AFTER several years of evangelizing it at every opportunity, US Securities and Exchange Commission (SEC) chairman Christopher Cox yesterday finally sealed what he hopes will be his legacy.
The commission voted 4 to 1 to approve rules that will require all registered companies to use eXtensible Business Reporting Language (XBRL) when submitting their financial statements to the SEC.
In the grander scheme of things, yesterday’s ruling is only one important step on the road to the widespread adoption of XBRL. In the long run, the technology promises to revolutionize how financial information is collected, processed and shared, both inside corporations and in their external reporting to investors and other stakeholders.
As John Turner of XBRL vendor CoreFiling wrote yesterday: “So now the hard work really begins.”
Value will be coming years from now
The fact is, public companies will only be formatting their financial statements and footnotes in XBRL and it will take several years before there is a sufficient breadth and depth of data available to make XBRL truly valuable to investors.
Vast volumes of information won’t be available in XBRL for the foreseeable future. Indeed, as new commissioner Luis Aguilar said in his dissent yesterday, it won’t be until 2013 that all companies will be liable for the accuracy of their XBRL filings. And even then, the filings won’t be subject to CEO and CFO certifications or audits.
Nonetheless, we have to start somewhere and a mandate, as limited as yesterday’s was, is as good a starting point as any. Of course, this was of little mind yesterday to the many XBRL vendors who have been waiting patiently for this day.
XBRL vendors celebrate
There was an almost universal celebration among them after the decision was announced. Many have invested large sums and countless hours for little reward so it must have been gratifying for them to see their XBRL dreams come true.
I must confess that some of the outpouring was a little hard to stomach, such as JustSystems declaring victory (against whom, I don’t know) in a breathless blog post that seemed to drool in anticipation of the new business it will be getting from finance departments.
Chairman Cox is due to leave the SEC in January and is expected to be replaced by current Financial Industry Regulatory Authority CEO Mary Schapiro, Bloomberg was first to report yesterday. Of course, I’m sure the good chairman will be getting many offers of board seats, especially from certain technology companies who owe him a debt of gratitude.
It remains to be seen how hard the new chair will push the XBRL agenda.
The nuts and bolts
Complete details of the requirements will not be known until the SEC posts (Update: Jan 30, 2009) are contained in the adopting release on the SEC’s website (PDF 750KB, 206 pages) . From yesterday’s meeting and the staff’s statement, here is the gist of what was approved:
Schedule:
- In 2009, the largest US and non-US large accelerated filers that use US GAAP and have $5 billion worldwide public float will have to file their quarterly or annual financial statements in XBRL for fiscal periods ending on or after June 15, 2009. For most, this means their second-quarter 2009 10-Qs.
- In 2010, all US and non-US large accelerated filers that use US GAAP — about 1,800 companies, I’m told — will start providing XBRL with their first quarterly report for fiscal periods ending on or after June 15.
- In 2011, all remaining companies that use US GAAP and all non-US companies that use IFRS as issued by the IASB will have to file XBRL starting with the first quarterly report for fiscal periods ending on or after June 15.
Depth of tagging and liability:
- In their first year, each company must tag the face of their financial statements and block tag their footnotes and schedules. In the second year, they must tag their footnotes in detail, but there will be no requirement for narrative disclosures to be tagged in detail.
- For the first two years, each company’s filings will have the same limited liability as the current voluntary program XBRL filings, which means they’ll probably carry a caution to investors that they should not rely on them (ironic, I know). Following this, the filings will carry the same liability as today’s HTML or ASCII filings, but they won’t have to be included in executives’ certifications or be audited (yes, even more ironic).
Edith Orenstein, Director, Technical Policy Analysis at Financial Executives International (FEI), has posted more about the practical implementation issues on FEI’s Financial Reporting Blog.
Using XBRL on your IR website
Regardless of the method companies use to generate and file XBRL financial data (most will outsource this to their financial printers/filing agents in the beginning), the information is useless to investors unless they have a way to view it.
It’s not a trivial technical matter to render XBRL documents. While there are already some software tools available to investors, the fact is most of the focus on XBRL to date has been on developing taxonomies and tools for accountants to tag financial information. Relatively little time has been spent on technologies and tools to make XBRL viewable for humans, especially the investing kind.
The SEC said yesterday that companies will be required to post XBRL files on their own websites in addition to filing them with the regulator. While there does not appear to be an explicit requirement, companies themselves should offer their website visitors a way to render XBRL data in a format that humans can read.
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| Microsoft’s interactive quarterly reports are driven by XBRL. |
They can do this in one or both of two ways:
1. Provide a link to download a free XBRL viewer. At this time, there does not appear to be a good free software solution on the market that specifically targets investors. What is needed is something akin to the Adobe Reader for PDF files that investors can easily install to view XBRL documents. The closest we have found is Rivet Software’s Dragon View software. However, users have to create a user name and password to access the download, which isn’t user friendly. If anyone knows of better options, please let us know.
2. Render XBRL on your website. iXBRL, or inline XBRL, is a technology that you will soon see the PR wire services and others pushing, but I think it’s a bad approach because it simply makes XBRL data look like a standard HTML document. I fail to see the value to investors in using a supposedly advanced technology to provide something that looks like a printed page. If you’re going to use XBRL, then it should add something more than can be achieved with HTML.
One current example of an XBRL-driven online financial report was launched in January 2008 by Microsoft Corp. Using the company’s new proprietary Silverlight technology, Microsoft calls the new report “Investor Central,” as if it is a separate website. While I’d prefer to call it an interactive quarterly report, the point is that it’s an example of using XBRL to add value to investors’ experiences on your website.
I hope we will see more companies and vendors following this approach, although we’d encourage you to look far beyond Microsoft for your inspiration because some companies do much more in their interactive HTML reports than Microsoft is currently doing in XBRL.
Dominic,
I read with interest your latest article on the SEC’s adoption of XBRL, particularly the section on rendering XBRL. You stated, “the information is useless to investors unless they have a way to view it.” My opinion is that investors do have very effective ways in which to view this information, they are PDF and HTML.
As you put it later in the article, “If you’re going to use XBRL, then it should add something more than can be achieved with HTML.” I agree with you completely. XBRL is not about rendering for reading purposes, it is a machine language for computers to interact with to do what computers do best – compute. Microsoft’s parsing of their XBRL database is interesting, but certainly, it could have been achieved with formats other than XBRL. As you mentioned, there are few options for rendering XBRL and maybe fewer to use this information the way it is meant to be used. Nonetheless, as you mention we have to start somewhere, and I do believe by beginning with the largest 500 companies, that information will be of interest to many parties and consumption tools will be developed.
I also find it amusing that the software vendors are high-fiving over this mandate. The SEC has done for them what they could not – convince the business community, that XBRL would add value by the “cheaper, faster, better” proposition. Forget “cheaper, faster, better,” its required!
Gary Purnhagen
Consider that it is not merely formatting, but accuracy and accountability that matter, per Professor Boritz at the URL above.