XBRL

Companies large and small are frequently called on to present financial reports to regulatory agencies, investors and others. Although it's been standard practice to mandate the content of these reports, the formats vary widely. You'll find Excel spreadsheets, Word documents, PDF files, comma-delimited files and even hard copy. XBRL (Extensible Business Reporting Language) was developed to create a common format. By adopting a single language, businesses can compose reports that are more accurate, easier to produce and clearly understood by all recipients.

Agency Support

Introduced in 2000, XBRL is gaining momentum: The SEC (Securities and Exchange Commission) has put its weight behind XBRL, launching a pilot program for companies to submit financial reports in the format. Some big U.S. companies--including Bristol-Meyers Squibb, Dow Chemical, Ford Motor, General Electric, Microsoft, PepsiCo, Pfizer, 3M and Xerox--have signed on to the program. Another U.S. agency pushing XBRL toward critical mass is the FFIEC (Federal Financial Institutions Examination Council), which recently mandated the use of XBRL-formatted call reports submitted through its data repository system.XBRL, now at version 2.1, is an XML-style language, in that it uses tags and attributes to identify elements contained in a report. XBRL has become more stable as problems with the standard's earlier versions have been addressed. It has evolved from a DTD-based validation process, for example, to one based on XML Schema.

The base standard includes definitions for data types, such as time period, balance, monetary value, shares, pure numbers, strings and dates. These types are used as the foundation from which other data types are derived. Within the standard, these data types are employed by a number of taxonomies, each described by an XML Schema defining additional elements. These taxonomies were designed to handle particular types of reports and often vary by region and regulatory agency. XBRL International, a consortium devoted to promoting the adoption of XBRL, governs the submission of new taxonomies. Ultimate approval of each taxonomy rests with XBRL International's steering committee.

Perhaps XBRL's most-valuable feature is its ability to explain why an exceptional case exists in a report. A reporting company can address exceptions within the data through notes and tags, and avoid having a report fail the validation process. These notes are useful if there is a reasonable explanation for missing elements in the report, for example.

A Success StoryIn the United States, the FFIEC created a system called the CDR (Central Data Repository) to capture quarterly call reports from about 8,200 domestic banks to the various FFIEC agencies, including the FDIC (Federal Deposit Insurance Corp.). Call reports let the government monitor the financial health of the commercial banks it regulates. In the third quarter of 2005, the FFIEC mandated reporting in XBRL.

This February, the FFIEC published a white paper on the CDR project, "Improved Business Process Through XBRL: A Use Case for Business Reporting" (PDF). The conclusions reached by the paper are impressive. The FFIEC said it found that 95 percent of the reports contained the expected data elements when delivered through the CDR system, while only 66 percent of the reports met that requirement under the old system. When the CDR performed additional checks on the data, ensuring that the numbers within each report "added up" as expected, the results were even more remarkable: 100 percent of the reports using XBRL met this requirement compared with 30 percent under the old system. (This improvement may be due in large part to the ability of the bank creating the report to automate report validation before submission.)

Other Initiatives

The decision by the SEC last year to nudge companies toward XBRL has helped the language gain greater visibility in financial circles. As of a few months ago, 24 companies had agreed to provide data using XBRL. The SEC envisions the scope of XBRL to widen considerably to benefit investors. Although many in the business community expect XBRL to be mandated eventually, the SEC wants XBRL adoption to be market-driven, as evidenced by remarks from SEC CIO Corey Booth earlier this year.Internationally, the adoption of XBRL is proceeding at a feverish pace. New taxonomies and initiatives are emerging across the globe. Last month alone, a Swedish agency began accepting XBRL reports from some small and midsize businesses; a taxonomy from China was granted "Acknowledged" status by XBRL International; and the Canadian securities regulator CSA began asking for feedback from the public regarding XBRL.

Language Tools

Several companies have responded to the growing acceptance of XBRL. In June 2005, Business Objects announced the result of collaboration with EDGAR Online and Ipedo, called XBRL-XI, based on its BusinessObjects XI business intelligence product. Other players in the field include Microsoft, which is encouraging XBRL development for its Office applications; Oracle, which is adding XBRL support to its E-Business Suite, most predominantly General Ledger; and SAP, which has integrated XBRL into a number of its offerings, including ERP Financials and NetWeaver.

With XBRL acceptance, software developers will be left with a great deal of work upgrading existing systems to conform to the new mandates. Many of the companies offering XBRL products and services will offer hooks and APIs into their existing systems. Also, tool sets designed solely for working with XBRL, such as Fujitsu's Interstage XWand, have been introduced.

Additionally, a company in the Netherlands, J2R, has created an XBRL editor called Batavia XBRL and an associated Java API and Data Driver. There is also an expectation that the open-source community will play a significant role in the development of XBRL-aware products; indeed, there's a Java XBRL API initiative on SourceForge.

What'S Next

It's clear that the use of XBRL will continue to grow. Financial reporting taxonomies exist or are in draft form for nine countries. Growth will be spurred along two parallel paths: Regulatory agencies will mandate the use of XBRL because it eases their role as regulators through the reduction of costs associated with processing data and the quality of the reports received. And XBRL will benefit businesses as accurate and error-free reports reduce the cost of dealing with regulatory agencies.Businesses also will see a return on investment when exchanging data with other businesses, such as from a subsidiary to its parent, between auditors and among participants in a supply chain. And, while the adoption of XBRL will not be painless, the ultimate gains in accuracy and productivity will be significant. From all signs, XBRL adoption is a win for every stakeholder. n

Edward Hand is an independent software consultant in Madison, Wis., with more than 15 years' experience as an it analyst, developer and project manager. He has worked in several industries, including defense and finance. Write to him at [email protected].