"XBRL" – Public Companies Learn to Adopt
New SEC Reporting Format

Late last year, the Securities and Exchange Commission adopted new rules mandating that all public companies begin filing data with the SEC using Extensible Business Reporting Language (XBRL) over a three year phase-in period.  XBRL is an interactive data format that will be used instead of the traditional electronic filing formats such as ASCII or HTML.  

The capabilities of this system are difficult to see at this time, as XBRL is still in the early stages of development.  Currently, the SEC’s website contains an interactive financial report viewer to create company comparison reports, diagrams and other comparative reports.  Seeing these reports may help users understand the overall goal of these procedures, which is to create a uniform reporting system to better assist financial statement users in making informed decisions.  Currently, XBRL appears to be very useful in other countries across the globe.  No matter how companies implement and utilize XBRL, only time will tell of its overall capabilities and usefulness. 

Three Phases - Phase one of this three year period applies to all large accelerated GAAP filers with market capitalization greater than $5 billion who are required to file quarterly Form 10-Q or annual Form 20-F or 40F for fiscal periods ending on or after June 15, 2009.  Phase two encompasses all fiscal periods ending on or after June 15, 2010 for all other large accelerated filers using US GAAP.  Phase three covers all remaining filers using US GAAP and private issuers with financial statements prepared in accordance with IFRS, as issued by the International Accounting Standards Board (IASB), who are required to file their annual or quarterly report for the periods ending on or after June 15, 2011. 

New Mapping Taxonomies - To implement this new reporting language, companies will need to develop a mapping process for each financial statement line item using standard taxonomies.  There are currently three types of taxonomies.  The stand alone add-ons taxonomies are those that use common terms, creating the building blocks for the industry specific taxonomies.  The standalone add-ons help to ease maintenance and enable comparability across similar industries.  Industry specific taxonomies include the specialized concepts and terms used in a specific industry.  Companies will select an industry specific taxonomy as an initial starting point.  The company will then create company extension taxonomies, which will be used for financial statement items not found in the stand alone or industry specific taxonomies. 

Using these three types of taxonomies, the company will create tags. similar to a chart of accounts.  These tags will be specific for each financial statement line item and create a bar code system that should allow users to effectively compare financial data for multiple companies.  Users will be required to identify the appropriate tags associated with their financial statement line items and certain information included in the notes to the financial statements. 

Putting XBRL Into Practice - Companies need to decide upon a method to put XBRL into practice. They could implement using an internal XBRL method.  In this instance, a company would actually integrate XBRL into its internal operating processes.  This would not require mapping to other taxonomies.  Using this technique, no other steps would be necessary when reporting as financial data will already be in XBRL format.  The only additional procedure would be to verify all versions of the financial statements correspond.  Initially, this implementation method would have higher costs, but would be beneficial for future reporting periods, as additional steps would not be necessary to map the financial statement line items every year. 

The company could opt to implement using an external XBRL method.  This method is currently being used by those public companies that have adopted XBRL in a voluntary early adoption program provided by the SEC.  The external method would add an additional step to the reporting process.  The company would still produce its financial statements in the traditional form and manner.  After preparing the financial statements, the company would need to map the financial statements using XBRL tags.  This mapping could be done internally or through the hiring of a professional service company with XBRL experience. 

If performed in house, the initial year is likely to be time consuming, as all financial statement items must be set up using the industry specific taxonomy tags and internally created company extensions.  In the long run, tagging the financial data will become less time consuming, as tags will already be identified for certain line items.  This implementation method will require an individual with financial reporting knowledge in the company to become familiar with the XBRL reporting system, codes, and regulations. 

Advantages of XBRL - There are several advantages to using XBRL.  Over time, tagged financial data will allow more efficient and effective analysis of financial data both internally and externally.  In the future, the availability of accurate, tagged financial information will help reduce the costs currently involved in the research and analysis aspect of the economic world.  This will allow financial analysts, executives, and the occasional stock trader to analyze information from many different companies in a cost efficient and more precise fashion. 

XBRL Disadvantages - There are some disadvantages to the implementation of XBRL as well.  The largest drawback to most public companies is the cost.  Although some experts say, over time, XBRL could lead to up to a twenty five percent decrease in reporting costs, some companies may find it difficult to justify the initial costs without knowing what the final product will encompass and how useful the end information will be.  XBRL is a complex system which may lead to initial errors in data entry and analysis causing uncertainty from shareholders.  Also, companies presently have limited liability related to their XBRL financial statements.  These issues could cause shareholders to lose confidence in the financial reporting, considering the possible vulnerability for errors and limited liability for those errors.  These issues may also be why new SEC head Mary Schapiro has recently commented that “it’s just not one of my highest priorities” when speaking about the implementation of XBRL.   This lack of urgency could lead to delays in compliance and extensions of deadlines for later phase-in participants.