Financial analysts get a new language

XBRL has helped financial institutions expedite reporting and data analysis.

Securities and Exchange Commission’s request for proposals

For a growing number of financial institutions and some federal agencies, the Extensible Business Reporting Language appears to be a promising new tool for expediting financial reporting and analysis. XBRL is a nonproprietary metadata standard for electronically tagging and classifying financial data.

The Securities and Exchange Commission announced Aug. 11 that it is seeking bids for prototype Web tools to analyze XBRL-encoded data in the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. About 28,000 registered entities and individual filers use EDGAR to submit nearly 18 million pages of financial statements, reports and other electronic filings to the SEC each year.

EDGAR now accepts a variety of electronic formats, including Microsoft Word, HTML and Adobe Systems PDF. Financial experts say the variety of formats has been a challenge for EDGAR users because they often must reformat and manipulate the data before they can analyze it. XBRL could help solve that problem, they say.

XBRL is a form of Extensible Markup Language for business and financial reporting and real-time data analysis. The language includes standard definitions of financial terms. An international consortium of about 450 government agencies, vendors and regulators maintains it.

Corey Booth, the SEC’s chief information officer, said XBRL has many advantages compared with other formats, such as HTML. “The potential benefits are persuasive enough: greater transparency of financial information, reduced costs for investors and analysts, potentially even deeper coverage of midcap companies by analysts, and ultimately more efficient markets,” he said in a speech at the 13th XBRL International Conference in Madrid, Spain, in May.

The SEC accepts voluntary XBRL submissions, but Booth said the agency received only 27 XBRL filings from April 2005 to April 2006.

Users can read XBRL documents on a variety of systems — even outdated ones. “No matter how good you think [your computer system] is, you’re building tomorrow’s legacy systems,” said Dan Roberts, chairman of the XBRL-U.S. Steering Committee and director of assurance innovation at Grant Thornton.

“What we’re building with XBRL is the ability to get anybody’s legacy systems — even the ones that haven’t been built yet — to be able to talk with each other and communicate the data that’s in them to the people who need to make decisions.”

One of the biggest early adopters of XBRL was the Federal Deposit Insurance Corp. Its XBRL-driven call reporting system collects and sorts financial reports from more than 8,400 banks. Each report contains nearly 1,200 financial concepts, said Martin Henning, acting associate director of the FDIC’s Statistics Branch.

The FDIC formed an XBRL community of practice and has held meetings with the CIO Council and Chief Financial Officers Council as part of its effort to encourage other agencies to recognize the language’s merits. The community of practice now includes representatives from the Navy; the Labor, Interior and Treasury departments; the Commodity Futures Trading Commission; and the Internal Revenue Service. The FDIC published a white paper with the Federal Financial Institutions Examination Council that discusses the benefits of XBRL.

The FDIC has a project under way for which it will use the language to exchange financial data internally.

The National Park Service uses XBRL to manage 633 contracts for services and concessions at parks. Other agencies conducting XBRL test projects include Treasury and the Department of Housing and Urban Development.

“XBRL has been presented to the federal government on the financial management side as far back as 2000,” said Joe Kull, director of federal financial management at PricewaterhouseCoopers and a former CFO at the National Science Foundation. “At that point, agencies were generally pretty skittish to take on such a venture.”

But Kull said he believes XBRL’s characteristics make it easier to transition from an old system to a newer one. “The idea of being able to continue using their current systems but [coding] the data to be exchanged could go a long way to resolving a lot of issues,” he said.

Henning said banks were apprehensive at first about switching to XBRL until they received assurances that their methods of reporting would not change.

Banks continued to report financial data the way they always had, Henning said. The five software companies whose financial reporting software the banks used had to do a lot of work to support the switch to XBRL, but most banks didn’t notice and didn’t care, he said.

XBRL’s 5 reputed virtues

The Federal Financial Institutions Examination Council offers five reasons for using Extensible Business Reporting Language, based on data from the Federal Deposit Insurance Corp.’s call reporting system.

  • Cleaner data. About 95 percent of banks’ XBRL-based filings met the FDIC’s requirements.

  • Accurate data. All data met mathematical requirements.

  • Faster data inflow and access. The XBRL reporting system received data much faster than older systems did, and the FDIC could publish data almost immediately.

  • Enhanced productivity. The FDIC saved money because employees could be more productive and handle larger workloads. For example, instead of working with only 500 banks, each analyst can now handle 600 banks.

  • Faster taxonomy changes. Standard requirements enabled faster changes to the dictionary of financial terms.

— Wade-Hahn Chan
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