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Rob Krugman

XBRL: Will You Be Caught Off Guard?

Educating yourself and your clients about this key financial reporting shift.

October 4, 2007
by Rob Krugman

The U.S. Securities and Exchange Commission (SEC) announced in late September that the final versions of eXtensible Business Reporting Language (XBRL) taxonomies (data dictionaries) for financial reporting against U.S. GAAP (Generally Accepted Accounting Principles) will be made available in early December and that the rule-making process to push for a mandate is underway. Now is the time to begin educating yourself and your clients as to what this means.

Migrating to XBRL

Migration from traditional financial reporting to XBRL will represent a fundamental shift for investors, analysts and corporations in how they investigate and track corporate financials. However this shift will not occur without complexity. Traditionally, financial reports have been documents that include tables of numbers accompanied by text explaining what the numbers represent. With XBRL, financial reports are no longer tied to documents and a set format but, rather, the data have been tagged in such a way that the numbers can be presented and dissected according to the needs of the reviewer.

As a result it will become increasingly important for corporations to report financial information in accordance with U.S. GAAP and the rules of XBRL.

What This Means to You

Today, corporations have the ability to format financial results to be displayed in tables according to their own preferences. They may choose to highlight a specific number, add a negative sign or provide indentation to demonstrate a child element. Corporations can still present numbers this way, but with XBRL, reviewers may choose to utilize the company’s representation of the data — or their own — using the XBRL-tagged data.

In XBRL, every data element has attributes associated with it that allow the user to gain an understanding of the context associated with that element. Attributes include instant and durational dates, debit/credit flags, labels and descriptions (potentially in multiple languages) and calculation relationships to other elements. These calculation elements require that information is tagged correctly or you risk the information being misunderstood.

Example:

Parent A = Child BChild C

Here, the parent tag “Parent A” can be calculated by subtracting the value of “Child C” from “Child B.” Looking at the attributes of the Children, we learn that “Child C” is a debit, as such negative values should be presented as positive. If the reporting corporation was to include a negative sign the result would be a double negative resulting in: A = B + ABSOLUTE (C).

Educating Yourself and Your Clients

So how do you begin to educate yourself and clients about XBRL, before it becomes a requirement? One way is to recommend that your clients begin filing with the SEC as part of the Voluntary Program. This program allows corporations to start working with XBRL and educate themselves on the filing process without holding the corporation accountable for issues that may be found with XBRL. In effect, it allows corporations to educate themselves on the process without the risks associated with a mandate.

Additionally corporations and CPAs can gain an understanding of what their financial reports would look like in an XBRL format today. For example, EDGAR Online, through a relationship with RR Donnelley, can provide you with your historical filings in an XBRL format and assist you in filing new documents.

This process is a quick way for corporations and their accountants to gain an understanding of XBRL. In this forum companies can ask questions about why the data may look different in an XBRL format than they do within their EDGAR Filings.

The key issue is whether you choose to be caught off guard or be prepared when the mandate comes.

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Rob Krugman is the Senior Vice President of Product Development for Norwalk, Connecticut-based EDGAR Online Inc. (NASDAQ: EDGR) — a provider of global business and financial information.