XBRL unbowed by peer pressure

Awareness of the importance of XBRL, a method for tagging financial and business performance information, has been ramping up rapidly since the government decided last year that the standard will become mandatory by 2010.

However, there has been scant attention paid to some of the less prominent benefits which XBRL can deliver. One of the most important of these is the ability for companies to easily benchmark their performance against peers.

XBRL-based company data is currently available in the US via the EDGAR Online reports database of the SEC. This database provides access to the financials of a companies’ peer group or industry.

XBRL benchmarking can integrate internal and external financial data, allowing organisations to benchmark their own actuals and forecast figures with competitors and peer groups. It can also deliver consistent data for regular comparisons and calculations of growth trends and performance drivers.

Revolutionary benefits
Mike Willis, a founding chairman of not-for-profit group XBRL International and partner at PricewaterhouseCoopers, says that the introduction of XBRL is nothing short of revolutionary. “It is as if HTML had been introduced in a fax machine world,” he says.

Willis believes firms adopting the language will benefit from improved financial forecasting, in addition to faster, cheaper and more accurate peer-to-peer benchmarking. One of the main advantages is that the information available for benchmarking using XBRL is more accurate and complete.

“Without XBRL there are intermediaries that are tagging the information, they are normalising, distorting and consolidating,” he says. “So, typically, the information that companies have is a couple of hundred elements. It is certainly not all the information that companies report and there is an error rate that is fairly significant. Using XBRL eliminates these problems.”

“The second benefit comes from the fact that companies are tagging the information themselves, so the data is more in line with what the company is trying to communicate. This is the idea that the companies are able to say what they mean, rather than the data coming from some intermediary.”

But the key benefit of XBRL comes from the language’s ability to allow benchmarking of data. Before adoption of XBRL as an accepted reporting standard, such data sharing was problematic or even impossible, according to Willis.

Comparable data
Liv Watson, vice president at EDGAR Online agrees that, without XBRL as an agreed underlying standard, finding like-for-like reporting data that can be used for peer benchmarking is often impossible. “For example, with a measurement such as revenue per square foot, what does this really mean if there is no shared framework? Unless there is a framework that firms can share, the numbers don’t mean the same thing,” says Watson.

“The question has always been ‘how transparent do you want to be?’ – and XBRL is going to bring more transparency. The marketplace, management and the board of directors will benefit from understanding how you are doing compared with peers in the market,” she says.

James Fisher, director of finance and performance management software specialist Cartesis, stresses that adoption of XBRL allows firms to benefit from standardisation throughout their performance management applications. “Now we are able to allow people to consume data and make it consistent within their performance management applications. So when they come to analyse, for example, their month-end figures or statutory quarter, or half-year-end or annual figures, they can bring down the data for their competitive organisations and use this to benchmark their performance,” says Fisher.

Cost savings
Implementing XBRL in this way allows companies to generate and manipulate data in addition to letting them accurately assess trends in the wider market. In terms of cost-benefit, Willis argues that the XBRL can offer compelling advantages. “When it comes to estimating the cost of acquiring benchmarking data, XBRL allows companies to move away from spending days and hours on this process,” says Willis. “It can now be done in seconds.”