If they're not already bracing themselves for it, you'd better give your corporate finance people a heads-up: This is the year for Extensible Business Reporting Language, more commonly known as XBRL. XBRL is a close relative of HTML, the language that built the World Wide Web. The idea is that it will make life easier for investors, securities regulators and corporations by standardizing financial reporting.
Though conceived in the late 1990s and launched in June, 2000, XBRL has yet to make a major impact. But 2008 is shaping up to be a watershed year, thanks to moves by securities regulators to encourage its useand possibly even make it mandatory at some large public companies. What XBRL aims to do is make financial statements clearer and easier to analyze by tagging numbers with specific definitions (much like HTML tags that allow users to set text in bold or italics).
The language allows computer programs to extract key numbers from financial statements automatically. This will eliminate a lot of work for large investors and analysts, who today must either manually enter information from financial statements into computer models or pay middlemen to package the information for them, says Cameron McInnis, a manager in the Ontario Securities Commission's corporate finance branch and chair of the Canadian Securities Administrators' XBRL working group. Making such extraction easier could mean analysts will have time to cover more small public companies, McInnis notes. XBRL will also be useful within companies, adds Mark Bolgiano, head of the industry consortium XBRL U.S., because tagging information will eliminate ambiguity and provide clearer audit trails.
In its annual technology predictions, international consulting firm Deloitte said that "XBRL may become as well known as HTML or GAAP." (Generally accepted accounting principles are standard rules for financial reporting.) "We are not predicting that 100% of companies will use XBRL by Dec. 31, 2008," says Duncan Stewart, head of research for Deloitte Canada, but "the momentum will become obvious."
A major reason for XBRL's growth is that securities regulators are starting to encourage publicly traded companies to use it. The Canadian Securities Administrators, an umbrella group made up of provincial and territorial securities commissions, launched a voluntary XBRL filing program last May. Public companies can now file financial statements in the format along with their official filings.
Yet few have done so. Just two companies have submitted XBRL filings so far, McInnis says: Newstrike Resources and U308 Corp., both based in Toronto. TNT Filings Inc., another Toronto-based company, helped prepare both the XBRL submissions. Wasim Thaha, TNT's director of business development, says the initial filing in each case took about four hours of extra work, including about an hour and a half for each company's CFO to review the statements. Subsequent filings are easier, he says, requiring only 45 minutes to an hour to add XBRL coding. Nevertheless, says McInnis, "we're certainly still in the stage of trying to encourage participation in the program."
The U.S. is a bit further ahead. The Securities and Exchange Commission started a voluntary XBRL filing program in 2005, and 60 companies are participating today, McInnis says. Last October, the SEC named a director of interactive disclosure to an office that will promote XBRL reporting. In February, the SEC received a report from a new advisory committee studying how to improve financial reporting. The study made three recommendations:
>that the 500 largest U.S. public companies be required to file using XBRL starting next year;
>that all companies with outstanding shares worth more than $700 million be required to do so by 2010;
>and that the SEC then consider whether to extend the mandate further.
Bowne & Co., which supplies software that creates and reads XBRL filings, was the first public company in the U.S. to submit its filings to the SEC using the format. Rob Blake, Bowne's senior director of interactive services, says that some people fear that XBRL will be costly and time-consuming. "The accounting and finance folks are very busy, and here comes something new that they have to look at," he says. But while he does acknowledge that there will be some disruption, he doesn't think it will be as hard as people expect. It took Bowne less than 40 hours of work to prepare its first set of statements using XBRL, and since then it has taken only about two extra hours of work to format the documents.
Plenty of services are popping up to help ease the transition. Financial services firms EDGAR Online of New York and RR Donnelley of Chicago have teamed up to produce XBRL filings for public companies. There's also software availablesome of it freeto help accountants insert XBRL tags into existing documents (see "Take the easy route").
Still, implementing XBRL will take some work, and that's a key reason it has been slow to catch on, say Deloitte's Stewart. Since XBRL was created, the financial world has been through a recession, the terrorist attacks of 2001 and the introduction of new compliance legislation like the Sarbanes-Oxley Act. "For no bad reason to do with XBRL, people have kind of put it on the back burner," says Stewart. Now, even if another recession is on the horizon, XBRL is "far enough advanced that it won't be derailed."