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MAY 26, 2005
Teaching Finance a New Language XBRL promises a unified approach for electronic financial reporting. Louis Matherne, a leader of the movement, explains how it's going Four letters have long promised to revolutionize the way businesses deal with financial reports. They are XBRL, which stands for extensible business reporting language. It's a standard used to tag financial information so it can be tracked and analyzed by software applications. But before all those applications can be built, companies first have to start creating reports in XBRL -– which they have little motivation to do since they lack programs that would make it worth their while. It's a classic chicken-and-egg problem that's in the process of being solved now, thanks to encouragement from government regulators. On Feb. 3, the Securities & Exchange Commission announced a voluntary program (often a precursor to a mandate) to accept financial reports in XBRL (see BW Online, 2/8/05, "After Sarbanes-Oxley, XBRL?"). And some countries are well ahead of the U.S. in requiring filings in this format, says Louis Matherne, president of consortium XBRL International and the director of XBRL at the American Institute of Certified Public Accountants (AICPA). Matherne recently spoke with BusinessWeek Online Senior Writer Amey Stone about XBRL's adoption rate, remaining hurdles, and his group's recent conference. The following are edited excerpts from their conversation: Q: XBRL International just had its 11th semi-annual conference. Can you share some highlights with us? A: Every time we go to an XBRL conference, it's always better than last. We had more than 380 delegates from 20 different countries. One of the most interesting things about this conference was that people were presenting on the use of XBRL in the field, as opposed to earlier conferences where we were talking about projects just getting under way. We've gone from the idea of XBRL to where we are now getting feedback on existing programs and sharing that knowledge with the broader community. Q: What's the most exciting program under way? A: One of the presentations showed how XBRL is being used in the Netherlands. This is a governmentwide initiative, and it has significant cost-savings implications for all businesses that file reports to regulators. Basically, instead of filing to an assortment of government agencies, companies in the Netherlands use XBRL as a single standard that reduces, if not eliminates, overlap and streamlines the filing process. If it were implemented in other countries, it would dramatically reduce costs for both governments and the private sector. Q: How has the SEC's voluntary program for U.S. companies to file in XBRL been received so far? A: Obviously we would like to see thousands of companies in the program. At this point there are seven that have filed using XBRL, including Microsoft (MSFT ), EMC (EMC ), and Business Objects (BOBJ ). A page on our Web site links to the reports and provides resources for filers. The SEC's program is giving us an opportunity to study what XBRL-formatted filings look like and what can be done with them. Q: Why aren't more companies filing in XBRL? A: There has been a lot of focus on Sarbanes-Oxley [SOX] this year. The feedback we received is that it's largely a time issue. There's so much emphasis and investment in all the compliance requirements around SOX that the corporate reporting community is too stretched to focus on anything else at the moment. We believe as we come out the other side of SOX, we will see significant pickup of XBRL. Q: What's the main benefit companies will get out of XBRL? A: Initially, XBRL is going to allow them to make a much more direct connection with stockholders. Think of it this way: Now when investors access a company's financial information, they typically go through an aggregator, like Compustat, Edgar Online, or Yahoo! Finance (YHOO ). That information has been modified in some manner to allow the aggregator to distribute it in a simpler way, but it's often not the way the original preparer wanted it to get to the end user. Q: For example, a lot of companies want shareholders to focus on EBITDA [earnings before interest, taxes, depreciation and amortization] rather than as-reported earnings. But aggregators show the reported number. Is that what you mean? A: Right. When the financial statement preparer sees how the company's financial information has been modified for the purposes of consumption, they're usually not too happy about that. With XBRL, they have much better control over data, and the end user is going to have far better access to information. It will be a challenge to aggregators initially, but it really improves their ability to add value in the process. Aggregators will be able to focus more of their energy on the analysis of data, rather than just delivering data. Q: One of the main hurdles to the format's adoption has been developing all the tags for all the data points in a company's financials. Where are we now in that process? A: The taxonomies developed for the U.S. market cover in excess of 90% of the data points, including all the top-level financial statements. There's still much work to do relating to the footnotes. Over the next few years the taxonomies for the footnotes will be expanded out and become richer. This is something that will take some time, and we really don't know where the end is. Eventually companies will take XBRL down to the level of the general ledger. Today we think of it being used for external reporting only. It will eventually reach a much more granular level, and then companies will experience many more benefits in terms of the easier exchange and aggregation of information. Q: I've heard complaints from some software developers about XBRL. Are there any competing formats? A: There have been some complaints about the architecture of XBRL. The problem that XBRL is trying to solve is not a simple problem. The architecture has to address all the complexity of business reporting, and software companies have to deal with that. The companies that are struggling and having issues will get there in due course. It's important to recognize that the XBRL architecture is stable, and we are committed to keeping it where it is for quite some time. Q: What other concerns about XBRL are keeping it from being more widely adopted? A: One thing I'm starting to hear more questions about lately is assurance. How can I rely on these data? How do I trust that they're correct? How do I know that my application can consume the information, and it will be reliable? In the next 12 to 24 months, we will see considerable guidance on how to address that particular problem. It's essential for the use of the data that when you consume them you have confidence that they are reliable. Q: When is your next conference? A: The next international conference is in Tokyo in November, 2005. But we have a U.S. conference in July in Washington, D.C., hosted by the FDIC [Federal Deposit Insurance Corp.] that's free to attend. This is an excellent opportunity for interested readers to learn more about XBRL with no registration cost. 
BW MALL
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