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Sarbanes Oxley : Technology : XBRL
XBRL Explained
By
Rob Blake
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Rob Blake
Vice President of Product Marketing
Rivet Software
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In the first part of a series on XBRL, Rob Blake, Vice President of Product Marketing for Rivet Software, examines the history and development of XBRL, while highlighting the need for XBRL compliant technologies to ease the burden of government mandated regulations around financial reporting.
Post-Enron, post-WorldCom and post-Parmalat, it?s no wonder legislature such as Sarbanes-Oxley mandates increased accountability and controls for corporate America. Regulators now require more information than ever before in a more timely manner, and investors demand more clarity and transparency. Although great in theory and intention, the multi-billion dollar price tag that accompanies the tackling of these issues has placed significant strain on corporate budgets.
In addition to the time, work and money corporate governance requires, the possibility of error raises other issues, as mistakes can lead to not only costly fines but also to jail time for financial officers. Given this combination of costly challenges, technology innovators have introduced new standards and solutions to help corporations meet the challenges of financial reporting both quickly and efficiently.
Enter XBRL
XBRL stands for eXtensible Business Reporting Language, a standard established before the corporate scandals around financial reporting and derived from XML for communicating reporting information between organizations and over the Internet. Unlike the more broadly scoped XML, XBRL was designed for the specific purpose of tagging and reporting business and financial information. Developed by a consortium of more than 300 major companies, organizations and government agencies, XBRL is a license-free, royalty-free standard available to anyone who wishes to use it.
So how does it work? In non-technical terms, XBRL is all about making it easier to publish and share business information. In more technical terms, XBRL, like XML, applies identifying tags to items of data, which allows them to be processed and analyzed. Like XML, XBRL is a language intended to be read by computers, not humans. The use of XBRL tags enables the automated processing of financial data by specialized computer software, which eliminates the need for the tedious and costly process of manual re-entry and comparison. Once data has been tagged, computer software, rather than human labor, is used to select, analyze, store and exchange information. Moreover, since it is a standardized language, XBRL enables an apples-to-apples comparison across multiple companies and multiple industries.
According to the February 2005 Gartner report ?SEC Advances XBRL Data Tagging With Voluntary Reporting,? by Mary Knox and Maria Luisa Kun, ?XBRL holds promise ? especially for investment firms and banks ? as a tool to simplify internal and external performance reporting, and it will facilitate analysis of corporate accounting statements for investment and loan purposes.?
Given the enormous stream of data and with much of today's financial data locked in proprietary formats such as Word and Excel documents and HTML, XBRL provides the analyst and investor community an efficient way to analyze financial information. In addition to the benefits for financial analysts, the companies themselves?the actual filers?save money through the streamlining of their entire financial reporting process. The consumers of financial data?everyone from investors to analysts to regulators?save time as they can receive, analyze and compare financial data with ease and efficiency. Everyone who produces or uses financial data stands to benefit from the technology.
In addition to improved efficiency and the cost savings mentioned above, XBRL significantly reduces the probability of human error in the reporting supply chain. Computer software can instantly highlight gaps or errors in reports, mistakes that could potentially be overlooked through manual labor.
Furthermore, XBRL breaks down the language barriers of international reporting by converting data into a standardized format useable worldwide. Because it ensures the consistency of data despite the country of origin, XBRL is rapidly becoming the de facto standard for defining, exchanging and storing financial business information by regulators, stock exchanges, statistical offices, banks and corporations across the world. Many regulators will be introducing mandatory filing of financial statements in XBRL including the Belgium tax authorities in 2006 and the UK and Dutch tax authorities by 2007.
"Effective compliance requires tracking a lot of little things while keeping an eye on the big picture,? said Bill Zoellick, senior analyst with the Gilbane Report. ?Compliance systems often break down because of an inability to span this range of scales. One of the promising, important characteristics of XBRL is its ability to support families of terms and concepts that can actually connect the details to the bigger picture, so that companies can work with and act on broader understanding that arises from the facts."
Proof of XBRL adoption can be seen in the recent establishment of an XBRL voluntary filing program by the Securities and Exchange Commission (SEC). The SEC currently receives hundreds of millions of pages of financial information every year?a number which makes it impossible for the organization to review a sufficient number of filings. Under regulations such as Sarbanes-Oxley, however, the SEC must be able to review regularly many more companies (and thus documents) than it is currently able. XBRL provides a solution by standardizing data in a format readable by computer software.
Effective April 4 of this year, the SEC filing program allows public companies to furnish financial information in XBRL format on a voluntary basis. Since its implementation, seven major companies have filed to the SEC in XBRL including technology industry leaders such as Microsoft and EMC, and others are expected to follow suit in the coming months.
Ronald Schmelzer, an analyst with ZapThink who covers XML-related technologies, comments on the SEC?s adoption of XBRL, noting ?It's endorsements like that that can pull the spec up by its bootstraps and speed it toward adoption.?
In closing, XBRL has evolved out of its hype stages into a period of steady growth. The movement is no longer just an idea. Instead, it has become a reality?one that stands to change significantly the way companies both large and small file their financial reports. While XBRL today is voluntary, tomorrow it will be mandatory, and it is important that businesses begin preparing now for this inevitable change.
Though XBRL itself is in fact a complicated language, the process of creating and filing XBRL documents does not have to be. Innovators and early adopters of XBRL compliant solutions, such as Rivet Software, EDGAR Online, Software AG and PR Newswire, have partnered to create a software solutions and business processes that make XBRL reporting both easy and cost-effective.
Part two of this series will explore the urban legends associated with XBRL and how technologies are making XBRL simple and paving the road for the future of financial reporting.
Rob Blake
Vice President of Product Marketing
Rivet Software
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