Ford, General Electric, Infosys and Microsoft are already using the Business Reporting Tags to file financial reports. Can a full SEC mandate be far off?
With the release of new Extensible Business Reporting Language taxonomies and Microsoft's announcement Dec. 6 that it used the technology to file its quarterly earnings report to the Securities and Exchange Commission, XBRL is proving it is mature enough to warrant widespread attention and adoption.
Microsoft is currently only one of 61 companies to voluntarily use XBRL to make SEC filings, said Rob Blake, senior director, Interactive Services, Bowne and Co., and a founding member of the XBRL consortium, founded in 1999 to develop and maintain the language. Those companies include Bowne itself, as well as Ford, General Electric and Infosys, Blake said. The Federal Deposit Insurance Corporation has also been using XBRL for two years, Blake said. "Every financial institution in the U.S. that's regulated by the FDIC has been using this language" to submit financial information to the FDIC, he said.
But some in the financial services industry already speculate that the SEC is leaning towards mandating the use of the language in reporting and filings.
Congress mandates that the SEC review public companies' financial information once every three years, a law that in 2005 meant the SEC received more than 750,000 filings, said Blake. "The SEC is desperately in need of a technology solution to help them do their jobs," he said.
XBRL is likened to an XML schema, or digital "bar code," said Blake, which lets companies represent their data in a format easily and quickly understood and processed by computers. The language ensures that companies can accurately transmit financial data internally and to investors, analysts and the SEC. The new taxonomies, based on GAAP (Generally Accepted Accounting Principles) and released Dec. 5, broaden and deepen the types of data to which XBRL can be applied, making the language more accessible for companies across a broader industry spectrum.
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The SEC's chairman, Christopher Cox, and XBRL advocates like Blake are hopeful that the new taxonomies and growing awareness will push the language toward widespread adoption.
Blake said that although the language had been in use since 1999, barriers to widespread adoption still remain. One of the largest hurdles to overcome, Blake said, was the impact and upheaval companies felt when Sarbanes-Oxley legislation was passed and enforced.
"Companies are afraid of the 'rip-and-replace' mentality," Blake said. Coming so closely on the heels of Sarbanes-Oxley legislation, which required a substantial amount of infrastructure, time and personnel investment, any attempt to mandate use of XBRL might generate resistance, he said. "Obviously this is not brand-new technology, but it can be disruptive," Blake said. "[Sarbanes-Oxley] left a bit of a negative aftertaste, and that's why the chairman could be reluctant to use the word 'mandate.'"
But XBRL is beneficial both for the industry, for investors and for companies, whether or not use is mandatory, Blake said. Standardizing data reporting using the language can ensure the accuracy of financial data, which can help investors, analysts and shareholders more efficiently gauge a company's financial strength. Since financial data is tracked from its inception, it's also easier to flag potential financial and accounting problems, he said.
While using the language won't and can't prevent another Enron or WorldCom-type financial scandal, the warning signs will be much clearer, he said. "Obviously, XBRL cannot prevent human deception," Blake said. "But it can highlight the warning signs of financial misconduct sooner."
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