Breaking through: XBRL gains momentum.

After being hyped for more than a decade, extensible business reporting language (XBRL) has gained legitimate legs, bringing improved reporting conventions and easier translation between accounting programs.

Imagine having access to real-time financial data for any public company. Imagine transferring data from one accounting program to another without the added cost of custom programming, sifting, sorting or rekeying. Such is the promise of XBRL.

That promise is becoming a reality thanks to influential support from the Securities and Exchange Commission (SEC). The XBRL initiative is being positioned as a way to not only streamline the delivery of financial information, but make it easier to use the information as well. The hope is that the increased transparency of financial information will boost investor confidence and dovetail with international convergence.

What is XBRL

"XBRL is one of the most significant business reporting developments in the last 10 years," said Ohio Society member Michael R. Dickson, CPA, CITP, CISA with Plante and Moran. "While many business executives don't yet understand or appreciate XBRL, some of the largest financial institutions in the world, and the SEC, are well aware of the capabilities and benefits of XBRL"

"Simply stated, XBRL is a standardized tagging system that defines financial and nonfinancial data used in business reporting processes. The gist of XBRL is to facilitate the generation and dissemination of different types of financial and nonfinancial reports from a single database of tagged elements. For example, a single tag set of data could generate reports for filing financial statements in several different languages, or under different languages, or under different accounting standards. Thanks to XBRL, reporting to the Chinese government, the banker around the corner or the SEC is no longer a month-long process," Dickson said.

Why you should care

XBRL will offer many benefits to those involved with financial statements. For many CPAs, the biggest benefit is the ability to easily move information from one program to another without rekeying.

"Before the Federal Deposit Insurance Corporation (FDIC) adopted XBRL, the data collection and validation process was cumbersome and time-consuming," said FDIC Vice Chair Martin J. Gruenberg. "Multiple file formats and inefficient legacy systems required substantial manual effort and resulted in significant delays. FDIC analysts had to spend up to three weeks manually checking data quality following submission."

XBRL also makes financial data more comparable across industries. "One hidden value is that using an XBRL taxonomy, an investor or business stakeholder could download tagged data from five different companies and generate side by side, comparable reports using any of the recommended or approved taxonomies," Dickson explained.

Fellow Ohio Society member J. David Ryan, CPA, CITP, vice president of information services with Artromick International agrees. "One of the biggest strengths of XBRL is the way it allows users to quickly compare financial data across industries. Its "lingua franca" is certainly one of its strengths--that you are using the same taxonomy. That can also be one of its biggest weaknesses though. If you look at it, you have a little latitude over what you aggregate with certain things. Maybe current assets are current assets. But you can't make certain assumptions within any given account. You still have to dig into how companies treat certain accounting transactions."

Electronic audit trail

XBRL's ability to offer real-time, comparable data across companies and industries keys into the market's growing hunger for transparency. It also has the added boon of strengthening the audit process through greater data integration and accessibility.

"From our vantage point at the SEC, it's clear that interactive data will significantly improve audit quality," said Christopher Cox, SEC chair during the 14th Annual XBRL conference in Philadelphia last December. "Not only can XBRL help reduce errors in the first place, but it can also help detect them after they occur."

XBRL offers several benefits to the international audit community. Ian Ball, chief executive of the International Federation of Accountants (IFAC) noted several of these benefits in a recent article from AccountingWeb. These benefits include:

* Enhanced credibility

* Improved transparency

* Streamlined supply chain

* More accessible data mining

All of these benefits can work together to strengthen the public's faith in the audit process.

"The goal [is] a seamless audit trail for financial reporting, tax reporting, statutory and statistical reporting, and management reporting. It's not just about accounting and tax, but also about operational and business information," explained Eric Cohen, XBRL global technical leader with PricewaterhouseCoopers.

The driving force of the SEC

In 2005, former SEC chair William Donaldson announced the launch of the SEC's pilot program to accept financial reports from companies reporting in XBRL. Program participants were no feather weights. Two dozen companies, including 3M, Dow Chemical, Ford, General Electric, Microsoft, Pepsi, Pfizer and Xerox, representing more than $1 trillion of market value, signed on to implement the program.

Taking another step forward last September, the SEC awarded three separate contracts totaling $54 million to transform the agency's 1980s-vintage public company disclosure system from a form-based electronic filing cabinet to a real-time search tool with interactive capabilities.

The contracts pave the way to the SEC's widespread adoption of XBRL by addressing the three major stumbling blocks:

1. Incomplete taxonomies

Taxonomies for many industries are already completed, but a decisive move from static to interactive data requires that the job of writing computer codes to "tag" financial report information be completed for all U.S. GAAP-based filers. When this work is finished, every item in a company's financial statement, such as net income or gross sales, will be assigned a unique computer-readable label.

With these labels in place, the data that companies file with the SEC can then be immediately used to analyze and compare any aspect of a company's financial performance. At the same time, the task of preparing the reports can be automated for the companies that file them.

Once the work is complete, every public company in America can make its required disclosures to the Commission more accurately and quickly--and as software applications are developed, company investors will find it easier to understand that information.

The SEC is contracting with XBRL US, Inc., which is responsible for developing the computer standard in America. It is anticipated that the work will be completed in less than a year.

2. No requirement

To date, the SEC has not required companies to file their information in interactive format, largely because the SEC's own database--nicknamed EDGAR--can't yet use the extra capabilities of XBRL.

The largest contract--$48 million--was earmarked to update EDGAR, which paves the way for the SEC to require companies to file their information in XBRL format.

The new system will use XBRL and be completely interactive. It will allow Investors and analysts to search not only forms, but the information within them. In addition, the information can be immediately downloaded into applications software. Finally, anyone can get real-time, streaming data using RSS feeds, ATOM, and other automated Web tools, which could automatically search for newly filed SEC disclosures and deliver the desired data directly to the desktop.

3. Readability

The third contract focuses on providing a new generation of "interactive" investor tools on the SEC's Web site. The new features will allow investors to not only view but analyze companies' financials for free directly within the SEC Web site.

This will liberate investors from tedious hunt-and-guess searches, and they can download not just SEC forms but specific data with in those forms. Users will also be relieved of having to re-key data to make it useful in software applications, or having to pay others to translate the data to more usable formats.

Rush to market

While XBRL tags similar data, a viewer is needed to translate the data into a readable format. Fortunately, XBRL is pledged to always be an open source standard, which means the coding can be changed and adapted to meet programming needs.

"The SEC is committed to doing everything in our power to ensure that XBRL remains a truly international, stateless and open source standard," Cox stated.

As with any technology need, several solutions have been developed and will continue to develop as XBRL adoption broadens. "Vendors will put together tools to meet the needs of the marketplace and then leverage those tools with other audiences. By pushing the products down the channel even more people will benefit," Ryan said.

Current contenders include:

* The SEC's Financial Report Viewer, available at http://www.sec.gov/spotlight/xbrl/xbrlwebapp.htm. It includes financial information for companies in the XBRL pilot program. Rivet Software has developed an Excel add-in that will help tag spreadsheet data so companies don't have to purchase high-end accounting systems to take advantage of the bene fits of XBRL.