XBRL: What’s in it for Executives?

Many companies who are currently filing XBRL formatted corporate filings with the Securities and Exchange Commission (SEC) view XBRL as a compliance headache they have to endure. When XBRL was first considered as a potential global standard for business and financial reporting, it was thought to be a useful tool for improving data access, sharing, validation, consistency and transparency. But why haven’t these perceived advantages been realized? Is it because XBRL was first introduced to corporate filers using a compliance model? Is it because the capabilities of a robust XBRL implementation not limited by the SEC’s specifications are not understood? About 10,000 public companies are dealing with XBRL. Shouldn’t those companies that are forced to comply with XBRL technology attempt to benefit from it?

The Barcode Example

When barcodes were first conceived, they were not understood or implemented for many years because they too were misunderstood. Barcodes began to be used in grocery stores when the National Association of Food Chains (NAFC) called for equipment manufacturers to produce equipment that could read barcodes. In 1967 RCA produced barcode equipment that enabled grocery stores to experiment with the new technology. Initially barcodes were pre-printed on labels so that food store employees could attach them to the products that grocers sold. During the initial testing of the technology many lessons were learned, including;

• The need for a universal barcode standard with a robust taxonomy of product definitions and attributes
• The need for barcodes to be printed on packaging prior to delivery at grocery chains
• The need for large-scale equipment production that could read a universally standard barcode

Companies recognized the benefit and value of barcode use and invested capital to implement barcode systems that are now so common that they exist in virtually all retail outlets and many industrial equipment applications.

The XBRL Comparison

The invention and development of XBRL has been far more planned and managed. By contrast, universal taxonomies were developed prior to implementations like that of the Securities and Exchange Commission (“SEC”). This provides a significant advantage to XBRL users, because every public company can use the same U.S. GAAP taxonomy. That translates into a free public source of corporate financial filings that is machine readable, easily understood and very comparable. Further, virtually any software tool is capable of recognizing XBRL because XBRL is programmatically the same as XML, a proven data storage and transfer standard that is widely used in corporate systems and web-based applications.

However, the existence of a universal standard taxonomy doesn’t preclude a company from developing its own internal taxonomy to describe in detail all of the data it uses in its business and financial reporting environment. Further, since private taxonomies can be customized to a single company’s population of data, there is no need for quarterly review of the custom taxonomy elements in use since the same custom taxonomy elements persist from period to period.

The advantage of creating an internal standardized XBRL taxonomy is that it allows “metadata” to be attached to the business and financial reporting facts that a company uses. The attached metadata describes each fact in detail so that any software application can understand the meaning of each fact. For example, a specific fact for oil company revenue concept could be tagged with all of its meaning so that any application can understand when it receives the data that the fact is Refining & Marketing Revenue from a specific subsidiary for a specific period time, in U.S dollars, derived on a U.S. GAAP basis, rounded to the nearest dollar, and defined by any other attribute a company chooses to build into its internal taxonomy.

Describing Meaning is Only Part of the XBRL Story

The value of XBRL does not end with defining the data that is tagged. What most users don’t connect with XBRL is the value of the relationships that can be created between a given set of facts. For example, the SEC version of XBRL creates presentation relationships, dimensional relationships and calculation relationships. The presentation relationships describe which facts belong together in what order and in which disclosure. The dimensional relationships describe additional details for specific line items and date contexts like which segment produced that fact, which subsequent event the fact was related to or which acquisition caused the fact. The calculation relationships describe how a particular set of facts add or subtract to arrive at a total.

The SEC’s application of XBRL is constrained by the rules they implemented for filers. XBRL allows for the creation of formula relationships (via a formula linkbase not in use by the SEC). The power of the formula linkbase allows companies to create user defined formula relationships that can be used to validate data as it is created. This is perhaps the most beneficial part of implementing XBRL internally within an organization. The formula linkbase could also be used to provide exception reporting or to identify data that needs the attention of audit, reconciliation and compliance professionals. Reducing spreadsheet proliferation by eliminating repetitive spreadsheet activities that are prone to user defined application errors would also be enabled by the use of a formula linkbase.

A Single Standard for Sharing Information

Sharing information is an integral part of engaging in business. Unfortunately businesses use a variety of formats for sharing information with their business partners. The need for a universal public standard for collecting and reporting business and financial data is apparent when companies consider all of the formats they use to share information. The advantage of a standard that not only defines the data but also describes the relationship of one fact to another is that business partners can relate the business they share to automate repetitive processes.

For example, suppose a company and its vendor are sharing information about products ordered through a purchase order system, products shipped and received, invoices provided and payments made. Since XBRL can relate this shared data, matching of purchase orders, shipping receivers and invoices to facilitate payment can be largely automated with an open standard that can be understood by a variety of software applications. The advantage of this approach is that it enables automation without significant modifications to hardware platforms and limited modification to existing software applications.

XBRL is a Global Technology

XBRL is globally standardized and in use in many jurisdictions around the world. The Dutch government understood the benefits of XBRL and took the initiative to rationalize the data collected by its various agencies then streamline the reporting used to collect the required data. Their idea was to collect one standard set of data from companies in one central location then distribute that data throughout the various agencies that use it. In Japan, implementing XBRL reporting requirements had the unintended benefit of translating the data being reported into English. In the United Kingdom companies are filing tax returns using a standard set of tax return forms. The forms are linked to XBRL tags that describe the resulting data in detail. By using prescribed forms tax return filers are providing XBRL tagged data without having to deal with the challenges of mapping, tagging and structuring of the XBRL data. This results in highly standardized process that facilitates cross company comparisons.

Since XBRL is a global standard, taxonomies can be multi-denominational and multi-lingual. Such taxonomies allow companies to collect data in one currency and one language and report that data in another currency and another language. This advantage can also be used to present a single set of business and financial reporting facts to multiple audiences in a variety of local currencies and local languages.

XBRL is a markup language and belongs to the same family of languages as HTML. All of us use HTML every time we access the internet. HTML tells websites how to format the page being displayed to the user. Today we are able to gain the benefits of HTML use without having to think about its creation. XBRL tells the computer the meaning of the tagged data. Ideally XBRL should be utilized in a way that imbeds it deeply into applications so the users don’t have to think about creating XBRL but still get all of the benefits of using XBRL. The types of advantages that are possible won’t be realized until companies test implementations to determine what approach works best for the data they need to manage.

The importance of developing a broad data management and utilization approach is especially heightened given the proliferation of Big Data, much of which is being produced in unstructured environments. XBRL tagged data, even if created in or hosted in unstructured environments, can be understood because the XBRL tags provide metadata that brings meaning, context and relationship to the Big Data being managed.

Connecting XBRL with the Last Mile of Finance

One of the largest barriers to delivering business insights is unorganized data. The need for data organization in accounting and finance is most visible in the last mile of finance. Companies have ERP systems, financial reporting systems, BPM systems and many user defined applications created using desktop office software. Unfortunately financial reporting professionals are still forced to manually access and gather the information from a variety of sources for SEC filings and other financial reports they must produce. Most companies have not considered the need for organizing cross application data for end-user use.

These inefficiencies result in a real cost for manually accessing the data needed for reporting and an unseen cost for opportunities lost due to the lack of reliable, real-time information that could be utilized by business leaders. Worse, the last mile of finance is typically a hidden problem with no single owner of the entire process. When the CFO ultimately gets the data he needs, the CIO has his ERPs and other systems in place, The CAE is in compliance with SOX and has compensating controls over spreadsheets, the Controller gets the work done with employees working some overtime and the staff doesn’t want to break processes that have been in place for years, it is not hard to see why no one pays attention to the last mile of finance

Where are the Innovators?

The lack of enthusiasm about XBRL was caused by the SEC’s forced compliance implementation in a relatively short implementation window. Most companies chose to comply by outsourcing the XBRL creation to a third-party. The unfortunate result was that significant XBRL expertise was gained by the service providers at the expense of the reporting entities. Corporate financial reporting professionals have learned about XBRL, but have not gained enough insight to see the benefits if implementing XBRL deeply within an organization’s data management approach. Instead, today’s users see XBRL as a compliance headache that costs them a lot of capital with no perceived benefit.

XBRL was not designed to force companies to comply with a specific reporting regimen, but rather to facilitate access to business and financial reporting data in a consistent, validated and meaningful way. XBRL was intended to eliminate manual intervention, and streamline access to information thereby freeing valuable business and financial reporting personnel to partner with business leaders in utilizing the available information to drive better decisions and improved performance. The benefits of barcode technology were not realized until companies started experimenting with its use. Where are the large institutions that are willing to investigate the benefits of XBRL through XBRL pilot programs?

What Should Executives Be Doing With XBRL?

Public companies are forced into working with XBRL through the SEC’s rigorous filing requirements, so XBRL is a reality that is here to stay. Executives should consider demanding that their current software providers implement XBRL technology deeply into their software applications and database structures. It would also benefit many companies to begin cross functional discussions about how XBRL tagged data could be implemented and utilized within the organization. These cross-functional discussions would be especially enlightening when held by finance, internal audit and information technology groups.

Companies could also benefit by initiating small XBRL pilot programs to explore ways of gaining a competitive advantage by streamlining the access and analysis of business and financial data in a more efficient way while also enabling automated validation and real time testing of the data accessed. By experimenting with XBRL based approaches to managing internal data, companies could begin to benefit from the advantages of XBRL.

Conclusion

The benefits of XBRL use will not be realized overnight. There may be difficulties and delays in gaining benefits from XBRL implementation programs, but unless large entities begin to experiment with XBRL use, no benefits will be gain. In a Big Data era where decisions need to be made more rapidly, doing nothing is not a good strategy. By beginning to experiment with data management technologies like XBRL, the early innovators could gain tremendous market advantages which could disrupt existing business models. Companies have internal resources that understand XML but not XBRL. They also have internal resources that understand XBRL but not XML. By beginning to create internal data management communication opportunities with the key stakeholders in finance, internal audit and information technology, companies may begin to visualize ways of testing internal XBRL implementation models without expending a significant amount of capital. Discussions with external business partners (like customers and vendors) could also yield beneficial results. Finally insisting that existing application vendors imbed XBRL technology to their software offerings could allow companies better opportunities to utilize XBRL to their advantage.

XBRL is not a panacea, but there are significant benefits that may be gained through its use. These potential benefits include, but are not limited to:

• Validation of data as its created
• Identification of large variances
• Elimination of data re-entry
• Matching of amounts from different sources
• Elimination of manual processes
• Creation of standardized and automated user defined reports
• Facilitating access to data for ad hoc use

There are significant potential benefits that may be realized from XBRL use due to its ability to define, relate and validate data. For these benefits to be better understood and utilized, companies will need to find ways to begin to test XBRL technologies internally. By taking action today companies may begin to find ways to free valuable human resources for higher value added benefits. In addition, the lesson learned from XBRL experimentation may lead to new ways of managing internal and external data as well as structured and unstructured data. How do you plan to benefit from the XBRL technology that you are forced to utilize for quarterly public reporting?

2013 US GAAP Taxonomy Is Available for Review and Comment

The 2013 US GAAP Taxonomy (UGT) is now available for review and comment. The comment period ends on October 31, so now is a good time to add comments, including adding new taxonomy elements to replace your current extension elements. You may provide comments to the 2013 taxonomy here.

In XBRL, taxonomies provide a method of naming, classifying and defining the meaning of business and financial data. Taxonomy elements are associated with individual business and financial facts so that the meaning of those facts can be electronically understood. The underlying metadata provided by the taxonomy tag allows investors, analysts, journalists, regulators, and others search for, assemble, and process data so that the data can be readily accessed and analyzed electronically.

The proposed 2013 taxonomy includes elements for Accounting Standard Updates issued since the 2012 UGT was released. In addition there are several other improvements including an update to reflect the common reporting practices of SEC filers, correction of errors, rationalization of duplicated concepts, updated modeling of the taxonomy’s structure and other architectural changes. An effort was made to minimize the impact on current filers while also making necessary improvements to the new taxonomy.

Among the most major changes were the following:

• Removed references superseded by the Codification
• Removed non-GAAP references that are no longer maintained
• Remodeled the segment disclosure area to provide flexibility and accommodate varying reporting practices while promoting consistency
• Remodeled certain areas related to the insurance industry to promote clarity and consistency
• Rationalized elements related to notional disclosures
• Remodeled the disclosure for unrecognized deferred taxes to eliminate redundancy
• Added elements with periodStringItemType to accommodate period ranges for aging of exploratory well costs and debt redemption periods
• Remodeled the disclosure of other operating income and expense to eliminate redundancies
• Removed 2009 UGT deprecated elements that are no longer supported

Summary of Structural Changes to the Taxonomy

Documentation and visual cues at the element level are included in the proposed 2013 UGT update to make identifying changes to the UGT easier for preparers. For example, the Change Label shows the date a change was made and what was changed or added in the UGT. The following are the types of changes documented in the Change Label

• New Element
• Modified References
• Modified Documentation Label. This includes both the changed and original text.
• Modified Standard, Period Start, Period End, or Total Labels
• Element Deprecated
• Modified Data Type
• Modified Period Type
• Modified Deprecated Label (used when the deprecated label has been modified for other than relationship changes)
• Element Undeprecated
• Modified Balance Attribute
• Modified Axis Default

If the change in the proposed 2013 UGT update is the result of an ASU then the change label will identify the ASU and all related changes.

“Shared Searches” are available for the proposed 2013 UGT update in the FASB Taxonomy Online Review and Comment System to highlight changes made to the taxonomy. After selecting an item from the “Shared Searches” and selecting “Highlight Matches” at the bottom of the screen, the filter highlights in pale yellow the relationships groups, presentation relationships, calculation relationships, and definition relationships that contain elements that are modified or added in the proposed 2013 UGT update. As the user navigates through the UGT, all changes are highlighted in bright yellow. Each element that has been modified or added includes the Change Date and the Change Label.

In addition, a FASB XBRL Extension Taxonomy Change Application (TC App) is available that allows users to quickly identify element changes in an existing XBRL extension taxonomy resulting from the 2013 UGT update. Several other taxonomy tools are available as well including:

• 2013 US GAAP Financial Reporting Taxonomy Release Notes (Narrative only)
• Modifications to the Taxonomy (Excel Version)
• Proposed 2013 US GAAP Financial Reporting Taxonomy Technical Guide
• Proposed 2013 US GAAP Financial Reporting Taxonomy File Reference
• Guide for Using the Taxonomy Viewer
• PDF document

One of the taxonomy structural changes includes the addition of a new label type for certain DomainItemTypes that function as both domains and members. These domains may be thought of as “total members” since they are used as domains and to qualify the total of several facts qualified by members of the domain. Elements that function as both are identified in the 2013 UGT update with an additional Axis Default label when used in the taxonomy structure as a [Domain] element. For example, CashAndCashEquivalentsMember is used as a [Domain] element within ScheduleOfCashAndCashEquivalentsTable under the CashAndCashEquivalentsAxis, but used as a [Member] element within FairValueInputsAssetsQuantitativeInformationTable under FairValueByAssetClassAxis and its domain.

There have also been improvements in the UGT for various industry and other disclosures including:

• Debt Redemption Periods
• Capitalized Exploratory Wells Aging Periods
• Segments
• Insurance Industry
• Other Comprehensive Income
• Other Income and Expense

More information on the 2013 UGT is available on the FASB website.

Form SD Draft Taxonomy Available for Comment

The SEC is seeking public comment on the draft Form SD taxonomy for disclosure of payments by resource extraction issuers. The purpose of releasing the draft taxonomy for comment is to continue to improve the process for creating and using XBRL tagged information. Filers, investors, analysts, software service providers and other interested parties are encouraged to participate in the comment process.

The taxonomy is available at http://www.sec.gov/info/edgar/edgartaxonomies_d.shtml. Comments should be made no later than October 31, 2012.

Another Free XBRL Tool Changing the Way We Consume Information

For the last couple of years  XBRL US has opened a contest, the XBRL challenge, for new, open source, and free XBRL Tools. The contest offers a cash prize of $20,000. This year, one of the entrants is Oxide Solutions.  Oxide Solutions is an interesting cloud-based application which allows use of SEC XBRL information and other web-based financial resources like Yahoo Finance.  Oxide Solutions even allows users to create customized criteria for ranking the financial performance of SEC Filers and sharing of Financial information over web-based user-created media like blogs, LinkedIn, Facebook and Twitter.

Oxide Solutions is just one of the open source XBRL based tools available on the internet today. Applications like these are beginning to reveal how XBRL will change the way we consume information. For a list of similar open source, and free XBRL tools please see the power of XBRL demonstrated

Here is a video describing  how to use Oxide-Solutions open source tools.

EDGAR Release 12.1 Effective Soon – 2009 UGT and Other Taxonomies To Be Removed

A new draft version of the EDGAR Filer Manual (Release 12.1 – Version 20) is now available at http://www.sec.gov/info/edgar/edmanuals-vol2-20_d.htm. This latest release of the Edgar Filer Manual will become effective on July 2, 2012.

EDGAR Release 12.1 will introduce several changes. Most notably, EDGAR will no longer support the 2009 US GAAP Taxonomy, US GAAP Taxonomy 1.0, the US Financial Reporting Taxonomy Framework (USFRTF) 2005, the US Schedule of Investments (SOI) Taxonomy 2008, the Risk Return Taxonomy 2008, and the Risk Return Taxonomy 2006.  Filings using these taxonomies will no longer be accepted in the EDGAR system after July 1.

The SEC staff strongly encourages companies to use the most recent version of taxonomy releases for their Interactive Data submissions. Each year significant improvements in available taxonomies are made to address new accounting standards. Additionally, improvements are added to better structure taxonomies for clearer communication of the meaning of  underlying financial disclosures. Taxonomies approved for EDGAR filings may be found at http://www.sec.gov/info/edgar/edgartaxonomies.shtml.

The SEC has not yet updated the test suite used to assist developers of software that must validate Interactive Data prior to its submission to EDGAR. The test suite will be updated with Release 12.1 (version 20) changes in coming months.

2012 US GAAP Taxonomy Approved by the SEC

The 2012 US GAAP Taxonomy (UGT) has now been approved by the SEC. Approved taxonomies are shown on the SEC’s XBRL Website. The SEC staff strongly encourages companies to use the most recent version of the US GAAP taxonomy release for their Interactive Data submissions to take advantage of the most up to date tags related to new accounting standards and other improvements.

The 2012 UGT contains many updates for accounting standards and other improvements to the official Taxonomy previously in use by SEC issuers. Some of the major improvements include:

• Accounting Standards Updates
• Common reporting practices observed in company filings
• Correction of errors and rationalization of duplicated concepts
• Updated modeling of existing taxonomy structures and other architectural changes

The updates to the 2012 UGT were made with the intent of minimizing the impact of changes to instance documents while providing for the necessary accounting updates, common reporting practices, error corrections and rationalizations.

Where elements did not change, the element names are identical to the 2011 UGT names to provide for the greatest level of comparability and to facilitate conversion from the 2011 UGT to the 2012 UGT. However, there are a number of changes to the taxonomy that preparers should be aware of when transitioning to the 2012 update including elements which have been added, changes in element attributes and deprecation of elements from the 2011 UGT. As expected, the 2012 UGT update has a different namespace, which means preparers rolling filings forward to use the 2012 UGT update will have to update those filings for the new namespace.

A complete list of all changes from the 2011 UGT is included in the Appendices of the 2012 UGT Release Notes posted on the FASB website. The Release Notes and other guidance on the FASB Website have been developed to help users transition from the 2011 UGT to the 2012 UGT update. For the convenience of XBRL filinrs, the FASB has developed two taxonomy transition tools:

• A listing of taxonomy changes in a worksheet format
• An Extension Taxonomy Migration Application

Initial Detail Tagging companies should consider filing the first detail tagging using the 2012 UGT to avoid having to migrate the entire filing at a later date. When will you migrate to the 2012 UGT?

XBRL: A Word about Definitions

The Edgar filer manual addresses the priority of element attributes to consider when selecting element to tag to the facts in your SEC filing. However, it is important to note that the element attributes that are less important to element selection are essential for other tagging decisions. For example, the balance type for monetary elements is not important when making element selection and mapping decisions. Conversely, the balance type is essential to consider when deciding the appropriateness of applying negated labels.

According to the SEC’s Edgar Filer Manual (EFM) 6.6.29: “When choosing the most appropriate element for facts in one or more periods, the element’s xbrli:periodType attribute takes precedence over the type attribute, which takes precedence over the element’s documentation string…”. The element’s “definition”, or documentation string as it is more properly called, may be listed third, but it is the single most important attribute for communicating the meaning of the amounts being reported. This thought is validated in EFM 6.6.24 which says “The definition is an element’s most important attribute and must be consistent with the financial concept reported”.

After confirming that an element’s period type (duration versus instant) and type (dollars, shares, per share, etc.) attributes are appropriate to use for a line item of facts, the SEC’s Edgar Filer Manual specifies that decisions on the appropriateness of documentation strings should be based on three factors as follows.

Factor 1

EFM 6.6.24 says “If an element used in numeric facts representing amounts in one or more periods has a definition, then the scope of that definition must include the material amounts reported for that line item in the corresponding official HTML/ASCII document.” Generally, an element “has a definition” if there is text defining the element in the documentation string. The documentation string must do more than “fit” what it is being tagged; it must conceptually include all of the material amounts that the related facts consist of. If any of the facts being tagged includes a single material amount that is not within the scope of the documentation string, then the element does not meet this requirement and should not be used.

Factor 2

According to EFM 6.6.25 “An element must not be used in numeric facts representing amounts of a line item in different periods if it has a definition that explicitly excludes one or more of the material amounts in the corresponding official HTML/ASCII document.” This factor covers the opposite side of the materiality question from EFM 6.6.24 above, so if the documentation string excludes even a single material concept that is within one of the facts within an amount on a line item, the element must not be used.

Factor 3

When there is a choice among different elements that have definitions consistent with a set of facts in one or more periods, use the element with the narrowest definition (EFM 6.6.26). Sometime two elements have documentation strings that could work with a single line item attribute. When this happens the Edgar Filer Manual specifies that the element with the narrowest documentation string is the one that should be used.

Conclusion

When selecting elements to map and tag to your SEC filing, remember to think beyond the element’s label, name and balance type. For better element selections first consider the period type and type attributes then verify that the definition (i) includes all the material amounts, (ii) does not exclude any material amounts and (iii) is the narrowest definition that also meets the two materiality tests.

What processes have you implemented to ensure that these and other XBRL best practices are followed?