Preparing for the XBRL mandate

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By Peter Hrabinsky

For many publicly held companies, the XBRL mandate has arrived! The U.S. SEC wants companies that file using U.S. Generally Accepted Accounting Principles and have a worldwide public float over $5 billion to provide XBRL-formatted financial statements — 10-Ks, 10-Qs, etc. — beginning with fiscal periods ending December 15, 2008. The remaining companies using U.S. GAAP will be phased into the XBRL program over the following two years.

For many companies, the first step to XBRL preparation will involve XBRL education. XBRL enables the tagging or defining of specific information within a document. With XBRL, financial statements have internal tags defining specific terms such as gross profit, net asset value, and total revenue, to name a few.

Textual information can also be tagged, giving it meaning and the ability to be compared to documents defined in the same way. Ultimately, XBRL provides a more consistent, accurate, and stable flow of information relating to how business information is filed, reported, consumed, shared, disseminated, and managed within internal business processes.

Several web sites offer a deep dive into XBRL, including:
XBRL International,
U.S. Securities and Exchange Commission, and
International Accounting Standards Committee (IASC).

XBRL and You

Preparing for XBRL will mean something different to each person, depending upon his or her role in the financial reporting ecosystem.

Regulatory filers will find that XBRL changes the way they currently file documents. Consequently, it's critical for filers to start looking into the availability of XBRL tools required to satisfy the upcoming XBRL SEC mandate. Filers should establish a plan of action and learn everything they can about XBRL and the availability of regulatory filing software tools.

Financial analysts will no longer have to manually review financial statements and type and re-key data into a spreadsheet by hand. Moreover, XBRL gives all stakeholders the ability to capture relevant data at the instant it is released by a company, so analysts should focus on providing in-depth, value-added analysis of financial information.

Investors will get a dynamic information flow of financial information. Data will be pulled from the source XBRL documents originally filed with the regulatory body. Investors will no longer have to go through a data aggregation source to obtain financial information. With XBRL content freely available, investors should find the right tools to interpret the XBRL data and provide them with the financial information relevant to their investment needs.

Accountants will have to prepare XBRL-formatted financial statements. The good news is re-keying financial data will be a thing of the past because XBRL-enabled software will be able to interpret any XBRL data across any platform as each rendering of financial statements will be consistent. Accountants should learn how to tag financial data within XBRL's predefined, semantic structure. They should also investigate XBRL solutions for tagging and submitting financial information.

Securities lawyers will have to tag textual information when complete XBRL submissions are mandated as the future of XBRL filing will be complete XBRL tagging of both financials and textual content. In turn, securities lawyers should be prepared for mandates to tag textual information. They should also look into tools for making the transition to XBRL reporting.

The XBRL Experience

Companies new to XBRL might also look to those already working with the technology for guidance. For instance, PepsiCo, General Electric, Microsoft, and other companies are already voluntarily tagging financial documents with XBRL and can speak from experience about XBRL. The experiences of these companies can help ease the anxieties of companies that have yet to work with XBRL.

Data, not documents. Filing in XBRL format requires a fundamental shift. Companies are no longer creating documents. They're creating data, which is a very different process that demands companies modify longstanding practices. For instance, treasury stock is sometimes reported as a negative number. However, in XBRL, it's reported as a positive number. Another example: Minority interest is often reported inside liabilities, but in XBRL, minority interest lies outside of liabilities.

How — not what — you report. XBRL doesn't tell companies what to report. It simply tells them how to report. With approximately 15,000 XBRL tags, picking the 2,000 or 3,000 tags that accurately represent a company's business can seem overwhelming. But early adopters have found that they were already reporting the information that these tags represent. XBRL simply applies common tags to that information. On average, the financial statement for a mid-to-large cap company contains about 4,000 data elements. The other 11,000 tags are simply irrelevant to their businesses.

Business as usual. XBRL does not force any changes in the way companies manage their businesses. It is not a new accounting standard. Rather, it is simply a new format for data. It makes company information more accurate, more transparent, and faster to aggregate and report. It makes data easier to analyze. And, for the first time, it allows computers to identify and analyze corporate financial data automatically and in real-time.

Finally, companies that have been working with XBRL find that subsequent filings are much quicker. Once they set up for XBRL filing, the cost of producing subsequent filings drops dramatically because they are only dealing with changes or exceptions. The rest is just filling in previously identified tags. The short term investment delivers a long term reward in simplified reporting.

About the author
Peter Hrabinsky is Director of Product Marketing and Business Development for JustSystems, the largest ISV in Japan and a worldwide leader in XML and information management technologies. Learn more about JustSystems, and contact Peter at [email protected].

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