Let’s face it: corporate financial information needs to be published for internal and external stakeholders in greater frequency and detail, and in a variety of electronic formats. Companies must reassess-assess their business reporting processes and look at how new technologies can deliver better, faster and cheaper business reporting and, ultimately, increase investor confidence.
The answer is extensible business reporting language (XBRL), an XML-based standard that permits the automatic exchange and reliable extraction of financial information across all software formats and technologies. It reduces the need to enter financial information more than once, and minimizes the risk of data-entry error.
XBRL will help companies gain greater market recognition and media coverage through access to more transparent information, which will enable all stakeholders to make better business decisions.
XBRL benefits the whole financial information supply chain: companies, institutional and individual investors, accountants, capital markets and lenders, regulators and analysts, as well as key third parties such as software developers and data aggregators.
Since the inception of XBRL in 1999, great strides have been made in adoption and implementation, as shown by the current status of the taxonomies, new and existing XBRL-enabled software and the creation of implementation guidance.
Taxonomies
While XBRL is the standard tagging framework for all business reports, industry-specific taxonomies or ‘dictionaries’ are being created by XBRL international jurisdictions such as XBRL-US. These allow the comparison of the same category of financial data across numerous documents, which provides a broader, more comparable picture of the whole industry and of a specific company’s position within it.
Software
A survey by the XBRL US Adoption Committee revealed the software industry is making significant inroads in the development of XBRL-products. XBRL is currently supported in core software products from Oracle, SAP and Microsoft, which recently announced the Microsoft Office Solution Accelerator for XBRL. This add-on for Office 2003 will allow Word 2003 and Excel 2003 to create and analyze XBRL data.
Adoption
Corporations, governments and organizations have begun using XBRL – Microsoft, Morgan Stanley, Edgar Online and Reuters already provide their financial data in XBRL format. In June this year the Federal Financial Institutions Examination Council (FFIEC) announced an inter-agency effort to modernize how federal bank regulators collect, process and distribute quarterly financial reports for 9,300 banks and savings and loans. This is expected to reduce the burden on the industry, while providing data in a more timely and flexible manner. FFIEC’s adoption will encourage other government agencies to act.
Distribution
XBRL will help companies communicate the financials in their required SEC filings and their quarterly earnings releases. Once accepted as a standard format, commercial newswires will be able to distribute an XBRL-formatted earnings release, alongside standard text news releases, to a company’s key stakeholders. Business reporters, institutional investors and even individual investors will be able to review the earnings release, automatically extract data, compare each category of numbers to a previous quarter or to a competitor’s numbers, and get a more transparent picture of the company. By creating XBRL documents and distributing them widely, companies will do their share to help restore investor confidence in the markets.
Will your company be next?
Forward-thinking financial professionals need to be ready for the construction and delivery of digital business reporting. Here’s how:
- Educate the organization. Create an internal task force to learn about XBRL and determine its impact; include people from your IT, accounting, finance and communications departments.
- Evaluate the opportunity. Analyze the business opportunity and develop a plan of action for your involvement.
- Get involved. Put your quarterly earnings in XBRL and distribute to your stakeholders. Reach out to XBRL communities through stakeholder advocacy groups, industry initiatives or the XBRL consortiums.
XBRL is the future of financial reporting. There’s no better time to get involved. Brace yourself – there’s a sharp turn ahead.
