Data Management

11:05 PM
Frederic Chapus, RR Donnelly
Frederic Chapus, RR Donnelly

Making Sense of the Multi-Flavors of XBRL

XBRL will be the first step toward the semantic Web, where the exchange and analysis of financial information will not require any manual intervention.

Frederic Chapus, RR Donnelley
Frederic Chapus, RR Donnelley

Since the Securities and Exchange Commission (SEC) mandated all public companies begin using the eXtensible Business Reporting Language (XBRL) for financial disclosures in 2009, the financial industry has been trying to understand the benefits of this standardized reporting format.

To kick-start this discussion of XBRL, let's clarify the role it plays in financial, prudential, fiscal and statistical compliance reporting. A compliance report includes all facts (or data points) defined by the regulator in charge of collecting data from regulated entities. For instance, the SEC filings are based on the U.S. General Accepted Accounting Principles (US GAAP). This regulatory standard, US GAAP, does not impose a strict codification of each data point and allows listed companies to customize their financial reports. However, in other countries, such as France, Belgium and Italy, the GAAP is strictly regulated and codified by law. Each national GAAP includes data points that have different definitions.

As XBRL is a computerized language that allows companies to report each data point as defined by the regulator with a unique and standardized tag (like a bar code), it opens up possibilities for firms to create quality data that can be used beyond fiscal and compliance reporting purposes. In fact, XBRL:

• Increases the data quality level of each financial filing through automated validation before submission and reviews the correctness, completeness, accuracy and consistency of all data points;

• Decreases the cost of data processing by using an automated exchange;

• Reduces the cost of compliance reporting when the standard is adopted by multiple government regulators and one report can be submitted to all; and

• Facilitates the conversion from one GAAP to another GAAP, as needed.

While financial officers are just becoming accustomed to filing in XBRL, there are new discussions starting about extending XBRL reporting for other purposes, such as Muni XBRL for municipalities reporting, and revising the standard. For instance, Inline XBRL (iXBRL) allows businesses to view, both on- and off-line, all iXBRL Reports without any XBRL software. Companies must understand what these various forms mean to their firms and how best to follow the guidelines to submit timely, quality reports.

Plain, standard, vanilla: XBRL

Not all chief financial officers (CFOs) and their teams were ecstatic when the SEC launched the XBRL filing initiatives, which were viewed as another regulatory requirement that would add to an already heavy workload at the end of each quarter. The purpose of implementing the standards-based XBRL is to create high-quality financial communication between companies and their investors, and generate quality data for analytical and business purposes.

Basically, as XBRL.US states, XBRL is “a language for the electronic communication of business and financial data, which is revolutionizing business reporting around the world.” As a machine-readable format, XBRL can bring greater efficiencies in analyzing financial data for governance, risk and compliance purposes. Although the data is not as highly used today as was initially predicted, XBRL is expanding. For instance, in Belgium, where the corporation tax filing in XBRL format to the Belgium Federal Public Service Finance office is in place, more than 400,000 companies benefit from using the XBRL taxonomy to standardize the reporting process and lead to zero error validation of filings. XBRL allows the information to be shared among all stakeholders. Other European and Asia-Pacific companies are also requiring corporations to use the XBRL format.

Here in the U.S., standards-based reporting is at the base of the DATA Act, a piece of legislation recently passed the House of Representatives. XBRL is very often part of the conversations regarding the DATA Act, but it has not been selected as the standard format for this legislation at this time. According to the Data Transparency Coalition, the goal of the DATA Act is to drive greater transparency and cohesive management of government agencies and programs through a standardized creation of U.S. government reports on financial management and procurement.

The new flavor profile: iXBRL

The XBRL International, Inc. organization recommended a new XBRL format in 2010 called iXBRL, which defines how the filing format is created. For instance, with plain, standard, vanilla XBRL, companies must file financial disclosures using an HTML format, as well as the XBRL standard. With iXBRL, the XBRL tags are embedded into the HTML document, thus reducing effort to produce these documents and potentially reducing the number of errors in them. The HM Revenue and Customs Agency in the U.K. requires companies to use the iXBRL format, and an online XBRL formatting document states that these “computer-readable tags [can] be attached to an electronic file which can also be read by people on screen or in printed form. This means that you don't have to change the content, style or layout of your accounts and tax computations, and that HMRC will be able to view your Company Tax Return exactly as you've submitted it.” Other international tax and accounting boards are also requiring the use of iXBRL over the plain XBRL format. The SEC and Congress are examining the standard here in the U.S., as well.

Flavor of the day: Muni-XBRL

The newest acronym to surface in regards to XBRL is Muni-XBRL. Municipalities can leverage the XBRL standard to share data with fund managers on municipalities’ securities. The regulatory body, the Municipal Securities Rulemaking Board (MSRB), has examined the standard, but it is not mandatory at this time, unlike XBRL. THE MSRB oversees an Electronic Municipal Market Access (EMMA) system that accepts electronic disclosures and makes this information available to the public, a somewhat similar process to XBRL. In fact, in Spain, the government encourages municipalities and agencies to use the XBRL disclosure standard for submitting reports.

As the XBRL standard continues to develop, additional applications – like Muni-XBRL for specific markets and iXBRL – will continue to make an appearance. It may cause CFOs and other financial executives to wonder what it means to their organizations, but in the end, no matter the type of XBRL financial disclosure used by a corporation or municipality, it is the data within these statements that is crucial. The information can be used for a variety of analytical purposes, both internally and by investors. For any of these flavors of XBRL to be useful, corporations must correctly tag and file the data points.

XBRL will be the first step toward the semantic Web, where the exchange and analysis of financial information will not require any manual intervention.

—Frederic Chapus is the president of the UBmatrix International Division of RR Donnelley, where he focuses XBRL-based new business development worldwide.

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