Deutsche bank and bank of America are in. So are Nasdaq and PricewaterhouseCoopers. And don't forget Edgar Online, Reuters and the FDIC.
In 1999, the American Institute of CPAs brought together 12 accounting firms and technology vendors to develop and promote worldwide use of Extensible Business Reporting Language (XBRL), an XML- based standard for business reporting that would make everything from public companies' regulatory reports to borrowers' financial statements accessible from any type of software or technology. Three years later, XBRL International has grown to 170 organizations, and several of those members are actually piloting the standard. "It's a real testament to the value of XBRL," says Rob Blake, group program manager for Microsoft's finance-IT department and chairman of the XBRL working group responsible for creating U.S. taxonomies. A draft taxonomy-or set
of XML tags to identify terms within a specific regional or industry-based accounting system-is due to be released for the banking industry in January, according to Paul Penler, vice chairman of XBRL-US and principal at New York-based Ernst & Young.
Despite the progress, not many are holding their breath waiting for XBRL to spread from the few pioneers to the financial reporting world at large ven Penler says there's still years of work to be done. First, more technology products need to support XBRL, and second, the standard needs to be used more so best practices can be established, he says.
Then there's the economy ew infrastructure tools are not at the top of most companies' "hit lists" these days, says Betsy Graseck, managing director of equities research at New York-based Morgan Stanley. "I think there's always going to be a challenge between maintaining what you have and investing for the future," she says.
Few are offering up dollar figures or timelines for widespread XBRL adoption. But before it's consumed by the masses, the financial services world will need to make substantial investments in time and money, says Graseck. That said, she feels it will be worth the investment.
Brad Saegesser, manager of credit, decisioning and data products at New York-based Moody's KMV, wants to get five banks to agree to use Moody's prototype XBRL credit-risk analysis software and five accounting firms that serve at least 50 private corporate clients of those banks to pilot XBRL accounting software. Then, he wants to get 50 of those mutual clients to let their accountants file credit reports to the banks using XBRL. "This is the next step that has to happen to bring XBRL into the mainstream."
The advantages for banks as consumers of XBRL data are clear, says Saegesser. Right now, they get paper-based financial reports from their corporate clients, and each of those reports needs to be entered into the banks' databases manually ven e-mail attachments must be rekeyed because the information is in text format; it can't be scanned, transferred and electronically processed by the bank's databases.
That extra data-entry step opens the door to human error, consumes resources and wastes time so banks can't do the in-depth analysis they should, says Saegesser. The entire process, from the time a client finishes preparing a report to the time it gets into a credit officer's hands, can take anywhere from 10 days to 10 weeks, he says. With XBRL, it's a matter of seconds. "You're replacing a slow paper-driven process," he says. "It's kind of a light at the end of the tunnel for everybody. .But things like that don't happen overnight."
The problem, he says, is something of a "chicken-and-egg syndrome." In order to file XBRL reports, banks and their customers need XBRL- enabled software. Most can't afford to build the systems themselves, so they're waiting for vendors to add XBRL to their products. But outside of the larger general ledger software makers, most vendors are waiting for the market to grow before investing in XBRL.
That's why Saegesser wants to get accountants involved; so a few big firms can create XBRL documents for thousands of clients. That's also why the XBRL consortium is so focused on selling vendors on the value of XBRL. Meanwhile, industry giants such as Bank of America and Deutsche are doing their part to speed the adoption process by proving XBRL's value to the banking world. Both are in the process of building XBRL-compliant systems so their clients will be able to file reports while on-line, says Penler.
But banks don't only stand to benefit from XBRL as consumers of financial statements, says Mary Knox, a senior research analyst at Gartner. Using XBRL tags, banks can input financial data one time, then send it to shareholders, investors, regulators and analysts, each of which can pull it into a format that makes sense to them.
One push in this direction is coming from the FDIC., which is getting ready to pilot XBRL for member companies to file call reports. Regulatory agencies in other countries, such as Australia, are already collecting XBRL data from banks. "I think that if it's successful, XBRL would be a wonderful thing for the banking industry," says Knox. "But you have to have a certain mass doing it for it to make sense."
The XBRL consortium is becoming more like a Who's Who list of vendors, banks and accountants, says Microsoft's Blake. But it's the active participation of top global technology vendors that most concerns XBRL opponents like Todd Boyle, a Kirkland, WA-based CPA. XBRL translates accounting terms into a mechanical syntax so financial information can be sent over a variety of systems. That syntax was developed by top vendors that can afford the membership dues to join the XBRL consortium, he says.
So to use the XBRL standard, companies must either buy products from those vendors that can afford to XBRL-enable their products or go through the difficult process of developing homegrown systems, he says. "This is only for very high-end vendors and toolmakers. A bunch of vendors got together and they've succeeded in capturing the financial reporting framework from the public, and now they're going to be able to collect rent."
Saegesser, however, points out that vendors don't need to join the consortium to XBRL-enable their products; the specification and taxonomies are free and publicly available. And, he adds, XBRL is not a vendor-specific syntax. He compares XBRL to a language. Human beings all speak words, but some speak French, some speak English, some speak German. Similarly, XML is a method of communicating, and XBRL is a specific dialect to communicate within the highly specialized world of financial reporting.
Another problem, says Boyle, is that XBRL doesn't do much to improve the state of financial reporting. Companies have massive data warehouses that collect very detailed information about transactions. But financial reporting methods consist of codes that require companies to translate that concrete information into vague accounting terms, which leaves room for interpretation and loopholes, says Boyle. XBRL doesn't change that. "It doesn't make a corporation provide any more detail than it does today," he says.
But experts disagree. Many feel XBRL will go a long way in terms of clarifying financial reporting. For instance, the revenue line on a quarterly earnings statement from one company may mean net revenue, while another company defines it as gross revenue. XBRL has different tags for each, leaving less room for creative interpretation.
Looking at the members of XBRL International and the work that's been done, Gartner's Knox says she is hopeful. "We are in a terrible economy. We are also in an industry where everyone likes to see someone else put their toe in the water first," she says. "But I believe it has good support, I believe it has a good audience, I believe it has strong potential. Whether that potential is realized, we'll have to wait and see."
