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Insource or Outsource Remixed

January 16, 2011

Most companies think they have two choices for complying with the SEC’s XBRL mandate. The first choice is thought to be outsource and the second choice is thought to be “insource”. In reality, a blending of these choices is more realistic. Let’s consider each and explain why they typically lean toward a blended approach.


When outsourcing, SEC filers choose a partner to do the heavy lifting of selecting and mapping XBRL tags to financial reporting facts, creating custom extensions, building the extension taxonomy and populating the instance document – in short creating the XBRL filing. In reality this process is iterative whereby the partner creates the XBRL files then returns some form of rendering (often a web based tool or an Excel workbook) for review. The SEC filer must review and comment on the tags selected and make changes where desired. There are usually three to five rounds of tag selection and approval, so the SEC filer is involved all along the way. You can outsource but you can’t abdicate your role


When “insourcing”, companies must do most of the heavy lifting themselves. There are many factors to consider when insourcing including what software tool to use, how to overcome the steep learning curve, what tags to choose, how to validate the files produced (usually the software tool can address this) and what internal procedures will be followed for gaining approval of the tags selected. The level of effort is significantly greater using this approach and will involve expert help from external partners due to complexity of initial XBRL implementation. You can insource, but you can’t eliminate your XBRL partners.

The Blended Approach

Companies should realistically consider initial XBRL implementation as neither purely outsource nor purely insource. With experience the insource approach can be fully realized, but not for initial compliance. By thinking about implementing XBRL using a blended strategy, companies can proactively choose what portion of XBRL implementation to tackle internally and what portion to trust to their partners.

The Integrated Approach

Companies should seek to integrate XBRL into their financial reporting systems over time. By doing so they can take advantage of XBRL enabled data validation and reuse. The goal would be to tag data deep with financial systems so that the tagged data can flow through the financial reporting value chain from bottom to top. One result of a fully integrated approach is automated production of XBRL tagged SEC filings.

The XBRL Continuum

Implementation and maintenance of XBRL should be seen as a continuum of choices. The XBRL continuum could be graphically depicted in this way:

As XBRL technologies mature and companies get past the learning curve, their processes should move from outsource toward integrated over time. By thinking about XBRL implementation as a continuum of choices, companies can develop an XBRL strategy that realizes the benefits of validated and contextualized data that persists throughout the financial reporting process.

No matter how you comply with the SEC’s XBRL mandate, make sure you think beyond compliance. What will you do with XBRL?

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