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Cheaper, better faster: XBRL takes center stage in financial reporting.

In late September, the Securities and Exchange Commission (SEC) issued a Proposed Rule to establish a voluntary program for eXtensible Business Reporting Language (XBRL) dissemination of supplementary financial information, beginning with 2004 calendar year-end reporting. Concurrently, the commission issued a Concept Release requesting general comments on the benefits of tagged data to improve reporting quality and efficiency, the adequacy and efficacy of XBRL as a format for reporting financial information, and other implications of such a program for filers, investors, the SEC and other market participants. Here at FEI, our Committee on Finance and Information Technology (CFIT) is working with an internal working group at the SEC and many others to move XBRL forward.


Why all this fervor over XBRL? It flows naturally from today's laser focus on transparency in financial reporting. Corporate scandals may have precipitated that focus, but increased public scrutiny and regulatory oversight and the emergence of new technologies like XBRL are driving it.

XBRL is an open, global electronic standard for defining financial terms consistently, allowing for the exchange and dissemination of corporate reporting information. You'll hear XBRL described as "tagged data." Each piece of data is assigned a unique, predefined data tag (like a barcode) identifying its content and structure.

Why is tagging important? Tags impart identity and context to data, making it understandable by various software applications and allowing it to interface with databases, financial reporting systems and spreadsheets. Related financial information within a company's financial reports can be easily acquired and integrated, and financial performance more effectively communicated to analysts and investors, as well as compared with others in the industry.

The power of XBRL makes it useful to preparers as well as standard-setters, regulators and end users. For those of us with critical responsibility to communicate operational results to our shareholders, XBRL can offer better decision-making and an enhanced, more integrated internal control environment.

Standard-setters are also getting on board. In 2003, the Financial Accounting Standards Board (FASB) established an XBRL Fellow position to investigate ways in which XBRL and related technologies could be used to improve corporate financial reporting, and to develop policy recommendations on XBRL's role in the board's standard-setting activities. The International Accounting Standards Board (IASB) also supports the technology, and it appears that XBRL is actually gaining converts more quickly internationally than in the U.S.

XBRL makes financial reporting cheaper, better and faster, by:

* Reducing the cost of preparing, publishing and analyzing information.

* Increasing the efficiency of business decisions, allowing for real-time reporting and deeper analysis capability, reducing the margin for human error, improving accessibility and ease of use and enhancing comparability.

* Automating information migration from systems to financial statements, increasing the speed of data use and related decisions, and simplifying data transfer.

Let's break down those benefits further and relate them to today's key issues:

* Transparency: Tagged data makes more information available for investors and analysts to analyze as they choose, improves transparency without additional disclosures and gives newfound discovery capabilities to the non-professional user.

* Timeliness: Capital markets rely on timely, reliable information. XBRL allows information to be accessed quicker and processed faster. Accelerated filing deadlines can be facilitated.

* Internal controls: In the convoluted world of Sarbanes-Oxley Section 404, the XBRL reporting format would enable easier documentation and less manual intervention, integrate disparate systems, optimize the internal control process and improve compliance through real-time monitoring.

* Fair value accounting: Concerns have been raised over the verifiability and reliability of determining appropriate fair value. If assumption disclosures were tagged, management's choices would be more transparent to users and easily compared with others.

* Convergence: An XBRL environment may actually render convergence less important, as different country reporting regimens could be adapted much more easily and comparability enhanced. XBRL complements the objective of a single set of high-quality, understandable and enforceable global accounting standards.

* Principles-based accounting standard-setting: XBRL could be a defining factor in the principles vs. rules debate. Tagged information makes it much easier to determine management's judgments and lets analysts easily adjust for their own analysis.

Bottom line? XBRL benefits all members of the financial information supply chain. For the health of our capital markets, it is time for us to fundamentally enhance business reporting. Adopting XBRL is undeniably a way to achieve that.
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Article Details
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Title Annotation:president's page; eXtensible Business Reporting Language
Author:Cunningham, Colleen
Publication:Financial Executive
Geographic Code:1USA
Date:Nov 1, 2004
Previous Article:Mark Blinn.
Next Article:From the editor.

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