XBRL: a technology whose time is now; The question isn't whether XBRL is going to happen, but how quickly, where first and with how much collaboration. Even with big U.S. players behind it, fewer than 5 percent of U.S. public companies are now using XBRL--but this could soon change.

XBRL is today what HTML was 10 years ago: full of potential, yet all but unknown. And those who know what XBRL, or eXtensible Business Reporting Language, is all about and all it can be are concerned about a most disturbing fact: The XRBL information engine of the world's most powerful economy--the U.S.--is lagging behind that of every other developed economy in the world.

XBRL allows business information to carry digital tags that let it pass seamlessly between enabled applications. It has been likened to bar codes that stick to data wherever it goes. Once business information is tagged, everyone along the information supply chain--investors, creditors, analysts, stock exchanges, auditors, regulators, policymakers and others--can quickly, accurately, easily and inexpensively access, validate, compare, analyze, slice, dice, mix, match and manipulate information from any number of companies. It also allows the same body of data to automatically--instantly--find its proper place in spreadsheets, tax returns, business reports, annual reports, pie charts, government forms, Web sites and financial statements. No manual transcription. No mistakes along the way.

How big is this? According to Financial Executives Research Foundation (FERF), "XBRL will have as big an impact on commerce in the 21st century as double-entry bookkeeping had on the Industrial Revolution."

That's pretty big. So the question isn't whether it's going to happen. It's how quickly, where first and with how much collaboration and coordination. The big players in the U.S. are already behind it. The Securities & Exchange Commission (SEC) likes it, as does the American Institute of Certified Public Accountants (AICPA). Financial Executives International (FEI) is a strong supporter and driver, the Federal Deposit Insurance Corp. (FDIC) has formally adopted it and all U.S. banks will be soon reporting in it.

How surprising, is it, then, that fewer than 5 percent of American public companies are using it, and not many more have any idea why it may be relevant to them? The epicenter of this global collaborative effort is XBRL International (XBRL.org). Almost 300 government agencies, companies, audit firms, software developers, accounting institutions and other entities are contributing to the effort. National jurisdictions are working on national market implementation while collaborating on the development of international XBRL standards.

Some jurisdictions are way ahead.

* In The Netherlands, all government agencies, from the justice department to bank regulators to tax collectors, are working together on a national taxonomy of business reporting items, and Dutch municipalities are already filing quarterly reports in XBRL.

* The Australian Prudential Regulation authority has been collecting regulatory data in XBRL for years.

* The Toronto Stock Exchange published its 2003 financial statements in XBRL early last year.

* Japan has already launched an XBRL-based corporate tax filing system, and five regulators are collaborating on an XBRL taxonomy.

* China's Security Regulatory Commission has mandated XRBL filing for the country's largest stock exchange.

* The U.K. has issued a draft of GAAP taxonomy for commercial and industrial sectors, and Inland Revenue is set to obtain corporate tax return information for all 2004 corporate filers.

* Denmark has been accepting XBRL filings for company registration since January.

* Spain's central bank is leading several XBRL-based data collection efforts, including information on annual real property valuation and money laundering.

* European Union (EU) banking regulators are building a taxonomy that all EU banks will use.

* The International Accounting Standards Board (IASB) already has a draft of taxonomies for international standards posted on its Web site.

Noticeably absent from this list is the U.S., which has been more cautious and less centrally organized; the FDIC is the only government agency ready to accept XBRL reports from its constituents. The SEC, last September, issued a Concept Release and Proposed Rule that explored the use of tagging as a means of improving reporting and analysis. Comments were almost unanimously supportive. Speaking at an AICPA conference last December, SEC Chief Accountant Donald T. Nicolaisen said:

"While I would never be so presumptive as to predict the future of financial reporting, I do believe that continuing to defend the status quo is not the answer, and I am confident that new technologies such as XBRL will play an important role in enabling these changes to take place."

Nicolaisen said he expected the SEC to approve a pilot program to let companies voluntarily file XBRL reports in 2005. The commission will allow companies the right to file the information in Form 8-K, to tag only part of a disclosure document, to not continue filing in XBRL if they don't want to, and to enjoy limited liability for XBRL-tagged information. The final rule was issued in February. It's a start!

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Mike Willis, founding chairman of XBRL International and partner at PricewaterhouseCoopers, expects as many as 200 public companies to file in XBRL in 2005. But he believes not all will be from the Fortune 500.

"In the big-company sector, we have 'lead companies' which will file in XBRL just because it's the right thing to do," says Willis. "We may see a lot of smaller companies do so because it will increase their visibility and the accessibility of their information to the analyst community."

External demand is only one side of the motivation to gear up for XBRL. The cost savings of internal deployment are equally compelling. As financial officers know, business information and financial data aren't always so easy to move. As it flows from original transactions to subsidiary reporting entities to corporate headquarters to regulators to government policymakers and other third-party stakeholders, data passes through a multitude of transcriptions, manipulations and software conversions. Every time it goes into a new report, government form, tax return, Web site, spreadsheet, pie chart or financial statement, somebody has to mess with every number.

But once XBRL is in place all along the information supply chain, the handoffs, validations and some of the analysis will be significantly more automated. What once took days will take mere seconds. If time is money, XBRL is gold.

It's also a lever. Walter Hamscher, XBRL International vice chair at large and a consultant to PwC, sees a loftier purpose to XBRL. "The thing that gets me up in the morning and working on XBRL adoption is the idea of democratization of capital markets, the idea of leveling the playing field for every investor large and small, every capital seeker in global capital markets, with the ability to access and use rich, well-organized, comparable information directly."

Though the U.S. has been a bit slow at the government level, Hamscher sees American companies moving more quickly to look at XBRL as a tool for improving financial efficiency inside their organizations. He also notes that, with the Enhanced Business Reporting and Global Reporting Initiatives recognizing the value of XBRL for collecting metrics on sustainability, tagged information may soon be used for international reporting under nongovernmental standards. In other words, XBRL's usefulness goes far beyond the needs of governments and regulators.

"The 'big bang' for financial executives is really inside the enterprise," Willis says. "That's just the good news. The slightly better news is that for reporting activities, such as those of the FDIC and the SEC, and internal management reporting, XBRL will lower the cost of producing information. To achieve those savings, company management needs to think about reengineering their reporting, quality control, assessment and analysis processes. That's the first hump [of three humps] they have to get over."

That process starts with education, says Taylor Hawes, Microsoft Corp. controller for global platforms and operations, and co-chair of FEI's Committee for Finance and Information Technology (CFIT). He and his committee are working with FEI to develop an outreach program for companies that want to know about the potential of XBRL and the process of deploying it.

"It's relatively technical, so a number of things have to occur in order to help companies adopt. There has to be training; there has to be software readily available; and companies have to make decisions on what level of adoption they want to implement."

Some of the training, Hawes says, can come from audit firms that are offering related consulting services. FEI will also be offering seminars and training that qualifies for Continuing Professional Education (CPE). Learning the XBRL tagging process might take a financial professional about a week, and somebody in the company needs to really understand the workings of the language.

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Willis is working at the most basic level of education: increasing awareness. While other countries are racing ahead with XBRL programs, he's finding very few U.S. companies with implementation programs and not many more with much awareness of XBRL's potential. In many respects, he says, it's like trying to explain the impact of HTML on the Internet to somebody in 1994.

"No one has heard of it, and no one has the software, yet a lot of people are talking about it. It's a challenging and exciting job, but the lower availability of tools and the slower adoption in the U.S. definitely explain why the awareness is so low. Many financial officers think it's all about external reporting. They don't realize that the XBRL Ledger can significantly enhance the access, quality and timeliness of information within their organizations."

Ironically, Willis says, it's the early interest of government agencies that has given financial officers the impression that XBRL is a tool for external reporting only. But the biggest potential for efficiency gains is in internal reporting, where manual processes slog along at a primitive pace.

The second hump relates to implementation tools. While public companies figure out what's going on and what they need to do about it, software companies are developing the tools that facilitate the tagging of data and the consumption of XRBL-enabled information. The major ERP packages are supporting XBRL taxonomies and the mapping of accounting objects. More sophisticated applications are coming out that can monitor, audit, assess risk and generate reports. Current software applications tend to be at a Version 1 level (remember Mosaic?) and a bit tricky to use, but necessity will be inventing more user-friendly technology as XRBL becomes more commonplace.

A third hump in implementation is represented by the taxonomies needed for each industry sector. The U.S. generally accepted accounting principles (GAAP) taxonomy for banking is done, as is insurance and commercial-industrial. The taxonomy for investment management is just about done. FASB has just finished checking taxonomies against some of its standards, and the SEC is doing the same for its regulations. Taxonomies have been developed for the non-financial portions of 10-K filings, with specialized taxonomy extensions for SEC Certification, Management Report, Accountant's Report and Management Discussion and Analysis (MD & A).

Once taxonomies are done, software is available, financial personnel are trained, analysts are prepared and regulators are ready, the elements of XBRL will hit critical mass. At that point, things should happen very quickly. Companies too slow out of the gate will find it harder to attract the attention of analysts and investors. While they're still messing--with paper, data conversions between software applications, the physical manipulation of data from one report to another, and the laborious process of giving regulators what they need--companies that have adopted XRBL will be galloping ahead. They'll be knocking off business reports in minutes and moving on to streamlining the flow of their internal business and financial data.

RELATED ARTICLE: Global XBRL Projects

The following is a partial list of global organizations with active XBRL projects or implementation programs:

Bundesbank

Banco de Espana

Danish Commerce & Companies Agency

Dutch Tax Authority

Dutch Water Authority

Eurostat

EU Commission

Patent and Registration Office (PRV--Sweden)

Luxembourg Stock Exchange 

U.K. Financial Services Authority 

U.K. Inland Revenue

Bank of Japan

U.S. Federal Financial Institutions Examination Council (includes FDIC and Federal Reserve Board)

U.S. Securities & Exchange Commission

Tokyo Stock Exchange 

KOSDAQ--Korean stock exchange

Chinese Securities Regulation Commission (CSRC)

Shenzhen Exchange

Toronto Stock Exchange

NASDAQ 

National Tax Agency of Japan

New Zealand Exchange 

Australian Tax Office

Glenn Cheney ([e-mail]) is a freelance writer based in Hanover, Conn., who frequently writes on accounting and financial-reporting subjects.