SEC releases taxonomy for GAAP financial reports
The labels are already supported by at least nine software companies whose products will enable public companies to make quarterly and annual financial reports available in interactive data form instead of text form. Interactive data concepts allow companies to present their financial information in an electronic format that investors, analysts, and others can use to more easily locate and analyze desired information. The interactive data is encoded in a format known as eXtensible Business Reporting Language (XBRL), which allows companies to map their financial information to a set of computer codes that represent U.S. GAAP accounting standards. This standardized list of codes used to represent U.S. GAAP is known as a taxonomy.
The SEC's Office of Interactive Disclosure, created in October to lead the transformation to interactive financial reporting by public companies, encourages broad public review of the taxonomy and the corresponding instructions about how to create a financial statement in XBRL.
"We've been saying that interactive data is on the brink of transforming the review and analysis of financial information for the benefit of investors and public companies alike," said David Blaszkowsky, Director of the SEC's Office of Interactive Disclosure. "With the release of this taxonomy today, investors can now begin to visually see the progress being made, and so will every public company that uses GAAP. Interactive data is no longer merely an up-and-comer, it's becoming reality. We encourage both users and preparers of financial information to participate in this public review so we can advance interactive data to be recognized as, not only amazing technology, but a superior way of doing business and making faster, cheaper, and more informed investment decisions."
The SEC launched its interactive data filing initiative in April 2005 to make filings more accessible and understandable to the common investor. A test group of public companies have since been voluntarily submitting XBRL documents as exhibits to periodic reports and Investment Company Act filings. Through feedback from these voluntary XBRL filers and a global collaboration of technologists, the XBRL US project team created tags for a financial reporting taxonomy that covers every U.S. GAAP accounting concept — virtually every fact that a company might want to report on its financial statements and in its footnotes.
The SEC will use the initial financial statements prepared using the new taxonomy to help it update its electronic filing system to seamlessly accept and render the filings.
"We have gone a long way since we started this in 2005. The voluntary pilot program started out when there was nothing like the fully-fledged taxonomies that we are going to release to the public on Wednesday," SEC Chairman Christopher Cox told a media briefing in Vancouver earlier this week.
"That's really what got us from a slow jog to right now, a full gallop," he said following a presentation to the 16th annual XBRL International Conference.
A free taxonomy review tool is publicly available on the Internet at usgaap.xbrl.us  along with other information, including the nine software companies whose products are compatible with the new draft taxonomy. The public comment period ends on April 5, 2008.
Once the testing period ends, regulators expect to be ready to propose that U.S. companies begin filing financial reports in XBRL format.
"A lot is going to depend on the acceptance phase that we are now entering for the U.S. GAAP taxonomies," Cox told Reuters news.
"If that all works the way it's supposed to then we'll have some opportunities to introduce it more broadly. If there are suggestions from people who are using it that are going to take time to meet, then that will influence our thinking."
Some U.S. companies, including General Electric, Microsoft, and United Technologies Corp., are already using XBRL voluntarily, and international acceptance has been strong, with several countries, including Japan, China, and the Netherlands, embracing the format.
Informative podcasts available
XBRL US, Inc., the nonprofit consortium dedicated to the adoption of XBRL, initiated its first two podcasts featuring important stakeholders. The programs featured Jeff Diermeier, CFA, president and CEO of CFA Institute, and Barry Melancon, president and CEO of the American Institute of Certified Public Accountants. Podcasts can be downloaded to a handheld device or simply listened to online at http://xbrl.us .
The series of 10-minute interviews will feature industry experts presenting their view on interactive data or covering a specific topic related to XBRL. The series is designed to address key stakeholder viewpoints but will also feature timely and sometimes controversial topics related to the use of interactive data in different reporting situations.
Diermeier kicked off the webcast series, reflecting the fact that Wall Street is the ultimate stakeholder in the XBRL movement. CFA Institute, a global professional association that is well known for its administration of the Chartered Financial Analyst(R) (CFA(R)) and Certificate in Investment Performance Measurement (CIPM) curriculum and exam programs, recently became a member of XBRL US and has been conducting a roadshow series to educate its members about interactive data. It has also surveyed its members about their awareness of XBRL. You can read the results  of this survey.
"Investment professionals worldwide stand to benefit from the greater accuracy, transparency, and reliability of tagged data provided by XBRL," said Diermeier, "XBRL has the potential to improve the quality of our global capital markets through advances in the valuation process. CFA Institute was glad to kick off this webcast series, which will help spread the word about what interactive data can do for greater transparency of information."
AICPA's Melancon is also the chairman of the Interim Board for XBRL US. The AICPA was the initial backer for the XBRL movement, both in the United States and internationally and continues to play a key role in pushing XBRL adoption forward.
"This webcast series will help to educate about XBRL, the SEC's Voluntary Filing Program for XBRL and to spread the word about the development of the US GAAP Taxonomies," said Melancon, "This is a perfect time to learn more and participate, prior to a potential SEC mandate for XBRL filing."
XBRL US is currently under contract with the Securities and Exchange Commission to build out the US GAAP Taxonomies and develop guidance on creating XBRL-enabled financial statements for preparers.
Future podcasts will include a discussion about the convergence of accounting standards, the regulator's perspective, and the use of XBRL for internal reporting.
About XBRL US, Inc.
XBRL US, the US jurisdiction of XBRL International, is a non-profit consortium representing the business information supply chain including accounting firms, software companies, financial databases, financial printers and government agencies. Its mission is to support the implementation of XBRL through the development of taxonomies relevant for use by US public and private sectors, working with a goal of interoperability between sectors, and by promoting adoption of XBRL through the collaboration of all business reporting supply chain participants. XBRL International is a non-profit consortium of approximately 450 organizations worldwide working together to build the XBRL language and promote and support its adoption.
XBRL (Extensible Business Reporting Language) is a royalty-free, open specification for software that uses XML data tags to describe financial information for public and private companies and other organizations. XBRL benefits all members of the financial information supply chain by utilizing a standards-based method with which users can prepare, publish in a variety of formats, exchange and analyze financial statements and the information they contain. The world's leading accounting, financial, government and software organizations are involved in the adoption and use of XBRL in the U.S.