XBRL--are we close to the tipping point? For any business practice to establish itself in the mainstream, it needs to be adopted by organizations with a critical mass and a lot of influence. eXtensible Business Reporting Language [XBRL] might be close with the FDIC on its side.

XBRL, eXtensible Business Reporting Language, is only five years old, yet it has a long, distinguished lineage. XBRL might claim ancestry from the 1960s, starting with the genesis of IBM's Generalized Markup Language, which eventually became SGML (Standard Generalized Markup Language), a non-proprietary computer language that spawn and inspired many world class word processors.

HTML (the basis for most web pages) and XML changed the computer landscape in the 1990s and could be considered the direct forebears of XBRL. XML (eXtensible Markup Language) provides a way of separating information into descriptive data fields of any length or type for use in automated processes. Data within a record can be repeated an indeterminate number of times, making it perform like a relational database without complicated storage schemes and the other methods of fragmentation inherent in traditional databases. Microsoft has announced that they will be levering this XML power through its next release of Microsoft Office (including Word and Excel) by storing all files in XML format.

Microsoft is already a strong supporter of XBRL, having used it to file their own financial statements with the SEC in 2004 and 2005.

XBRL is expected by many to be an XML standards "glue," a collaborator and champion of automating current business reporting practices. These practices are often supported through a maze of spreadsheets designed and operated by accountants to gather and provide access to summary and detailed organizational performance and MIS information. XBRL should make that maze simpler to navigate.

XBRL is the future

XBRL builds on XML's pioneering applications by providing a structure accepted by business leaders for tabulating information based on financial and performance reporting formations that are shareable, royalty free, reusable and well understood. In addition, it is no longer necessary to attend long, boring committee meetings to resolve the meaning and form of reporting data and information that needs to be exchanged within an organization or amongst trading partners; these definitions have been clearly established by those developing the XBRL reporting format.

Early adopters of XBRL are organizations that see the opportunities inherent in exploiting and vaulting ahead of the slowly evolving distribution and analysis of business reports. The huge growth in data within companies has inevitably led to fragmentation, and this business performance and transactional information needs to be harvested. The tools that take advantage of XML, XBRL and other standards for information structures are only now starting to emerge.

FDIC and the SEC kick-start pooling of reporting information

The Federal Deposit Insurance Corporation (FDIC) and the Securities Exchange Commission (SEC) don't at first glance fit well with the adventurous high risk stereotype of typical early trend-setters. However, these two U.S. organizations are redefining the way in which business reporting information is harvested with the use of XBRL. Might the fact that these organizations are adopting the technology demonstrate that XBRL is tipping towards the mainstream?

Malcolm Gladwell says in his book, The Tipping Point, that the behaviour of early majority adopters can result in extremely rapid change and adoption of technologies. The actions of the FDIC and SEC might be a predictor of dramatically improved access to business reporting information. Organizations are taking notice of the XBRL wave. In CMA Management magazine's November issue, we noted some of the early gains from innovative early XBRL adopters like EDGAR online and various global banking and stock exchange organizations. We now look at how FDIC was able to take advantage of XBRL and how they overcame some of the barriers to taking advantage of XBRL.

Software vendor collaboration--a cornerstone

One barrier identified by early adopters of XBRL is the lack of significant XML support and built-in implementation of XML in popular ERPs, business intelligence tools and report generation software. FDIC overcame this critical roadblock by working closely with the software vendors that provide specialized applications for the 8,000 banks with which the FDIC deals. Luckily, there are only a handful of these software vendors, and these companies thrive in an environment in which regulatory requirements necessitate frequent software updates. FDIC's management persuaded the software vendors that, by using the XBRL technology, standard information structures would improve collaboration among the FDIC, the banks and the vendors. Updates of regulatory requirements could be done via the exchange of XBRL taxonomies.

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(Taxonomies are the way in which XBRL indicates the structure, schemas and relationships of the data [e.g. cash and land is part of assets, and salaries are expenses], what types of details are maintained within accepted standard names. These taxonomies also label and define the data.)

The FDIC is part of a group of three organizations that collect key financial condition data each quarter from 7,200 U.S. financial institutions (known as call reports). FDIC then publishes a comparative detailed report (called the Uniform Bank Performance Report), which is now available online at www.ffiec.gov/UBPR.htm. The two other partner organizations sponsoring this project are the Federal Reserve (FRS) and the Office of the Comptroller of the Currency (OCC). These organizations are collectively part of the Federal Financial Institutions Examination Council (FFIEC).

In Canada, the comparable organizations performing similar tasks for federally regulated financial institutions are; the Canadian Deposit Insurance Corporation (CDIC), the Office of the Superintendent of Financial Institutions (OSFI) and the Bank of Canada. Due to the differences between U.S. and Canadian banking structures, there are comparatively fewer, but proportionally larger (relative to the country's population) national banks for Canada to regulate and collect information from. Financial institutions like credit unions and caisses populaires use provincial deposit insurance rather than CDIC so this regulatory requirement is added to the mix of regulatory filings for Canada. Similar U.S. state regulations also exist. Financial institutions have the burden and cost of supplying multiple parties with similar but distinct financial information. Common regulatory filings could help both countries' efforts in making banking regulation less onerous.

The FDIC and sister organizations make use of XBRL's features to pool their information in one single information request for federal regulatory purposes. The information is validated automatically on receipt and the pool of common information is shared among the FFIEC organizations, which extract only the data they need for their monitoring purposes. In the former legacy systems, each organization independently requested, validated and confirmed the information that was collected. The quality and timeliness of data collection, as well as the responsiveness to queries, have been dramatically improved. Initial collection key indicators for the first quarter of the new call report process operation proved that the XBRL concept works and is on track to improve the efficiency of the process by about 70%.

All 7,200 regulated financial institutions submitted XBRL-enabled reports in the first quarter of last year. The diagram above illustrates the flow of information in the new FFIEC's call report system.

FDIC early performance metrics

The performance metrics the FDIC used to measure the success of XBRL adoption demonstrate a startling change. For instance, the legacy system would have a 65% "clean rate" for original submissions each quarter. The new system, on the other hand, proved to have a 95% clean rate and provided explanations for any results that exceeded highlighted business tolerance guidelines. In the past, 30% of the banks' first filings had mathematical errors--for example, an unbalanced balance sheet. Now, 100% of data received is mathematically correct when first collected.

Changes to requirements are now handled mainly through the alteration of taxonomies. Revised taxonomies can be published for use by all financial institutions within minutes or hours, while in the past, changes required days or weeks depending upon the number of changes.

Information is validated as it is received from the financial institutions and can be published on the web and used by the FDIC, OCC and FRB within a day of receipt.

The SEC has been following the development and adoption of XBRL with great interest. The chairman of the SEC, Christopher Cox, has delivered several speeches explaining the way in which the SEC is encouraging the use of XBRL to make company reports more useful to investors, analysts and the SEC. The SEC has instituted a new program, with some additional incentives, through which companies can now participate in XBRL by filing their own statements in XBRL format with the SEC. Although it is still early in the program, we expect to see much more development in this area in the future. The benefits to many are just too attractive to let the opportunity slip away.

It is early in the technology adoption curve of XBRL. Based on the experience of these leading organizations, it is fundamental, if companies hope to reap the benefits of working with structured pools of business information, that the software industry meet the challenge of delivering XBRL and XML functionality to business.

Although the potential benefits of using XBRL for summary financial information is very attractive, a quantum leap in information accessibility could be realized through similar structured pooling of detailed information through XBRL's journal of taxonomies called XBRL-GL. Stay tuned--more will appear on this topic in future issues of CMA Management.

By Mark O'Connor, CMA

Mark O'Connor, CMA ([e-mail]) specializes in information delivery and business reporting strategies and helps organizations develop business requirements, processes, controls and workflows. O'Connor is a managing director of Ottawa-based Multi-Access Systems and is a member of the International XBRL GL working group.