The Future of Financial Reporting - with Mike Willis

Session Moderator: Good afternoon everyone! Thanks for joining us today. We are thrilled that Mike Willis is leading our workshop today. Before we get started with the introductions, please allow me to remind you that this is your workshop. If you have any questions, feel free to ask. If we miss your question, I'll be sure to "collect" it and ask Mike to answer it at the end of the session.

Mike Willis: Here is what I thought we would cover today.

Why do we need/want XBRL?

What does XBRL enable users to do? What is XBRL? When will its impact be felt in the market?

Who is involved in this? What is the current status? What should you do as accountants?

I am thinking that I can cover these items and then take questions on each of these items.

Ken Merwin: Mike - I'd like to see some discussion on how the XML "story" should be introduced to accounting students...

Mike Willis: Also, before we get started, XBRL is a consortium. -. A group of companies who have come together for a common purpose, in this case to develop an internet based language for business reporting. There are many direct competitors involved in this effort, and many of them may participate in this session.

When the group sits down to deal with XBRL, the competition is "checked at the door". The concept is "collaboration on the development" and compete later. We all expect to benefit from this language; and therefore, the group is working very hard on XBRL. All of the members have contributed to this effort with their own areas of expertise.

The XBRL Steering Committee is comprised of some incredibly talented individuals who have worked closely together on XBRL. Personally, it is a real pleasure to work with the individuals comprising the XBRL group and actually see the passion and excitement around XBRL build as we move forward.

Mike Willis: Could I ask any of the XBRL Steering Committee Members who are online to identify themselves: name, company and Steering Committee role?

Ed Cheeseman: Ed Cheeseman, echeeseman@epicor.com

Louis Matherne: Louis Matherne, AICPA staff lead.

Mike Willis: Ok, so I can see some of them on the screen and they should realize that I will probably pass off to you some of the questions that come up today!

Why do we need/want XBRL?

Chinese tree pulp was once considered a cutting-edge technology for transmitting information, and Gutenberg's press created a Renaissance. But are these tools - paper with print - still appropriate for communicating the financial information contained within accounting statements?

If you think, "no" then we probably need XBRL or something very close to it. We also need XBRL because it will enable users!

XBRL will enable the users and preparers of existing financial statements to:

1. Decrease the time and cost of accessing the information contained within the existing financial statements,
2. Decrease the preparation cost and time,
3. Increase the distribution of, and access to, existing financial statement information, and
4. Increase and enhance the statement's analysis.

It is the internet enablement of financial information that is currently contained within today's financial statements.

QUESTIONS on Why we need XBRL??

Eagle1: Will XBRL eliminate GAAP, and if so will it also eliminate the need for the CPA?

Mike Willis: Eagle1 NO is the short answer It is the enhancement of the information contained in f/s to enable users and preparers to deal with it more efficiently.

Simon Petravick: What is the status of the XBRL project? Anyone currently using XBRL?

Mike Willis: Simon, let me get to that in a minute.

Eagle1: What areas of XBRL will need attestation?

Mike Willis: Yes to anyone using it. Many of the steering committee companies are already using it.

Richard Rand: I have looked at the tech specs. It looks complicated. How do I, a preparer, put statements into XBRL format easily?

Mike Willis: Eagle1. Again. It is simply the tagging of the existing financial statements.

Ken Merwin: Mike - I see your own "EdgarScan" resource uses it as a demo - good source for those who wish to see the types of tags that hold the data.

Mike Willis: Richard. Like any successful technology, it is best if it blends into the background. We expect that to be the case with XBRL.

Mike Willis: Ken. Yes. Tagging data that is contained within the f/s.

Richard Rand: Saying it is simply "tagging" of existing statements evades the issue. How do I easily do that? Is there a program out there that will do it form?

Mike Willis: Richard. Preparing an html document 5 years ago is sort of where XML is today. Many of the software vendors who are participating are building tools to deal with this and help both preparers and users.

Richard Rand: So, can we expect companies like Peachtree or Great Plains to include XBRL statement generators in their programs in the future?

Mike Willis: Great Plains has already XBRL enabled some of their applications. I am not sure on Peachtree.

Simon Petravick: Besides viewing sites that prepare XBRL based F/S, are there any sites that demonstrate analysis or usage of these F/S?

Ken Merwin: Simon - see EdgarScan; I can e-mail you the URL. I believe that is Mike's creation.

Susan Boothe: There has always been a strong concern within the accounting community regarding consistent presentation of information from company to company and there is a fair amount of "interpretation" of accounting standards. Does the FASB or AICPA or SEC have plans for addressing this?

Simon Petravick: Are there standards for how F/S will be tagged?

Mike Willis: Susan. We have met with the FASB and some of the regulators on this and plan to keep them informed of our progress.

Arthur C. Joy: Will use of XBRL be mandatory for financial statement preparers?

Mike Willis: Arthur. We don't have the ability to make a language mandatory? But we do think that it will be a desirable format.

Dani Tabbara: Hi, this question is addressed to Mr. Willis. I am working on a project at Bentley College, with respect to footnotes disclosures in XBRL, and I have some questions. Can you help me on that?

Mike Willis: Let me move onto the next area.

Session Moderator: We are excited about your questions - I've collected those Mike hasn't answered and will come back to them. In the essence of time, we need to allow him to move on with his discussion

Mike Willis: What does XBRL enable users to do?

Consider the shortcomings of financial statements in the form of documents. What can they actually "tell" you? Not much, because they cannot "talk." While financial statements contain some very valuable information, we humans still have to read them, just as you are reading this. But what if you could access the information within financial statements in a more efficient manner to find out what they are "saying"? What if you could ask to see information related to revenue, such as a comparative analysis of day sales outstanding, receivables to revenue growth, and the revenue recognition policy? And what if financial statements could "work with" your software to answer these questions with just the click of a mouse?

We are talking about more than "searching documents;" we are talking about providing financial statement users with powerful tools to analyze current information quickly and cheaply. If you think this might be good for users and preparers of financial statements, the rest of this article is for you: it's a primer on an emerging, electronic-based language for financial reporting currently called "XBRL" - the eXtensible Business Reporting Language.

Here are just some of the beneficial uses of XBRL:

Credit Analysis - providing XBRL financial information for credit request purposes will enable less costly and more timely analysis.

Report Preparation - XBRL financial information can be rendered in various formats based upon the user's request, thereby reducing the costs associated with report preparation. In more general terms, XML is projected to reduce the cost of publishing content to the Web by 30 to 50 percent.

Shareholder Tools - XBRL provides a robust platform for significantly enhanced assessment, extraction, and query tools for shareholders and other users in the market.

Mike Willis: Let me take questions on the benefits of XBRL…

Richard Rand: What about benefits for international companies?

Mike Willis: Richard. We are working taxonomies for the major territories. Matching to the GAAP in each territory. International companies usually report in one or more GAAP’s. You can see more about the plans for the international taxonomies at xbrl.org

Eagle1: While the format or model, it looks as if XBRL covers more of a balanced scorecard approach, like the Jenkins Report was trying to incorporate?

Mike Willis: Eagle1 - XBRL today is just addressing existing financial statements.

Susan Boothe: What about the benefits for analysis across an industry and comparison of a particular company to standards?

Mike Willis: Susan. Yes...having xml in the background of financial information will greatly facilitate the comparison of the information that is contained within the f/s.

Richard Rand: Has anyone considered using Esperanto for the international standard?

Dani Tabbara: I heard that there is difficulty with respect to creating footnotes. Can anybody clarify why is that? Is it difficulty in taxanomy classification, or in xml programming?

Mike Willis: Dani - We are working on footnotes. We are including the data and the related text as separate items for tagging purposes. It is not that difficult.

Jack Fox: What will be the effect on the enormous amount of legacy accounting code?

Mike Willis: Jack. XML is a transport format and should not impact any legacy accounting code. I should say it should not adversely impact any existing legacy code.

Session Moderator: Any more questions on benefits before we move on?

Susan Boothe: Can you elaborate a bit on how xml in the background will facilitate comparison?

Mike Willis: Susan. Sure. Picture comparing Pepsi and Coke's f/s. You want to compare ratios for these companies. Today you manually pull this information into an excel worksheet. This might take how long? With XBRL you would be able to have the software 'extract' the information from the XBRL f/s directly into excel. Would take about 2 seconds.

Session Moderator: I can see why that would affect productivity!

Ken Merwin: Susan: visit Edgarscan; this uses a neat JAVA applet to run ratios, graphs, etc. http://edgarscan.pwcglobal.com/servlets/edgarscan

Dani Tabbara: Thanks. Would every footnote item then has its own tag? How about, when you include the same item in different places in the footnotes?

James Murray: If XBRL is to be used to enable comparison, how will it handle differing GAAPs?

Mike Willis: James. It will not solve world hunger or the water shortage in South Florida. It will not handle comparisons of things that are not comparable. Like different GAAP’s.

Susan Boothe: So it does or doesn't allow a financial analyst to pull information across say all companies in the chemical manufacturing industry? I guess like a data warehouse of registered companies. Or does Edgarscan allow such a query?

Mike Willis: Susan. It would facilitate a financial analysts work in this area greatly.

Ken Merwin: Edgarscan does allow selection of "peer" companies, SIC codes, etc. You can also export to Excel...

Mike Willis: Susan. EDGARSCAN does this, but only for a portion of the information in an EDGAR document. XBRL would obsolete EDGARSCAN as you see it today.

Eagle1: Will the end user be able to generate a better understanding of the business model and get to the actual information that management uses to assess business decisions?

Mike Willis: Eagle1. Think that this is sort of in the same area as the question on world hunger. This is a problem that is in the same area, but not directly on point for XBRL.

Simon Petravick: Are there standards for tagging data or will each set of statements contain user defined tags?

Mike Willis: Simon. I can come back to that?

When will its impact be felt in the market?

This started with an initial meeting in October of 1999. Basically it is a startup. We have published a Commercial and Industrial taxonomy and an overall specification. We are only at the very early stages of this effort. We anticipate that the consortium will create the taxonomies over the next 24 months. Then it is an implementation effort.

We are thinking that the benefits of XML/XBRL are significant and that the market will demand this from companies and that companies will want to use this format as it is more desirable for users.

Ken Merwin: Michael Platt has some excellent links in the web page sidebar before you come to this chat...

Eagle1: Do you have any models that show how the process works?

Mike Willis: Eagle1. Yes. We have some demos that we are working on getting on the web site.

Simon Petravick: I can see the new auditor's report..."In our opinion, the F/S are tagged fairly..." :-)

Dani Tabbara: Mr. Willis, is there a location where I can find all the tags and the work that has been done on footnotes. Is any of the footnotes work documented somewhere?

Mike Willis: Dani, please see the xbrl.org site.

While XBRL is not yet in general use today, several factors indicate that it will soon become part of business as usual. The breadth and depth of XBRL's capabilities is at the heart of its appeal. XBRL is:

  • Not a detail universal chart of accounts, but rather a GAAP/industry-sector oriented tagging scheme or language;
  • Not a new accounting or auditing standard;
  • Not designed specifically for U.S. territory GAAP financial statements, but rather oriented to a range of territories;
  • Not a requirement to conform to a specific financial reporting template; and
  • Not a technology that requires a proprietary software application.
  • Richard Rand: No offense, but this "market demands it" argument was the party line with WebTrust, and we see where that has gone.

    Mike Willis: Richard. I hear you on that. But go to xbrl.org and look at the members of the steering committee. MicroSoft, IBM, Fidelity, Morgan Stanley Dean Witter, etc.

    Ken Merwin: Mike - I believe Microsoft has a free XML editor that one can download to play around with the tags, etc.

    Dani Tabbara: Mr. Willis, I checked the XBRL.org site, and I found the taxanomy of the footnotes, as to the layers etc.. but I could not find the tags? will I find it there?

    Mike Willis: Dani. It is under 'specification'...Louis, Is that correct?

    Dani Tabbara: Mr. Willis. Yes, the taxonomy is, but not the tags?

    Mike Willis: Dani. Let us get back to you on that. I can't get there now.

    Louis Matherne: Dani - try http://www.xbrl.org/us/AICPA-US-GAAP-CI-00-04-04.xsd

    Session Moderator: Thanks Louis - I appreciate your help with Dani's question.

    Louis Matherne: Dani - also take a look at http://www.xbrl.org/US/tax0404.doc

    Mike Willis: Richard, Here is sort of the thinking. Initial demand for financial statement information in XBRL will come from the investment community as it begins to experience the advantages from early adopters. Companies that adopt XBRL sooner rather than later will benefit from increased coverage and analysis by investors.

    Why will coverage increase? Because financial statements provided in XBRL will be "better" than those not provided in XBRL, meaning that:

  • analysts will be able to extract, analyze, and process this information on a faster, cheaper, and more timely basis with software tools designed for this purpose;
  • the information will come directly from the companies, increasing the speed with which it actually gets to analysts' models; and
  • data in the financial statements can be readily exchanged between a wide variety of disparate software applications enabling the reuse of this information by stakeholders at a minimal cost.
  • Emerging companies are expected to be prominent among early XBRL adopters as financial analyst coverage is minimal. The costs and resources needed to cover smaller, less well-known companies are some of the biggest reasons why financial firms generally neglect this part of the market.

    However, XBRL will make it possible for small companies to vie with each other for coverage just as decreased costs and greater availability of data encourages analysts to consider focusing on these companies. This will place pressure on late adopters as analyst’s tools are developed to incorporate the XBRL information.

    For this reason, the next 24 months is considered a critical period as implementation plays out and the market begins to move in the direction of Internet-enabled financial statement information. Expect that the implementation of XBRL will be entirely market driven.

    Sheila Carver: Mike- Is the XBRL designed for individuals not in the Accounting profession? If Accountants are still recognizing GAAP, the f/s in existence today should not be obsolete in the future.

    Mike Willis: Sheila. XBRL will not do anything to the f/s that exist today except make them more usable by others within the supply chain.

    Richard Rand: Don't get me wrong, I am excited about this. However, XML is really complicated to the ordinary, in the field CPA. I am wondering how easy they or their clients will find this to use?

    Mike Willis: Richard, this language will be in the background......... and many users and preparers will just not even know that it is there. They will notice that they will be able to use the data more efficiently.

    Eagle1: Is the information going to be generated in real time, and if this is true won't it make today financial.

    Mike Willis: Eagle1, again, this is tagging of today’s f/s. This is not real time reporting.

    Ken Merwin: Mike - I've told my students (Sheila being one) that XBRL is a must learn in terms of emerging technologies... we also did a "WebQuest" to view SEC filings, etc. and several looked at EDGARSCAN.

    Mike Willis: Maybe, I should back up to the larger XML area? To understand XBRL, a conceptual understanding of XML and its growing impact on what is commonly referred to as "e-Business" is necessary.

    Session Moderator: Mike, that sounds like a good idea.

    Mike Willis: The market processes for e-Business require interoperability of software applications, and consistent protocols and formats for information interchange. XML is designed to accomplish these goals. In its basic format, XML enables information exchange inside and outside of organizations, as well as between individual users and different software applications.

    As a result of these abilities, XML is the foundation language for e-Business information exchanges. At this time - with the exception of Electronic Data Interchange (EDI) - most Business-to-Business (B2B) and all Business-to-Commerce (B2C) transactions involve the exchange of information through that product the Chinese invented over a thousand years ago, called paper.

    Jack Fox: What are the effects/benefits for the small to medium sized accounting practices?

    Mike Willis: Paper enabled people to create "documents." The creation of documents, and the technology to produce them in mass as a result of the Gutenberg Press, was partially responsible for a Renaissance (and some might say several revolutions). With XML, the revolution moves one step further. XML is the technology enabler for the exchange of data contained within a document without requiring that a related document format be specified by either the information provider or user.

    This technological change, a focus solely on content rather than on both content and appearance, is expected to have consequences similar to the invention of paper and the printing press. Its impact on the enhanced exchange of information and data upon our business world will be profound. In fact, the movement toward full-scale adoption of XML is already underway. Several industry (vertical) supply chains are currently leveraging XML to drive efficiencies through the entire business channel.

    Ed O'Donnell: Is the committee examining taxonomies designed to be flexible enough to accommodate a more disaggregated financial reporting model at some point in the future.

    Ed, great question. Go take a look at the specification and provide us with your thoughts.

    Mike Willis: There are over 200 existing XML specifications and many more are under development at this time. XBRL, then, is the adaptation of XML for the existing financial statement information supply chain.

    XBRL is a "GAAP-neutral" tagging structure using a GAAP-specific language to describe financial statement information and data by industry sector. It is designed for use on a global basis, which will be accomplished by creating data tagging specifications that mimic the various Australian, Canadian, International Accounting, United Kingdom, U.S., etc. principles for the consumer industrial products, banking, insurance, retail, and other sectors.

    XBRL will be freely licensed and available to all constituents of the existing financial statement information supply chain, as well as vendors who supply tools, such as software, for users to manipulate the information within statements. Similar to the html document revolution, XBRL documents will be a standard feature of your most commonly used software applications in the near future.

    XML is currently a file import and export standard for virtually all of the major Enterprise Resource Planning (ERP) vendor applications, and we can expect it soon for the major desktop application suites (2000 versions). The software vendors involved in the effort plan to include support for XML, along with unique data specifications such as XBRL, as a standard product feature in the near term.

    Here are a few thoughts on how one might create XBRL Files

    Using the financial reporting XML data specification (i.e., XBRL), the existing financial statement information will be tagged for use within the supply chain, and should become transparent to preparers and users over time.

    Eagle1: Do you foresee a time when this could go real time?

    Mike Willis: There are three requirements to move from conceptualizing XBRL files to successfully creating XBRL files: Remember, we only started this 6 months ago.

  • Development of XBRL specifications, which is the current objective of the American Institute of Certified Public Accountants (AICPA) XBRL Steering Committee;
  • Development of an application that facilitates the creation of XBRL tagged financial statements, which is a primary objective of the software vendors involved in this effort; and
  • Development of style sheets that render the tagged information in either a specific format or in a variety of formats (a standard process for all XML-based languages), which would be the job of software and other preparer vendors.
  • We are focusing on the area that is the domain of the accountants...... the language in the financial statements. We would love to have your input on this area. All you need to do is review the taxonomy at xbrl.org and provide comments per the instructions at the web site. There is also a community discussion area there as well where you can participate with others like we are doing here today.

    Eagle1: Will there be any security issues?

    Mike Willis: Eagle1. Access to information is a security consideration. XBRL is a format for that information.

    Session Moderator: Wow - this has been a great session, Mike! I've learned so much in the past 45 minutes. Since we have several questions, let's review some that we missed earlier and allow our visitors to ask a few more. How does that sound?

    James Borden: Is there a chance that some firms will start to add proprietary tags to the standard xbrl language, and thus only readable in certain browsers?

    Mike Willis: James. Anything is possible. But I don't know why one would do that unless it was related to individual access to information for which you had a subscription. The concept here is that this is an open data specification.

    Arthur C. Joy: Most financial statement data are very aggregated. Will XBRL provide a capability for statement users to disaggregate those data?

    Mike Willis: Arthur, another way to put your question is . ...will XBRL provide transparency? This is tagging of the data contained within existing f/s. The data for disaggregation is not in f/s and therefore XBRL today will not enable disaggregation. Conceptually, this is a different question, however, xml is a powerful and simple technology......... so how it is ultimately used is still an open question. Arthur. XML is the language of e-business.

    Session Moderator: Here's the first question... if you've already covered it, just let me know. Thanks.

    Session Moderator: Mike - I'd like to see some discussion on how the XML "story" should be introduced to students.

    Session Moderator: This one may have been answered, but could probably bear repeating: Besides viewing sites that prepare XBRL based F/S, are there any sites that demonstrate analysis or usage of these F/S?

    Mike Willis: Ken. There is a 'story' at xbrl...you should use that...it explains the history of the development.

    Session Moderator: Mike, that's at the xbrl.org site, right?

    Ken Merwin: Mike - your comment earlier about XML being now much like HTML 5 years ago is perfect...now even accounting students learn basic HTML.

    Mike Willis: Ken. Charlie Hoffman was the 'guy' at the very beginning of this story. He was really thinking ahead!!

    Ken Merwin: Thanks Mike...excellent program.

    Session Moderator: Saying it is simply "tagging" of existing statements evades the issue. How do I easily do that? Is there a program out there that will do it form

    Mike Willis: Simon. There may be a few, but I am not sure if the steering committee members have 'made them public' as this point. There are a number of demo's out there, but they might still be 'behind the firewall.

    Ed O'Donnell: Does the committee have any sense that the SEC would like to have this format available to use for filing, storing, and retrieving 10K-type information?

    Richard Rand: It seems to me that it would be helpful to first develop a good command of XML. What is the best, most user friendly XML Editor out there?

    Mike Willis: Richard. The tagging of f/s will be done for you. 5 years ago when you created an html document........ it was a pain. In 5 years, the preparation of xml documents will be like html today...'file/saveas/format/xml.'

    Ken Merwin: Richard - check out Microsoft's free editor...I understand it is quite good and free works for me...

    Eagle1: What types of goals or feelings do you get from the large firms like Microsoft and PWC that you are working along side with?

    Session Moderator: Are there standards for tagging data or will each set of statements contain user defined tags?

    Mike Willis: Common tags for the most part. Some small portion might be 'preparer defined'.

    Session Moderator: What are the effects/benefits for the small to mediums sized accounting practices?

    Mike Willis: Speed. Cost. You will be able to do more in less time. Think of the analysis of information that you could do if the information was already in some type of relational database.

    Session Moderator: Do you foresee a time when this could go real time?

    Arthur C. Joy: Will auditors be expected to attest to the "correctness" of the XBRL tags as well as to the content of the statements?

    Richard Rand: I like Art's question? It is very important!

    Mike Willis: Think that auditors will be asked to provide some form of assurance on the tags and the nature of their contents. The accounting firms involved in the steering committee are working with the other members who are publishing their f/s in XBRL.

    Session Moderator: Are there any questions that we've missed?

    Richard Rand: This would seem to exempt some old line "I don't like computers" auditors.

    Mike Willis: I thank you all for coming. Please go to xbrl.org and give us your thoughts/comments and suggestions there.

    Eagle1: Will the security of the information need attestation?

    Mike Willis: Eagle1, security is a separate concept. Many firm's already do work in the security area and for more than for f/s information.

    Michael Platt: Let me extend to Mike, Louis and the other members of the Steering Committee the offer to make AccountingWEB available as an additional communication vehicle in the ongoing development of XBRL. We support what you are building for the profession, and would like to help in any way that makes sense. Please consider this an open invitation to join us at any time over the next few months and fill in our audience of accounting professionals on current developments. Thank you all!

    Session Moderator: Mike - thanks so much for your time this afternoon! This has been a very informative session!

    Eagle1: Thank you Mr. Willis.

    Mike Willis: Thank you for the opportunity!!

    Richard Rand: Thank you Mr. Willis...and Committee members.

    Session Moderator: Thanks to everyone who participated today! Have a fantastic, successful week!

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