XBRL talks SEC's language

Finance directors across the globe would be well advised to keep an eye on the progress the international accounting standards setters are making on eXtensible Business Reporting Language (XBRL). XBRL is the business reporting version of Extensible Markup Language (XML), which codes individual items within documents so that they can be immediately accessed.

XBRL International – a not-for-profit consortium of companies and agencies worldwide working to build XBRL and promote and support its adoption – has been saying for some years that XBRL will revolutionise financial reporting. Those who support XBRL say it provides major benefits in the preparation, analysis and communication of business information offering cost savings, greater efficiency and improved accuracy and reliability to all those involved in supplying or using financial data.

But until recently, they have been voices in the technology wilderness. Now, maybe, their time is coming. Both the US Securities and Exchange Commission and the International Accounting Standards Committee Foundation (IASCF) – the body that oversees the board of the International Accounting Standards Board (IASB) – have recently started to promote XBRL.

In January 2006, the SEC proposed a deal with companies. They will receive “expedited reviews” of registration statements and annual reports in exchange for taking part in the SEC’s interactive data initiative. SEC chairman Christopher Cox says: “Interactive data holds the promise of transforming the static, text-only documents companies file with the SEC into dynamic financial reports that can be quickly and easily accessed and analysed.”

The SEC has been experimenting through a voluntary programme of receiving financial information in XBRL format since April 2005, but now it wants to do more.

“The best way for filers to understand how interactive data works is to participate in the voluntary program. The filers will have an opportunity to share with the SEC their individual experiences with preparing, making and analysing their interactive filings. They will also better understand how interactive data can help streamline their financial reporting process,” says Cox.

The SEC plan is for companies to provide financial data contained in their periodic and investment company reports in XBRL and tell the SEC how it worked, including a view of costs and benefits. If XBRL works it could become the US required reporting format, helping the regulator analyse the thousands of reports it receives.

While the SEC is working with XBRL, the IASCF is perhaps more at the preliminary stage, but it has committed substantial resources to the project. It recently launched a new website in a bid to publicise its work in this area.

Commenting on the launch of the new website, Kur Ramin, chairman of XBRL International, says: “It is important we keep the XBRL and wider community aware of all current and impending developments.”

The development so far is that IASCF is building an IFRS XBRL taxonomy. This is an electronic description and classification system for the contents of financial statements and other business reporting documents. The IASCF points to its constitution – in particular, the objective “to develop… high quality, transparent and comparable information in financial markets and other financial reporting to help participants in the world’s capital markets and other users make economic decisions” as a reason for wanting XBRL to work.

The International Financial Reporting Standard taxonomies, or XBRL tags, assist the transfer of financial information reporting prepared using international accounting standards via the internet according to a single common electronic protocol. This creates comparable financial information in an efficient and timely manner. The IASCF XBRL team is working on a convergence project aimed at demonstrating how XBRL helps to make cross-border financial reporting information more comparable.

Whether finance directors and their teams embrace XBRL, or whether they are eventually forced to come on board, remains to be seen. Technology specialists and regulators are claiming that XBRL can help regulatory agencies and FDs in the search for a unified solution for compliance, reporting and financial disclosure activities. Perhaps years of dealing with in-house accounting and reporting systems have left FDs thinking that they have heard it all before. n