantic Web mark-up. This is where the general Semantic Web fuses with the specialised “Financial Semantic Web” made possible by Inline XBRL.

What does this mean for the world of business and financial analysis? At present, company financial reports may be published on the web, marked up as HTML, or in a PDF document "black box" (the Rendering Working Group have yet to address Inline XBRL for PDF, but it remains a possibility). Neither format is amenable to analysis by intelligent software, but imagine what becomes possible when those same reports are published as Inline XBRL, complete with general semantic mark-up:  human readers will still be able to Google for information keywords or browse the reports themselves, but intelligent software applications will be able to make general semantic associations with their content and apply specialised analysis based on the financial semantics revealed in the Inline XBRL mark-up. An intelligent software application will be able to associate other family members of a person named in a news report, say, with the published directorships of a number of companies, whose financial status will then be immediately available for analysis. A simple sweep of company websites or of a regulator’s public web repository will be all that is necessary to get up-to-the-minute financial information for a range of companies. There will be no need to subscribe to expensive specialist data feeds from organisations who rekey and sell information; you’ll get it direct from the horse’s mouth instead.

Of course, Inline XBRL is not a magic bullet — there will always be a place for the one-way rendering of XBRL marked-up data (or any other kind of marked-up data for that matter) into HTML or some other human-consumable form. Not every document needs to serve a dual purpose, especially if the source XBRL document is already available. But web publishing is an increasingly popular option for businesses in an information-hungry world that demands instant transparency and openness for regulators, customers, and investors alike. Inline XBRL is the ideal vehicle for this.

And Inline XBRL scores another benefit over "traditional" one-way rendering methods. It places the responsibility for the look & feel of the document rendering where it belongs, with the producer of the document, and not with the author of the rendering method. The web is vibrant and diverse precisely because this power is vested in each and every web page author and not solely and uniformly in the workings of your web browser. Inline XBRL may just kick-start a financial publishing revolution on the web.

At the outset of this series of posts I posed a question. I may not have established what, exactly, the "meaning of information" is, but I hope that you can now see that mark-up, in all its various forms, is the "information of meaning" (!), and that this information can be used in new and innovative ways to make the web a much more useful tool for business.

Written by Neal Hannon     Posted on March 4, 2009

Neal Hannon is an XBRL consultant and the former Director, Financial Reporting Technologies for the Financial Accounting Foundation (FAF). Prior to joining the FAF, Neal was a member of the accounting departments at the University of Hartford and Bryant University. 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.

Now is the time to get the Information Technology (IT) professionals and the accountants together over XBRL. Mandatory XBRL compliance is simply too important strategically to corporations for them to relegate the activity to the accounting team only. In this post, I will explain why the IT people have so far been left out of the picture. I will then make the case for active IT involvement in ongoing XBRL SEC compliance. 

How the exclusion of IT started

Up to this point, XBRL has been considered an exercise for accountants only.This perception has been created, in part, by the SEC’s former Chairman Christopher Cox. Public speeches from Mr. Cox attempted to present XBRL as making life easier for preparers of SEC-required schedules.

For example, in a December 2006 speech at an XBRL International conference he said “…Automating the process of applying today’s excruciating accounting detail using XBRL can save companies valuable time and money.”  And there are these remarks he made to the House Financial Services Committee in May of 2006: “For preparers of financial reports, interactive data could streamline and accelerate the collection and reporting of financial information to the SEC and the public.”

In the private sector, John Stantial, Director Financial Reporting for United Technologies Corporation, had the following to say about his company’s initial XBRL efforts:  

Not surprisingly, resistance to the adoption of XBRL often takes the form of cost or resource concerns; however, neither need be a valid obstacle. The only required out-of-pocket cost is for the tagging software, of which there are several options available and which cost as little as $1,000.  

Within the context of the SEC’s Voluntary Filing Program (VFP) and the attempts by the SEC Chairman to create a political climate for XBRL acceptance, the soft sell was probably the correct approach. The final rule for mandatory filing passed the Commission without resistance, excluding Commissioner Aguilar who voted against the proposal because he objected to the softness of the liability requirements contained in the final rule.

What’s Different Today

From an enterprise perspective, the exposure to corporate accounting is about to significantly increase. The SEC’s ending of the VFP signals the end of the anything goes approach to XBRL filings and the very limited liability granted to VFP exhibits. The SEC had accepted all filings, even if they contained errors during this experimental phase of the interactive data era.

All of that changes starting with quarters ending after June 15, 2009, for the 500 largest corporations. Although the final rule granted an additional two years of limited liability, companies in the first group will be required to submit XBRL exhibits subject to a series of technical validation and business rules. The SEC will closely monitor the filings to ensure compliance with regulation and to help spot accounting irregularities. The rest of the accounting information supply chain will be able to slice and dice corporate filings in ways that expose more about the accounting than has ever been revealed in the past. For the first time, computer programs can analyze SEC schedules along with the accounting definitions and have visibility into the accounting authoritative literature for a particular XBRL element.

From a corporate process perspective, the SEC has significantly shortened the window for producing XBRL schedules. After a 30 day grace period for the initial quarterly report only, interactive data exhibits will be required at the same time as the rest of the related report or Securities Act registration statement.  In my view, companies who initially elect to outsource the creation of XBRL exhibits will be reconsidering this decision given the severe implications of a late filing. This is why involving the IT department is so important. Companies that bring the process back in-house will need to integrate the XBRL activity tightly into the accounting close-to-file cycle.

So as the corporate exposure of accounting close-to-file cycle performance significantly increases (SEC slicing and dicing filings, late filing issues, exposure of accounting to analysts/investors), companies will want to bring in the IT professionals to make improvements in reliability and timeliness of the close-to-file process. IT professionals typically bring a skill set to the table that can be critical to process improvement.  Here are a few additional reasons to add a strong IT presence to your company’s XBRL project team:

IT professionals are experts in understanding how the processes that are relevant to the close-to-file process work. 

IT professionals have the knowledge of how the internal systems fit together. This information is critical to deliver the correct data to a process where the data gets automatically tagged with XBRL during the close-to-file process, not afterward. They also are well schooled in project management which should be very helpful.

IT is comfortable with data in XML formats

The typical IT department has been dealing with various flavors of XML data for a few years now. XBRL is unique in the XML world in that it extensively uses XML Schema and XLink. The IT department, which is familiar with XML, will be invaluable in helping the team understand how the use of XML Schema and XLink enhances and enriches the data used by XBRL. Although this knowledge is not common even in shops that are familiar with XML, the IT professionals are in a good position to learn how XML Schema and XLink work with XBRL. Additionally, major XML tools are beginning to add XBRL capabilities.

The accounting team and IT jointly need to get the accounting right

The financial markets and the SEC are very unfriendly to companies that make errors on SEC filings. Regardless of the initial period of limited liability, companies will want to produce correct XBRL from day one. The IT department will be called upon to help create the mapping of financial system data to the XBRL elements and to expose to the accountants the relevant disclosure concepts in accounting policies and the US GAAP XBRL taxonomy. These activities will be critical to helping the accountants get the accounting right.     

Bringing the XBRL project in-house requires the close collaboration of the IT staff and the accounting department. Due to the unique way in which XBRL combines XML Schema and XLink with the base XML specification, most IT staff members will need additional technical training in XBRL. IT also has the expertise to deal with the backend of accounting systems for setting up exports and mappings. 

Leading XBRL experts have commented on this theme. Mike Willis, Partner at PricewaterhouseCoopers, told me “Over time, the idea of setting up data exports and mappings of financial data will be“exported” to consumers in the same way that HTML has enabled a consumer-driven supply chain when considering purchases of music, books, insurance and cars.” The IT department will need to be involved to ensure future data exports are accurate.

And in a recent article, Diane Mueller of JustSystems had this to say about the XBRL project effort:

Bringing the tagging effort inside, or ‘in-sourcing,’ initially offers the opportunity to gain a better understanding of the technology as well as to examine the benefits of bringing XBRL-based structured content reuse into the corporate reporting process.

The decision to integrate XBRL directly into normal business processes will require close coordination between IT and accounting. To do it right, the IT department needs to learn more about the uniqueness of XBRL, while the accounting department learns more about how data flows into their close-to-file cycle. By executing a well designed plan, the enterprise will be able to vastly improve the efficiency and effectiveness of the financial closing cycle while meeting the SEC’s XBRL mandate with excellence.

Finally, here are a few posts from this blog that may be useful to your data management efforts:

The Entity Problem

Relationships Matter

In  Pursuit of Process

Master Data Management the XBRL Way

Adaptation or Evolution: What Is Your XBRL Strategy?

Economic Crisis and the Dawn of the GRC Era for XBRL

These posts address the pervasive concepts of entities, relationships, processes, Master Data Management, and implementation considerations.

Gerald Trites is Project Director of XBRL Canada and writes the XBRL Canada Blog. He is an information systems researcher and consultant who is a Research Fellow with the Center for Information Systems Assurance at the University of Waterloo. Previously, he was a Professor at St Francis Xavier University and a partner of KPMG.

This is the second installment of a two-part interview; Part 1 contains questions 1 to 5.

(6) The Canadian Securities Administrators (CSA) launched a voluntary XBRL filing program in early 2007. What is your view on the progress of the Canadian VFP? How do you see the prospects for an XBRL mandate for financial reporting in Canada? How much does a mandate in Canada depend on what happens in the United States?

Progress with the Canadian VFP has been virtually non-existent. Companies at this time are preoccupied with the pending adoption in 2011 of IFRS, and they don’t have the time and energy to devote to XBRL, or feel they don’t. But going to the last part of this question, Canadian adoption depends heavily on what happens in the United States. The Canadian and US capital markets are highly integrated, and given our relative size, we cannot afford to be seriously out of step with the US. The new SEC rule has already had an impact and forced some adoptions in Canada, because there are roughly 300 companies that are cross-listed with US exchanges. Not all of them need to adopt under that rule right now, but there will be more next year and then the year after. I anticipate that the Canadian Securities Administrators will come out with their own version of an XBRL filing requirement in or around 2011.

(7) As you mentioned, Canada is slated to adopt IFRS by 2011. How does this relate to the implementation of XBRL in Canada?

It goes back to your previous question. There is a direct linkage established by the SEC, in that they have mandated in their new rule that the cross-listed companies who meet the size test in the rule need to file XBRL documents if they report in US GAAP or IFRS. There are some that use US GAAP and therefore need to report now. However, when IFRS comes into force in Canada in 2011, it will automatically bring them in under the rule, and require them to file XBRL documents. Also, it is likely that the CSA will bring in their own rule after IFRS is implemented. That’s my conjecture. So the implementation of IFRS is closely linked to XBRL adoption.

Unfortunately most companies don’t get it — they don’t get the fact that it would make sense for them to do both IFRS and XBRL at the same time. They think that would be unnecessarily adding together two big projects and complicating their lives. But in fact doing them together will lead them to do a better job on both, because many of the analyses required to adopt IFRS and XBRL are the same analyses, but taken from a different perspective, so one can benefit the other. Spending some time on the IFRS taxonomy, the IFRS Guide, and related IFRS standards should make this clear.

(8) In a March 2006 post on your XBRL Canada blog, you wrote  that progress in adopting XBRL had been particularly notable in Europe. In a post in January 2008, you wrote “Mr Cox is simply trying to drag the US into the 21st century and catch up with the rest of the world.” What is your current thinking on how Europe compares with the US and the rest of the world in the pace and robustness of implementation?

XBRL implementation in both Europe and Asia has been ahead of North America for years. The implementation in the Netherlands is legendary. In other countries, XBRL is widely used in financial industries, stock exchanges, tax authorities, and various other areas. In Canada, take-up has been very slow. In the US, the FDIC has made good use of XBRL for bank reporting, but other than that, the driver has been the SEC, and particularly Mr Cox. Without that influence, the US would be similar in take-up to Canada, and way behind Europe and, for that matter, Asia.

(9) Are you surprised by the pace of adoption of XBRL in the US? Has it been faster, slower, or about what you had expected?

It’s been slower. XBRL was invented in the US and the US has long been noted for innovation. So it would have been reasonable to expect that an innovation that made such sense would have taken off much faster. However, it must be said that many of the strongest XBRL innovators have been based in the US and this continues today. The difference is that many of these innovators are working with other countries to help them with their adoptions.

(10) There’s been much discussion about how XBRL will change the nature of financial reporting by facilitating EBR, real-time delivery of KPIs, and enhanced narrative reporting. How do you see the impact of XBRL on innovative methods in financial reporting?

Major. Even without XBRL, there is a trend in financial reporting to reporting of performance measures and individual data points. With XBRL, this will become much more common, because of the ease with which data can travel along with its context. Also, electronic reporting is becoming the central mode of reporting. We have finally moved away from the paper paradigm, and reporting on websites is now the core medium. And now things like YouTube, blogs, and Twitter are becoming common. So we have a very strong move to electronic reporting, and this is what XBRL was made for. It will help to shape this new paradigm.

(11) You have long experience in accounting education, both as a professor and in your work with the Canadian Institute of Chartered Accountants. With respect to XBRL, what would be your advice to today’s generation of accounting students? What would be your advice to accounting professionals in mid-career?

XBRL represents the vehicle of the future. But it’s not the final answer. There will be other electronic tools and probably more efficient and advanced ones. Students in accounting need to learn about XBRL and what it means. They do not need to learn the technical details. That would be like leading them to learn the technical details of database engineering or ERP structure.  They do need to understand the accounting and auditing issues that emanate from XBRL, both in terms of the specific issues around judgment in tagging, the relationships of taxonomies to accounting standards, the meaning of instance documents, and how they would be used. These are all accounting issues.

In addition, there are the modifications to the contemporary curricula that are certain to come out of increased  use of XBRL and other electronic tools, issues like data level reporting and assurance, materiality in data level reporting, the shape of an accounting model that includes nonfinancial data, and so many others. There needs to be more research in this area as well. Unfortunately, accounting academics, particularly those writing mathematical treatises for top-tier journals, are hopelessly mired in their own bog of irrelevance, and don’t do research that is useful to the practice of accounting.