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Ami Beers
Ami Beers
 
Michelle Savage
Michelle Savage
 

The SEC Mandated XBRL

So what?

January 7, 2010
by Ami Beers, CPA and Michelle Savage

The adoption of eXtensible Business Reporting Language (XBRL) by the U.S. Securities and Exchange Commission (SEC) has marked the largest and most complex implementation of XBRL around the globe to date. Millions of dollars are being invested in software, tools and in the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database to support the thousands of companies that will submit financial information in XBRL format and to enable consumers to more easily access this information for analysis. Continual updates to the U.S. Generally Accepted Accounting Principles (GAAP) taxonomies to incorporate new accounting concepts and standards will help to improve the use of XBRL-formatted data that investors will come to rely upon. Capable tools will facilitate analysis of the abundance of data that will become available in the market as a result of more public companies submitting their tagged financial statements under the SEC’s phased-in mandate. Expect to see improvements in the efficiency of the entire market as preparers and consumers benefit from streamlined processes and more accurate and transparent data when XBRL is implemented by all public companies.

The SEC mandate of XBRL-tagged financial information marks an enormous milestone in the widespread adoption of XBRL. However, the potential for process improvements that XBRL can provide is much broader than just external reporting and investments that are already made and can be leveraged for a “broader footprint” for many types of business reporting.

Where Do We Go From Here?

Although many organizations and newly formed working groups are exploring ways in which XBRL can improve their business processes and current reporting applications, there are currently only a limited number of actual uses of XBRL technology within the United States. Prior SEC’s adoption, Federal Financial Institutions Examination Council (FFIEC) was the largest XBRL user under its Call Report Modernization project (more information on this project can be found in the FFIEC whitepaper, Improved Business Process Through XBRL: A Use Case for Business Reporting (PDF)). Since 2005, the agency has achieved process improvements, increased productivity and more accurate data through its use of XBRL for quarterly data submissions.

Another example of how XBRL implementation has increased productivity and provided process improvements is in Nevada. State Controller Kim Wallin implemented XBRL to track grants and other financial information, which eliminated the manual cutting-and-pasting of information that was required to produce these reports. Using XBRL, the previously two-week process of grant reporting was reduced to one day, eliminating manual efforts for a more robust internal control structure. These implementations demonstrate how XBRL can reduce costs.

Government reporting is an area of great promise for XBRL. XBRL U.S. recently made a joint announcement with the National Information Exchange Model (NIEM) on how to leverage the strengths of both standards towards better government reporting. NIEM is an eXtensible mark-up language (XML)-based information-exchange framework for U.S. government agencies and organizations. NIEM and XBRL are open, free standards with significant adoption momentum and proven applications. NIEM focuses on standardizing transaction exchanges of nonfinancial elements used across all levels of government. XBRL U.S.’ digital dictionary (taxonomy) contains elements for financial data reporting that are currently used by U.S. public companies to report GAAP financial statements. Leveraging the strengths of both standards is expected to result in greater transparency, accuracy and consistency in government reporting.

Narrative information can also be tagged and consumed in XBRL. This expands its capability and satisfies the needs of all types of business-reporting applications beyond financial reporting. The Enhanced Business Reporting Consortium (EBRC) has drafted an updated taxonomy for tagging the Management Discussion and Analysis (MD&A). Narrative disclosures that are provided in MD&A are very useful and the ability to consume this information in a common format provides enhanced transparency to the market and demonstrates XBRL’s ability to be utilized in other reporting streams. The EBRC has invited open collaboration to expand the taxonomy with more detailed tags that will enable easier information access for users. Collaboration has been a key driver to the success of this data standard and is an essential component to advance the technology further.

The Advancing Government Accountability (AGA) conducted a study to test the feasibility of applying XBRL to the public sector. The project studied the benefits of developing and using an XBRL-taxonomy for government reporting in Oregon’s Comprehensive Annual Financial Report (CAFR). The project team (see XBRL and Public Sector Financial Reporting: Standardized Business Reporting: the Oregon CAFR Project, for a complete list of participants and more detail on the study and the findings) included representatives across the public-sector financial-reporting supply chain that worked together to create a Governmental Accounting Standards Board (GASB)-based taxonomy to tag the two primary statements in the Oregon CAFR. While the project’s results are a good starting point for XBRL in government reporting however, more work is needed in this area to enable state and local governments to fully implement XBRL into their processes.

“Our XBRL investments in an efficient global marketplace today will help sow the seeds for lower interest cost tomorrow. For government financial statement preparers, the marginal cost to convert existing financial reports in XBRL will increase market efficiency and that’s a good thing,” said Oregon State Controller John Radford, when considering the need for XBRL. “Our experience in Oregon is that the actual cost is slightly more than converting existing files from spreadsheets and word processors to XBRL. As market players convert to XBRL, state and local governments should be ready,” he added.

Conclusion

The environment for business reporting is evolving; the concept of paper-based and static reports will be replaced with online information available on demand. To prepare for the new digitized world in which better informed, real-time decisions will be critical, CPAs in business and government should take a proactive role to become educated and involved in how this new technology will transform the manner in which all business is conducted.

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Ami Beers, CPA, is manager in the Business Reporting and Assurance and Advisory Services Team at the AICPA, and is responsible for building awareness and understanding of XBRL among the membership. She supports the AICPA XBRL Assurance Task Force, which was established to develop guidance to assist CPAs in public practice who are requested to provide assurance on XBRL-related documents. Prior to joining the AICPA, Beers served in a number of financial management roles including controller, treasurer and VP of Finance at both public and private companies. Michelle Savage, VP Adoption and Communications, manages the education, marketing, communications and outreach efforts of XBRL US, Inc., a nonprofit consortium dedicated to the widespread US adoption of Extensible Business Reporting Language (XBRL), an emerging technology standard in how business information is reported.  Savage joined XBRL from PR Newswire where she focused on developing services to help companies communicate their key messages and information to shareholders and potential investors. Within the XBRL-US committee of the AICPA, she served as the vice chair of the Steering Committee as well as the Chair of the Adoption Working Group.