The financial-data tagging protocol XBRL (eXtensible Business Reporting Language) is becoming a fixture in financial reporting. The XBRL protocol uses XML (eXtensible Markup Language) tags to demarcate the specific contents of each data item within an accounting statement, enabling computer programs to automatically parse and analyze the information contained within.
Although the initial focus has been on tagging data used for financial reporting to securities regulators, the potential impact of XBRL goes beyond the investing community. "XBRL is going to spawn new ways of reporting information, accessing information and better ways of making decisions," says Louis Matherne, president of XBRL International (New York) and director of XBRL for the American Institute of Certified Public Accountants (AICPA; New York). "We've crossed the tipping point, and it's just going to escalate from here."
Support in High Places
The U.S. Securities and Exchange Commission (SEC) announced in late July that it would consider accepting supplemental filings of XBRL data on a voluntary basis and seek public comment on the topic of tagged data. According to the announcement, the SEC may propose a rule to establish voluntary XBRL filings for 2004 calendar year-end reports.
The European Commission (EC) has gone even further to support the emerging protocol, pledging one million euros to the XBRL in Europe Consortium, an affiliate of XBRL International whose members include Computer Sciences Corp. (CSC; El Segundo, Calif.), Semansys Technologies BV (Netherlands), PricewaterhouseCoopers and others. The consortium will undertake a two-year project to increase awareness and adoption of XBRL across Europe's regulatory regimes.
The initial beneficiaries of the XBRL push will be financial analysts who follow public companies, industries or geographic regions. For example, suppose an analyst wanted to build a benchmark incorporating data across an entire industry. "Today, if you ... are trying to access that information for analysis purposes or any other use, you essentially need to download the individual filings," Matherne says. "Your alternative is to go to a data aggregator for that information - but you'll pay a fee for that," he adds. "XBRL will dramatically streamline that process so that you are able to extract it directly out of the system."
While such capabilities could have a negative impact on the business of data aggregators, the availability of free, tagged corporate information could spur demand for value-added services. And, commercial banks stand to benefit immensely, since XBRL will improve the ability of financial intermediaries to assess the status and financial health of public companies with which they do business.
Furthermore, the adoption of an internationally accepted method for encoding financial data should make it easier for domestic banks to expand their presence in other markets, or to outsource analysis offshore. "XBRL itself is language-independent, and the financial statements can provide the different 'language labels,' if you will, so that individuals in different countries are able to access those financial statements and read them more readily than they might otherwise."