A new language for financial reporting called XBRL-eXtensible Business Reporting Language-that's based on Xtensible Markup Language (XML)-has the potential to revolutionize investment analysis for investors and professionals alike, say members of an international committee that is driving the project forward. XBRL for financial statements will allow individual investors and professionals to extract data from 8Ks and 10Qs into Web-based tools that can help them analyze comparable companies. Others who will benefit from XBRL include companies who prepare statements, analysts, investors and regulators, financial publishers and aggregators, as well as independent software vendors.
The American Institute of Certified Public Accountants (AICPA), is one of several sponsors that has been working with companies for more than a year to develop the XBRL framework, which is comprised of a series of data dictionaries for specific industries.
Over 35 companies, including leading accounting firms, software companies and data aggregators, such as Reuters, Bridge, Standard & Poor's and Edgar Online, are members of the XBRL Project Committee.
As soon as a corporation files in the Web system, this information will be available in real time, says Greg Adams, the CFO of Edgar Online. People can use "our software to do their comparisons for analysis of financial information."
"It's going to revolutionize a lot of financial reporting," predicts Adams. "As a CFO I need to compare Edgar Online to multiple companies," he says. "I could make a list of companies and ask for a list of criteria revenue per employee and gross margins you want to show and do it in seconds."Morgan Stanley Dean Witter is the only Wall Street firm, so far, on the XBRL Project Committee, but securities analysts will benefit a lot from the project.
Today, for instance, analysts spend a lot of time rekeying data from financial statements into spreadsheets. With XBRL, they'll be able to search for a few characteristics and instantly flow the data from a company's balance sheet into an online tool.
"XBRL takes a lot of inefficiency out of the process," says J. Louis Matherne, the AICPA's director, information technology, who notes that financial statements can be created one time and then published in multiple formats-as printed reports, on Web sites as HTML and as Edgar filing with the SEC.
Because each line of the financial statements is tagged, the information will only be entered one time into the Edgar systems. This eliminates the need for manually keying in information and it lowers a company's cost to prepare financial statements, says Adams. From an accounting perspective, says Adams, "XBRL will create standards, for instance, for trade receivables. It'll be consistently inputted into a spreadsheet." By establishing "uniform categories of data," he adds, "it facilitates and enhances a comparison of reports in industries and sectors."
According to Christy Reichhelm, global mid-market ERP industry manager for Microsoft Corp., the software giant is supporting XBRL because it believes in an "open heterogeneous computing environment." Microsoft and other software companies will make money by selling software tools that analyze the financial data, she says.
In a demo designed as a joint venture between Microsoft and Edgar Online, Reichhelm showed how a data aggregator can provide users with tools for drilling down into data, using Coke and Pepsi as an example of two competitors.
Though XBRL is starting in the U.S., it is truly an international framework says Matherne, who adds that members are making sure the framework is portable and already have the Australians on board, and the U.K. was expected to deliver their spec at the end of May. Interest has come from the French, Spanish, the Germans and an inquiry from India as well.
XBRL is currently under review for comments, and is expected to be released to the market in July, though it may not show up on financial Web sites until later this year. Go to xbrl.org for instructions on providing comments. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio