The news that the internet is about to be revolutionized by a new programming language may come as a bit of a shock to those who have only just got to grips with the web. Like it or not, the internet and IR are now inextricably linked. The web has not only enabled rapid, efficient shareholder communications, it has also widened the scope of IR to include more retail investors.
It could be argued that in its short life, the net has democratized IR – without it, laws such as Reg FD would be impossible to implement. But if you think the web is a useful IR tool now, the next generation of web communication tools is set to transform IR further. And they’re coming to an IR department near you sooner than you think.
At the heart of this is a new web programming language called Extensible Markup Language, or XML for short. Since XML was agreed as a global standard by the World Wide Web Consortium (W3C) back in February 1998, programmers have been working furiously to develop XML into a range of new tools which will make it the basis for all data transfer over the internet.
XML was devised as a response to the shortcomings of HTML (Hypertext Markup Language), which provided the first blueprint for sending, describing and displaying information on the web. While HTML formats text and images regardless of content, XML structures and tags information so it can be easily analyzed across different platforms. Yet despite being possibly a more important technology than Java or HTML, XML’s progress has been surrounded by none of the hype usually associated with internet innovations.
But that’s not to say XML hasn’t built up a head of steam in the three years since it was agreed as an international standard – quite the contrary. ‘It’s taking over the computer industry. XML is an unstoppable bandwagon,’ comments Tom Thomson, director of Reuters News2Web.
Industries across the business world are now building new tools based on XML. For investor relations professionals, there are two new XML-based standards that are set to have a major impact on how companies communicate over the internet: NewsML and XBRL.
News flash
Though first conceived and named by Reuters, NewsML is a reporting standard for news releases that has been developed by a working party of the world’s major news organizations at the International Press Telecommunications Council (iptc.org), a multilateral standard-setting body for the industry. After two years of developing NewsML, the IPTC finally approved it as an industry standard in October 2000.
So what will NewsML do for IR? ‘It allows all news vendors to see IR announcements in a common format. You will be able to wrap together all text, charts and video features in one single common envelope,’ explains Mark Hynes, head of PRNewswire Disclose, PRNewswire’s UK company announcements service. ‘The IR professional will be able to ship all parts of a release in one format, instead of doing separate announcements,’ he adds.
Not only will NewsML make compiling announcements easier and quicker, but it also provides the IR community with a common method of presenting results, where previously there had been no standard. Another useful feature of XML-based standards such as NewsML is their ability to automatically adapt announcements to suit the recipient. If the announcement is being sent to a mobile phone, for example, it is sent only in the briefest of forms. There are also plans to introduce an automated aural messaging service to mobiles. However, if the announcement is being sent to a computer, then the release will not only automatically display the full text and properly formated tables, but also pictures, charts and video if attached.
Text can be translated into a multitude of different major languages without the need for human intervention.
With XML as the core computer language and NewsML as a universal news reporting standard, the news organizations are clamoring to develop their own NewsML-based products. Reuters’ News2Web is one such program. According to Tom Thomson, News2Web combines NewsML standards with meta-data (computer-readable descriptions) to make the news product personalized and richer.
IROs need not fear that all this new technology, with its associated benefits, will put a severe strain on their oft-limited budgets. ‘The theory of NewsML is that through machine-to-machine processing, production and delivery costs can be cut,’ Thomson explains. The fact that XML-based solutions save money is emphasized by Mark Hynes. ‘There will be no extra costs because XML makes processing announcements quicker, causing costs to actually go down,’ he says.
The same could be said for XBRL, or Extensible Business Reporting Language, the XML-based framework for financial reporting. It works by ‘tagging’ various parts of financial statements so they are easily recognizable and comparable. ‘Imagine that the world agreed a universal barcode to be tagged onto sales figures,’ explains Ian Wright, partner at PricewaterhouseCoopers. Thanks to the tags, searching for corporate financial information will be easier, with search engines able to return more accurate results fast. ‘Say you want to find sales figures for XYZ corporation. With XML-based programs you find the definitive figure. If you search using HTML, the chances are you’ll bring up 7,900 different pages,’ Wright adds.
Tag artists
In the US, 1,880 tags have been agreed upon after ten months of discussions between XBRL.org’s steering committee, a non-profit consortium set up with the aim of establishing unilateral XBRL standards, and the 80 plus professional bodies, government agencies, financial service providers and technology suppliers who make up the membership of XBRL.org. Tags, which are also used in NewsML, should improve the security of company announcements, too. Previously news organizations and official outlets have had to make a manual decision over the validity of a news release or financial figure. Now, with agreed tags in NewsML and XBRL, that is no longer necessary.
XBRL’s progress outside the US is variable. The UK is all set to approve 300 basic tags by the end of this month, and in Singapore the government has set up a body to oversee the implementation of XBRL across the whole economy. ‘This is an economic decision by the Singapore government to make the country more transparent and more visible to the capital markets,’ remarks Zachary Coffin, chair of XBRL.org’s liaison committee. Coffin adds that while NewsML is a truly international standard, regulations that govern disclosure from country to country mean that each nation needs its own XBRL community.
He expects ‘around 15-18 percent’ of US companies to report in XBRL by the end of this year, while in the UK, the first adopters will start next month. ‘You could say that in terms of XBRL development, the US is ahead, just as Europe leads the world when it comes to wireless communications,’ he opines.
In the US, virtually all basic financial metrics have had agreed XBRL tags assigned, and Coffin reports that it’s likely that XBRL tags will extend to more measures by which investors can analyze and compare companies. He proposes that standardized metrics be developed for important non-financial data, such as employee retention levels, even though he admits that agreeing a yardstick for such data will be difficult. In the meantime, however, he’s happy to stick to financial figures where the measures are already standardized by regulators, such as data contained in statutory filings.
Does the adoption of agreed tags for measures such as earnings, group sales and cash flow mean that preparers of financial statements will be at the mercy of technology? Coffin thinks not. ‘XBRL allows companies to disclose whatever they want to,’ he says, before adding significantly, ‘It’s not our job to decide what should be disclosed.’ Still, Investors will be able to gain a better insight into companies without the companies having to disclose more. This is because XBRL allows better data comparison as information can be found more easily and analysis that used to take hours will soon be done in minutes. The only drawbacks are for companies that are recalcitrant communicators, as they will be unable to hide anything on their balance sheet. As PwC’s Wright puts it, ‘The information is already out there, but with XBRL it’s now much easier to find.’
Coffin encourages students of XBRL to compare it to the impact MP3 is having on the music industry. MP3 doesn’t dictate what is and isn’t music; however it makes recording, communicating and analyzing music much easier, just like XBRL does for financial reporting.
One & only
Currently, XBRL is the only XML-based reporting standard. Like NewsML, it enables users to carry out a whole host of new functions. You can create different reports using the same data. Data transfer is easy. Life will be made much easier for the preparers of company statements and accounts.
And like NewsML, scores of accounting and tech firms are developing new reporting programs based around the XBRL standards. One is Hopedale, Massachussetts-based Newtec. They’ve recently launched an XBRL-enabled financial reporting package called MultiMart Web Financials. According to CEO Paul Newton, the XBRL-based product doesn’t require any great skill to operate. ‘There’s an interface where an administrator can go in and map the various taxonomies onto the company accounts. You only need to do this once, so anytime anyone runs it in the future the taxonomies are already set,’ he explains.
Newton believes that once listed companies have adopted XBRL, it’s only a matter of time before the big investment banks start using the capabilities of XBRL-compliant software. ‘For example, at present an analyst can only monitor around 50 companies each because of time constraints. In the future, we will see investment banks develop automated systems for comparing companies, so that through XBRL-enabled technology they can monitor thousands of companies all at once.’
There’s little doubt that XML-based standards and programs are set to change the face of corporate reporting in the next few years. The momentum is with XML, and for good reason. Companies, investors, indeed everyone involved in using the internet as a communications medium stands to benefit from the added speed and accuracy XML-based reporting offers. But this is only the beginning, as we are only now beginning to realize the potential offered by this new internet language. If you think the internet is amazing now, just wait until XML becomes a web norm. So what can you do? Get involved with XML, as participating early will not only leave your company better prepared for the onset of XML news reporting and corporate disclosure, you could also help shape the future development of standards like NewsML and XBRL.
More information is available at iptc.org and xbrl.org.
