New XBRL Taxonomy a 'Boon to Investors'

The SEC is releasing a new XBRL standard to improve financial reporting and analysis.

The U.S. Securities and Exchange Commission is releasing a new taxonomy for Extensible Business Reporting Language on Dec. 4 in the hopes of improving financial reporting and analysis.

An XBRL taxonomy, which is akin to an XML schema, describes a standard way to report business information. The SEC has been encouraging public companies to file their public financial disclosures using XBRL on a voluntary basis.

David Blaszkowsky, director for the office of interactive disclosure at the SEC, said during an XBRL conference held in Vancouver, British Columbia, that the new taxonomy represents "a tremendous boon to investors" because it provides greater access to information buried in financial reports.

The use of XBRL is not currently mandatory, but Blaszkowsky said that after observing how the financial community makes use of the new language, the SEC could "issue a possible rule in the near future."

Tim Bray, director of Web technologies at Sun Microsystems, and one of the original architects of XML, said XBRL will allow financial services firms and individual investors to dive into public company statements more efficiently than they can now.

XBRL "tries to make information machine-processable." The end result, said Bray, is that the language will make it "trivial to run a comparison across an entire sector and get an answer in seconds."

Mary Knox, who follows the financial services industry for Gartner, noted that XBRL offers unique opportunities but also risks for financial services firms. "There are unknown issues that may arise," such as a lack of developed best practices and a lack of consistency in how the language is used and consumed.

Knox noted that the opportunity to glean significant information will be reduced if too few filers adopt XBRL. "If there is not a body of data to consume, you're limited in what that analysis or utilization may be," she said.

But Bray said the investor community will learn to make use of the tool quickly. "Once a critical mass is available online, [adoption] will take off like a brush fire and see the development of a grassroots community," he said.

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