A new software programming code that's expected to revolutionize how financial statement information is reported and collected could also profoundly cut banks' costs while improving the process they follow in gathering required information from their commercial loan customers.

So say the proponents of eXtensible Business Mark-up Language, or XBRL, a language that enables businesses to create financial reports and have their individual bits of information coded in a way that makes it very easy to access and retrieve them online.

XBRL is a derivation of eXtensible Mark-up Language, or XML, an Internet industry framework for languages that describes data and establishes individual "tags" for specific elements in structured documents such as financial reports. Because items are individually tagged, report preparers can readily re-position specific elements in financial reports to satisfy different parties requiring information, such as lenders, regulators, investors and analysts, and those parties can automatically retrieve the items they want.

With XBRL, a financial statement can be automatically translated into separate versions required by the preparing business's main constituencies-regulators, investors, analysts and lenders. And once the XBRL documents are published on the Internet, those constituencies can automatically extract virtually any individual item of information from them in almost any type of grouping.

For example, Web surfers in an XBRL world could automatically drill down to get information specifically related to revenue, such as a comparative analysis of day sales outstanding or receivables to revenue growth. XBRL, at least theoretically, also will allow for downloading detailed groupings, such as all of a certain year's depreciation expenses reported by all companies in the same industry.

The first and only version of XBRL now available-applicable to businesses accountants classify as commercial-industrial (C-I)-already can be used by banks to gather data from those types of companies, according to the XBRL Committee, the development effort led by the American Institute of CPAs in New York.

As C-I companies post XBRL-based financial reports on the Internet, any banks with which they have loans outstanding, or in the application stage, would be able to go online to access those reports. The banks could automatically extract and input any information required by their lending and credit risk operations, the committee and other XBRL advocates claim.

The committee expects its ongoing work to lead ultimately to the development of XBRL versions for all business classifications.

"This has the potential to become phenomenally significant for banks," says Brad Saegesser, senior consultant for Moody's Risk Management Services, the developer of spreadsheet and financial analysis software for the banking industry. New York-based Moody's is participating in the XBRL development effort but is not yet a member of the XBRL Committee.

"Financial data gathering and inputting is an extremely time- intensive task, and XBRL (in the C-I sector) could handle 80% of a banks' needs," Saegesser reckons.

Banks' financial information gathering needs vary widely, but Saegesser estimates that gathering and inputting data now takes as much 30 to 45 minutes per customer, and many customers require this processing once every quarter.

With the exception of public companies, which file on the Securities and Exchange Commission's Edgar database, most commercial loan clients do not post their financial reports electronically. Instead, banks must manually re-key data from the companies' hard-copy reports.

Because XBRL would mean one report could automatically be rendered to serve multiple reporting needs, its proponents aim to spur a mass movement of small businesses toward producing their financial reports electronically.

Meanwhile, of course, the data-gathering requirements on commercial banks remain enormous. Moody's estimates that banks may extract more than 200 individual items from financial statements in assessing a commercial loan client. And the number of commercial loan customers on the books of commercial banks in the United States varies from as many 150,000 or more among the super-regionals to perhaps the hundreds for community banks.

Charlotte, NC-based Bank of America, for instance, has more than 100,000 small to midsize commercial loan clients and about 100 employees nationwide involved in gathering and inputting the required information from them.

"This XBRL would obviously be a cost savings to us," said David Vickers-Koch, a senior vice president in commercial risk management at Bank of America. "Data is valuable to us, but it's costly for us to gather and use."

On the analyst's side, the view is similar: "The central promise is to be able to do things better, cheaper and faster," said Paul Jamieson, a senior analyst for banking and payment services at Gomez Advisors in Lincoln, MA. "I'd say this XBRL has a reasonably good shot at being successful."

Moreover, by allowing data to be readily extracted from documents found online and eliminating the need to physically input that data, XBRL conceivably could also eliminate re-keying errors, which can be costly and embarrassing to banks and inconvenient for clients.

A consortium of companies brought together by the American Institute of CPAs began developing its financial reporting version of XML in 1998, several months after the first specifications for XML were released by the World Wide Web Consortium, a Cambridge, MA-based group of business leaders charged with developing common protocols that promote the evolution of the Internet.

Since then, the consortium has grown to more than 50 members, which include all of the Big Five accounting firms, several major technology vendors-including Microsoft, SAP, Oracle and PeopleSoft-and financial publishers such as Reuters and Dow-Jones and Co. It has also spent more than $1 million in developing its C-I version of the language.

The XBRL Committee hopes to establish XBRL as the preeminent reporting language for all financial reports. All the technology industry members have committed to integrating XBRL into their respective products, while the non-technology companies are all expected to use the language to develop and post their financial reports. To join the group, members pay between $30,000 to $50,000, based on their level of involvement.

XML is a vast refinement of the Internet's standard language, Hypertext Markup Language, or HTML, in which entire documents are posted online as essentially one picture. In HTML, searching for and manipulating specific bits of data from a report requires that the report, as posted on the Internet, be downloaded and transferred onto a spreadsheet or some software application with search and manipulation capabilities.

In XML, that searching and manipulation conceivably can be done with a simple mouse click. What's more, in XML, Web surfers can automatically retrieve the same types of data from all companies in a vertical industry-a task that would require hours (perhaps days) of work with HTML and even the most powerful of Internet search engines.

By the time the AICPA entered the XML picture, dozens of other parties were already developing XML for their respective areas of business. At last report, 246 XML applications had been developed, most of them for one-industry verticals, according to www.xml.com, a Web site that promotes XML.

Because XBRL applies to financial statements and other business reports, it is a horizontal application. Although the first XBRL version applies only to C-I sector businesses, the XBRL Committee is also working on individual versions with specialized coding, or "taxonomies," for other major business sectors, such as software companies, mutual funds and the automotive industry.

The C-I version, which was released to the market in July, is already capable of being used by banks for their information-gathering needs, according to the XBRL Committee. If the C-I companies start posting their financial reports in XML, banks can immediately begin accessing reporting information in an XML fashion. The committee claims that, for banks, the effort not only will require no investment in new processes but also can be expected to save the industry millions of dollars and thousands of man-hours in manual effort.

The committee is eager to get banks to buy in, theorizing that they will lead their commercial and industrial business clients to embrace the technology as well.

"Banks can be significant in creating a demand pull for this," said the XBRL Committee's chairman, Mike Willis, a partner and deputy chief knowledge officer in PricewaterhouseCooper's global audit practice. "They are a key user of financial information, so the more they understand and use XBRL, the more demand there will be for it from the marketplace-their customers."

Nonetheless, banking industry buy-in has been slow. The XBRL Committee has no commercial banking industry members, although it has several investment banking members, such as Morgan Stanley Dean Witter, and J.P. Morgan & Co., both of New York.

B of A is the only North American commercial bank to go on record endorsing XBRL, and a spokesperson for the American Bankers Association said that organization has heard of XBRL but does not know enough about it as yet to state an opinion.

"Other banks will not be as far along as Bank of America in this because not many of them have databases that are as centralized as ours," says Vickers-Koch.

Adds Gomez Advisors' Jamieson: "The banks still need to be brought into this fold. They are noticeably absent from the XBRL working group. Once the industry becomes more aware, it will be an easy sell because banks are incredibly bottom-line oriented.

"What will be needed is a business model that shows that this is in their best interests-that it can decrease costs. It would also help if some super-regional banks began using this."

The XBRL Committee has been stepping up its outreach to banks. It has no concrete results to report, but Willis says commercial banks are becoming more visible at XBRL business presentations.

The XBRL group has gotten some significant support from Germany, a country with 2,000 commercial banks. Deutsche Bundesbank, the central bank responsible for setting national monetary policy, has joined the XBRL Committee, and the country is creating its own XBRL development group, according to Heimo Saubach, managing director of PPA, a Stuttgart-based firm that provides financial data-gathering services and related software products.

"A lot of German banks are concerned about costs in capturing data today," says Saubach, PPA's liaison to Germany's XBRL development group. "XBRL could be the solution."

Why is Germany ahead of the commercial banks in the United States, where XBRL was born? Saubach says data-gathering chores may be more onerous in his country, noting that German regulators require banks to analyze periodically data on all clients with loan balances exceeding an amount equivalent to $250,000.

"And we're talking about actual cost-cutting potential," Saubach adds, noting that capturing data from one financial report typically costs $150 to $250 (U.S.) and even the smaller institutions in Germany typically have 30,000-plus commercial loan clients.

While banking industry interest may still be lagging, U.S. technology interest in XBRL is high-a highly significant boost to the technology's prospects since it will be up to the technology companies to integrate XBRL into their products and services.

"I'm cautiously optimistic because I still see a big challenge with the accounting software vendors," said Vickers-Koch. "They are the ones that will have to make the move and bring their clients with them- something like making sure people have quarters before you start installing vending machines."

The business software development industry, particularly vendors of accounting applications used by middle-market companies ($500 million or less in annual revenue), have embraced XBRL enthusiastically. Fargo, ND-based Great Plains, generally regarded as one of the middle market's leading applications developers, was at the ground level in the AICPA's original work on XBRL in 1998.

Since then, 12 other developers of accounting and report-writing software for a small and midsize business also have joined the committee, including Epicor, Navision, Sage and Accpac International, the middle-market affiliate of Computer Associates. Other members include enterprise resource planning vendors PeopleSoft, SAP and AP and Lawson, in addition to financial publishing powerhouses Reuters and Dow- Jones Co.

The original XBRL and all subsequent versions will be standardized for disparate software types. This means any program published in XBRL, regardless of the software it was created in, can be downloaded in readable form by any other software application that is linked to a browser, according to the XBRL group. That includes importing a financial statement created in a word-processing program directly into a spreadsheet program.

Still, momentum is not readily apparent. No commercial-industrial companies are using XBRL for operations yet and only one of the committee's technology industry members, Navision U.S. of Atlanta, has developed a market software with built-in XBRL capabilities.

And the accounting industry, which has been at great odds with the Securities and Exchange Commission over auditor independence standards, has not attracted any federal government agencies to the XBRL development effort. Although Edgar Online, a service that retrieves information from the SEC database, is an original XBRL group member, the SEC itself has not been involved at all.

Willis said SEC involvement is not imperative because acceptance of XBRL "must be market driven, not regulator driven." He said the SEC cannot mandate companies to deliver their financial reports in a particular fashion; but, once a fashion becomes pervasive, the commission will be obliged to move toward that method as well.

"That's the beauty of e-business-so much happens because of collaboration," Willis said. "This will not become accepted because it is required (by regulators), but rather because it proves itself to be the right thing to do."

For further details on XBRL development, visit www.xbrl.org. Bank technology and credit-risk executives may be particularly interested in a link titled "Comparing Two Companies" that can be found on the "Demos" portion of the site.

John Covaleski is senior news editor of Accounting Today, another Thomson publication.

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