Standardized business language cuts operating jargon confusion
01/17/2005
By Greg LaRose Junior Associate Editor

He might say "to-MAY-to" while she says "to-MAH-to," but chances are both will come home from the grocery store with the same ripe red fruit.

Things are not as simple for financial data reporting. Words used to identify the bottom line differ from company to company.

In order to get everyone on the same page, an international consortium of government agencies, major companies and business organizations is developing a standard language to communicate business and financial data via computer. A working form of this extensible business reporting language, or XBRL, has been around since 1998.

The focus over the past couple of years has been on implementing XBRL worldwide, and the U.S. effort moved into high gear in June 2003 when the Federal Deposit Insurance Corp. pushed banks to report using the language. The Securities and Exchange Commission initiated voluntary financial reporting using XBRL last September.

Louis Matherne, director of business assurance and advisory services for the American Institute of Certified Public Accountants, a New York-based accounting trade group, heads the international XBRL consortium. The New Orleans native expects about 100 U.S. companies to be on board with the SEC's voluntary reporting by the end of 2005.

"As that program develops and we work out the wrinkles, you're going to see an accelerated implementation over a couple of years," he said.

XBRL is based in XML, the "tagging" function used in spreadsheet software like Microsoft Excel. Tags, terms from a pre-defined dictionary, are attached to business financial data to allow the exchange of data without the need for re-keying the information.

The XBRL consortium has defined and endorsed the most commonly used financial reporting terms and placed them into the language. For example, "cash and cash equivalents" has the same meaning across the business spectrum in XBRL.

"Two different banks may calculate cash and cash equivalents in two different ways," said Campbell Pryde, a partner with KMPG Northeast region in New York and chairman of the XBRL U.S. jurisdiction. "What XBRL allows you to do is handle it automatically. You don't need someone with the knowledge and skill to be able to go through and say, 'This is how it maps into the way we understand it.'"

Pryde believes the FDIC will require banks to do core reporting in XBRL by the end of the second quarter.

Large, publicly held businesses will be the first ones required to submit SEC reports in XBRL, said Charles Coe Jr., a certified public accountant and president of Coe Solutions. His Metairie-based business specializes in computer accounting systems and networks.

"It will (eventually) get pushed down to more of the mid-sized businesses," said Coe. "I don't know that you'll ever see small businesses affected by this, certainly not in the next couple of years."

But Matherne believes small businesses will benefit the most from XBRL, since information about their companies will be more readily available to capital markets.

Pryde said using XBRL will shine more light on financial reporting as called for in the Sarbanes-Oxley Act of 2002. He singled out a section of the law mandating the SEC analyze a certain percentage of reports, a burdensome process using the current methodology.

"Certainly they'd have to hire a lot more people to meet that goal," he said. "If they had something like XBRL, they'd be able to do something like that in a much more cost-effective way."

XBRL is touted as a boon to financial analysts who spend a lot of time "normalizing" data to assess a company's value. Edgar Online Inc., based in Norwalk, Conn., provides financial analysis tools over the Internet and offers its services to companies that must adhere to complex regulatory reporting. It also maintains a database of more than 3 million documents filed through the SEC.

XBRL is expected to make information from financial reports easily interchangeable within the business community, but Liv Watson, Edgar Online's vice president of XBRL, believes the services his company provides will still be needed.

"There is the perception that if data is already tagged, that the marketplace will be able to pull in and introduce added value to it themselves," he said. "Edgar Online doesn't see this as a threat because we will move into building intelligent tools that sit on top of this data instead of spending time on the mechanics of (reporting) the data."

Watson said Edgar Online devotes 80 percent of its time to making business data searchable and available for analysis. With XBRL, he expects the company's focus will shift to finding more marketable uses for the information.

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