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Reflections on Risk

Leading banks are pursuing new ways to achieve competitive advantage through superior risk management.

XBRL Moves Toward Adoption

What will it take to achieve adoption of XBRL: eXtensible Business Reporting Language? XBRL is an XML-based standard that is intended to automate the flow of financial information by "tagging" each line item with a description of its contents. Paul Penler, the current chair of XBRL-US and a Cleveland-based principal at Ernst & Young, global auditing and assurance services, lists five things that have to happen in order for XBRL to gain adherents in the financial world:

1. Motivation - "The motivation is low right now," Penler says. "It's not regulated yet in many places, and secondly, people don't understand what benefits they would obtain from it." Nevertheless, the benefits exist and are substantial, according to Penler, who expects that financial institutions can eliminate keystroke errors, reduce headcount, gain faster access to data, conduct richer analysis and institute more robust risk management practices.

2. Technical standards - The XBRL specification is at version 2.1, with a supplement due out in weeks. "Custom solutions providers can feel confident that there's a solid technical specification that's out there," Penler says.

3. Taxonomies - Working together with the AICPA, the big four accounting firms, FASB and the SEC, the XBRL-US consortium has released a draft version of a taxonomy for classifying financial statements under Generally Accepted Accounting Principles, or GAAP. The taxonomy "covers about 90 percent of the financial statement line items," according to Penler. "A company will start with the U.S. GAAP XBRL and then create extensions for additional items that aren't in the taxonomy."

4. Software - Once the XBRL technical standards and the taxonomies have gelled, software makers are expected to find ways to incorporate the standard into their existing systems. "XBRL has to be embedded into dozens of different software packages - Oracle, SAP and a lot of other ERP vendors," Penler notes. "There are other vendors putting it into Word and Excel through plug-ins, as well as custom XBRL tools."

5. Implementation - "The whole idea behind XBRL is that data's being moved around by applications, as opposed to people having to input and cut-and-paste," Penler says. "If you have a system that moves the same number from the general ledger to Hyperion to a Word document to a Web site, there's a higher likelihood that it's the same number, rather than if it had to be re-entered five times during the process."

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