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XBRL: What If…?

January 9, 2012

I wonder what the future of business and financial reporting might be if XBRL lives up to its potential?
What would XBRL be used for if it was widely accepted as a reporting standard? XBRL is already being used in 10-Qs and 10-Ks as well as certain other SEC filings, but few realize that XBRL is being used by the FDIC to gather information from Bank Call Reports and by the SEC to gather rating agency ratings and mutual fund risk and return information. In other parts of the world XBRL is being used by stock exchanges, taxing authorities, banking systems and governments. In addition to these, efforts are underway to explore XBRL use to track business risk factors as well as environmental sustainability efforts. In addition, the potential for XBRL to achieve the much promised (but little delivered) government transparency is significant. Senator Issa of Hawaii has been a proponent of using an XBRL type approach to make government information readily available to the average taxpayer, thereby increasing governmental transparency.

What if XBRL was deeply integrated into business and financial information systems?

Most companies have address the SEC’s XBRL filing requirements using a compliance based approach. Rather that trying to complete the effort in-house, many have relied on third party vendors to do the heavy lifting on XBRL. The result has been that companies are forced into timelines provided by their partner. The real question has become “Are companies managing their XBRL service provider or is the service provider managing them”?

Imagine a different scenario where companies integrate XBRL into existing systems. The existing consolidation process could generate much of the XBRL required for SEC filings. Additional supplemental information could be generated in a separate system, tagged with XBRL then used in connection with the consolidated XBRL to automate “the last mile of finance”. An Integrated approach like this one could free financial reporting professionals from some of the transactional work involved in filing a 10-Q or 10-K thereby allowing them the time for higher value analytical and advisory work.

What if XBRL creation could be completed with an easy to understand graphical user interface?

XBRL is still a new technology, barely over 10 years old in its development as a global standard. There are many powerful software tools available, but the long awaited easy to us semantic based approach to XBRL generation still escapes the imagination of many software providers. If an innovative software provider were able to take the technical syntax based decisions out of XBRL creation and provide such a tool with an easy to understand graphical user interface, XBRL creation would be a much easier process that many would choose to create internally.

What if traditional Edgarized SEC filings ceased and XBRL were the only filing format required by the SEC?

XBRL filings currently provide all of the same financial statement and footnote information traditional filings provide. In fact, when the SEC mandated XBRL, it insisted that the XBRL format was a change in filing format NOT a change in filing requirements. If XBRL was mandated for entire 10-Q and 10-K filings, traditional Edgarized filings could cease entirely. If XBRL were the only format required by the SEC, would companies finally embrace the idea of bringing XBRL in house? Would XBRL technologies finally be used to rationalize data flow within organizations? A change like this would certainly cause companies to revisit their XBRL creation approaches.

What if XBRL could be easily consumed by software tools that allowed users to pivot data and dive into the deeper details?

If there were software tools available to easily consume XBRL filings via RSS feed or directly from public websites, investors would likely begin to use XBRL data in lieu of more expensive aggregator provided data. If such a tool also provided robust analytical features like pivot tables, sub-totaling, filtering and similar functions investors and analysts would seek the tool and begin to demand easy access to XBRL data. Perhaps this would cause companies to embrace XBRL as a way of sharing information internally and externally.

What else could be done with XBRL? How else might XBRL be generated and used in the future? Please share your thoughts by commenting on this post.

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