What's in it for me? XBRL revolutionizing business reporting.
The standard also allows companies to produce just one financial statement, rather than several, for multiple users--which can include internal users, auditors, banks, analysts and investment markets.
Though each user may seek different information from a financial statement to use for a unique purpose, all users can access the information from a single XBRL-development document.
The XBRL standard is catching on not only with public companies, but regulatory agencies and banks also are producing XBRL documents. For example:
* The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and the Office of Thrift Supervision, among other regulatory agencies, are involved in a joint project that will have all U.S. banks submit their quarterly "Call Reports" in XBRL to regulators starting later this year.
* Several public companies, including Microsoft and Morgan Stanley, have filed XBRL versions of their financial statements with the SEC and posted them on their websites.
* Several national banks are involved in a market demonstration project to assess the benefits and obstacles of having borrowers submit their financial statements in XBRL to lenders.
As XBRL spreads, Nasdaq has even provided a demonstration on its website, www.nasdaq.com/xbrl?, to highlight the inherent analytic capabilities related to XBRL formatted data for companies and their stakeholders.
Implementing XBRL and creating XBRL-tagged financial statements will require additional work by CFOs and finance department personnel to get the system up and running and get preparers trained on XBRL. This will require businesses to invest time and money, which begs the question: "What's in it for me?"
After the initial investment of time and effort, and in some cases upgrading accounting software packages, XBRL will deliver various benefits.
Companies using XBRL can facilitate communication and common financial reporting, improving the quality, accuracy, timeliness and validity of financial information prepared, and used internally, especially when various departments and divisions within a company are using different financial management applications.
Improved internal flows of financial information can benefit strategic budget planning; make it easier to monitor monthly and quarterly financial documents; and speed the process of developing financial statements for internal and external use.
You Tell Your Story, Your Way
XBRL allows companies preparing the financial report to control how information is communicated to financial institutions, analysts and the market. Preparers are able to encode their financial statement information using standardized XBRL taxonomies, or classifications. They can then select from that taxonomy the precise meaning they want to convey to the user of the financial statement without preparing more paper reports to explain the financial statement.
XBRL also is flexible enough to enable companies to build "extensions" to the standard taxonomies to best meet their financial reporting needs, within the context of an internationally agreed upon financial reporting standard.
Greater Visibility to Analysts
Private and public companies seek capital in the financial markets and their success is dependent upon a number of factors, including the health of the company and the quality of the information contained in financial statements. But another major factor is its visibility among analysts, which can be boosted through XBRL-prepared financial statements.
Consider this: 29 percent of U.S. companies listed on Nasdaq and 16 percent listed on the New York Stock Exchange have no research coverage, according to a Thomson Financial report. That means there's no analyst following these companies to speak on how well they are doing and put the word out on the capital market.
Further, 16 percent and 8 percent, respectively, have only one research analyst providing coverage. For non-U.S. companies, the numbers are worse: 59 percent of Nasdaq and 48 percent of NYSE listed companies receive no coverage.
The biggest reason these companies don't receive analyst coverage is because analysts spend time paging through financial information to find what they want. This is a time consuming activity--and can sometimes lead to errors--and limits the number of companies that are "visible" to analysts.
The provision of XBRL financial statements enables analysts to automatically import the financial information into their systems, ensuring that the preparer's financial statements are visible to them.
There are two levels when implementing XBRL: tagging of the financial statement and tagging of accounts at the general ledger level to create a rolled-up pre-tagged financial statement--each requiring very different levels of effort.
The first requires a small effort each time the financial statement is produced. In this situation, each individual line item in the financial statements is mapped to a term in the U.S. GAAP XBRL vocabulary as published by XBRL International. Once the XBRL document has been created, other tools can be used to validate the document before it's distributed to regular users and requestors of the financial statement.
The second option requires a significantly greater up-front investment of time, energy and software. However, once general ledger accounts have been XBRL tagged, creation of the financial statement is an automatic process, with no additional effort for future reporting events.
Before selecting the path that best suits your needs, discuss with your financial systems provider their existing XBRL creation capabilities. Many financial software providers have or are building XBRL compatibility into their systems.
Daniel Roberts is national director of assurance innovation for Grant Thornton LLP and a member of XBRL-US, a nonprofit consortium committed to the promulgation of XBRL. You can reach him at firstname.lastname@example.org.
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|Title Annotation:||XBRL Technology|
|Date:||May 1, 2004|
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