Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation The Case for IT Involvement in XBRL Compliance
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:
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.