By Jennifer Hughes
"Are you ready for inter-active data?" asks the website of the US Securities and Exchange Commission. Companies do not have to be ready just yet, but anyone who has dealings with the regulator may soon have little choice. The SEC, one of the world's most powerful financial watchdogs, is one of the leading cheerleaders for XBRL - eXtensible Business Reporting Language - an interactive medium that promises to end the misery of trawling through pages of text by replacing the large blocks with easily search-able "tags." Anyone who has spent time going through financial statements knows the drill: hours of mouse-clicking, copying and pasting and double-checking the numbers. Essentially, even searchable PDF files and internet pages that are available today are only "electronic paper". XBRL, on the other hand, is a machine-readable language that tags each piece of data rather than treating it as a block of text. While this will not necessarily make companies' financials more readable, nor more easily comparable, it should make searching for information easier. Each piece of data will now be independent of the rest, and users will be able to order it how they want. Once the software is in place, companies should be able to provide information more quickly - and in different formats and languages. Japan, for example, is perhaps the leading XBRL exponent and from April this year, will require all publicly--traded companies - more than 8,000 - to file in this form. Part of the aim is to improve the attractiveness of Japan's markets to overseas investors, by making it easy for companies to provide English versions of their statements. Regulators across Europe are also refining their attitudes to XBRL. Some smaller countries require it for all corporate filing, while others have so far focused on banking regulation or other specific corners. The pace of adoption is picking up. The SEC recently published a greatly expanded taxonomy - in effect, the code upon which the language is based - with a far greater range of individual tags. And the International Accounting Standards Board aims to have a full taxonomy of its 2008 international financial reporting standards ready next month. "XBRL has the potential to be really important if it is adopted uniformly by regulators and companies. It is really part of the whole convergence project, along with accounting standards, where we're moving towards a single global set," says Ken Williamson, leader of the financial reporting advisory team at Ernst & Young. But he adds a note of caution: "It's not in the bag yet - we need a groundswell of adoption since it is only helpful to the extent people use it." The technicalities are one potential wrinkle, says Matt Kelly, editor of Compliance Week. "In theory, it's a good idea and a lot of people are warming to it, but there are a lot questions about how to get this done. There are all these questions around the mechanics: How are regulators going to enforce this? Do auditors have a role to play? for example," he says. There are also questions about who will see the benefits. Users of financial statements, once used to the software, are expected to gain from the greater ease with which they can order data. Regulators should be able to gain from being able to scrutinise the information they collect in new ways. Companies, however face early costs and upheaval. "When it's all in place - fine. But until then, for CFOs it's all about keeping investors happy, while giving the finance team a lot of extra work," says Mr Kelly. But further down the line, the new reporting tool has potential. "XBRL isn't a solution, it's an enabling tool, and once companies have sorted out the external reporting bit, I think they'll start to look at what they can do internally," says Chris Rodgers, partner at KPMG. "If you're a global organisation, the chances are you're operating with a lot of disparate systems that don't match up and XBRL could significantly improve management reporting." Even then, managers are going to think through how it affects their external communications, warns Mr Williamson. "For companies with a good story and state-of-the-art, best-practice communications, it's a good thing. They're open and have performance they want to shout about. But it's more of a challenge for companies who like to control the messages they give to different stakeholders. You upload your data in XBRL and every-one has access," he says. Mr Kelly likens it to the early years of the internet, when managers were trying to assess the threats and opportunities. "Right now, it's a lot like 1994, when everyone knew the internet was going to be a cool, key tool, but we didn't know quite how to use it," he says. "And some people still haven't figured that one out."
