Opinion: Preparing for XBRL Reporting and Beyond

Last month, the U.S. Securities and Exchange Commission established the Office of Interactive Disclosure, to which companies and mutual funds can submit data and reports in Extensible Business Reporting Language, better known as XBRL.

The SEC is only the latest government agency to accommodate XBRL in recognition of the need to replace vintage reporting with more robust, efficient and effective systems. Some regulatory bodies and other organizations that preceded the SEC on this path are the Federal Deposit Insurance Corp., the Committee of Bank Supervisors in Europe and several foreign securities exchanges.

SEC Chairman Christopher Cox has commented that by adopting XBRL, the commission will be demonstrating its “firm commitment to interactive data” and that the SEC has reached “a significant milestone on the road to achieving that goal.” He continued, “The new [XBRL] system will make it easier both to file information with the commission and to use it. For investors and analysts, it will represent a quantum leap over existing disclosure technologies. For companies, it will mean easier and less costly compliance with SEC requirements.”

A recent Harvard Business Review article echoes Cox's remarks, noting that XBRL will become the standard or “a widely adopted mechanism” for sharing financial information in the future.

So, what is it about XBRL technology that gives it an advantage over XML in financial reporting? Most CIOs probably would think of XML first when asked how they would model standardized electronic financial data. However, as it turns out, the complexity of a typical 10-K filing exceeds the abilities of standard XML schema.

In addition, since companies, even those in the same industry, report a combination of common elements, plus many that are unique, the reporting technology must provide a standard framework for extending the schema. XBRL offers this and more. It extends and improves on XML for business information exchange and reporting by adding sophistication through taxonomies, business rules and extensibility.

More than 500 companies are now part of an XBRL community that is leading the way for much broader XBRL adoption.

At the SEC, XBRL will allow for more open, flexible and robust reporting than currently allowed with EDGAR. For example, the structure of the XBRL taxonomy should allow companies to stay within the reporting guidelines of U.S. generally accepted accounting principles while providing greater detail or flexibility in reporting. Rather than simply listing overall sales, a company may be able to more easily break out reports for sales of a specific product or by region. Dozens of leading companies, including Ford Motor Co., General Electric Co., Microsoft Corp., PepsiCo Inc. and Xerox Corp., have signed on to participate in the program and begun filing their 10-Qs and 10-Ks in XBRL. And with Microsoft announcing two weeks ago that it will offer a full-service XBRL system to any mutual funds company interested in the pilot program, participation is sure to continue to expand rapidly.

But the benefits of XBRL extend far beyond regulatory filings. In order to fully grasp the current and future impact of XBRL technology, one must consider the recent track record of organizations using XBRL on a broader scale, such as the MIX, the Microfinance Industry Exchange. Earlier this fall, XBRL software company UBmatrix Inc. and the MIX announced the launch of an XBRL-based system designed to streamline and standardize both financial and social impact reporting in the microfinance industry. This is an entirely new market for XBRL. More than 900 microfinance institutions, primarily banks and nongovernmental organizations, will eventually use the XBRL-based reporting system. The MIX system demonstrates how XBRL facilitates greater visibility into both financial and nonfinancial business indicators and how easily XBRL usage might spread.

To those of us working with this new technology, it is clear that XBRL is set to revolutionize business reporting around the world. The technology is readily available and just beginning to be tapped by some of the financial industry's biggest players. Now is the time for CIOs and IT management to begin planning for XBRL reporting and to determine how XBRL will fit into the larger context of financial and business information exchange within their companies.

Michael Ohata is chairman of the XBRL International Steering Committee, a nonprofit consortium of companies and agencies worldwide collaborating to build XBRL and promote its adoption.

Copyright © 2007 IDG Communications, Inc.

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