XBRL: Standardizing Financial Data

In the wake of accounting scandals that have resulted in imprisoned corporate executives and distraught investors, eXtensible Business Reporting Language (XBRL), an offshoot of XML, promises to help make public companies more consistent in the way their financial data is transmitted, reported and presented to investors.

XBRL could help prevent the financial chicanery allegedly engaged in by corporate entities such as Enron and WorldCom, experts say. It's a royalty-free, open standard under development by about 170 companies and agencies, including the Securities and Exchange Commission and the Federal Deposit Insurance Corporation.

The Sarbanes-Oxley Act of 2002, which mandates a clearer set of rules by which companies make financial disclosures, has also added support to the XBRL initiative.

With broader adoption, XBRL's proponents say, truly transparent financial information will be made available in annual reports, quarterly statements and other documents.

"Clients are all into it," said Robert Wegener, national director of solutions at RCG IT, a $200 million Schaumburg, Ill.-based solution provider that does a lot of business with financial institutions such as JPMorganChase and Mellon Bank. "Some of them have XBRL pilot projects. They are trying to get their people set up for [XBRL] and figure out what it means to them."

Wegener, who is in charge of Web services application development and testing at RCG, said once a regulatory body such as the SEC mandates the use of an open standard like XBRL, "then everybody will get on the bandwagon."

XBRL involves tagging different elements of a financial statement so they can be more readily retrieved from a public company's financial documents. These components can then be pulled into various applications and formats, without having to generate a whole new set of accounting terms.

Mary Knox, a senior research analyst in Gartner's financial services area, said it will be interesting to see if and when regulatory agencies mandate XBRL's adoption. In the meantime, "some of the major accounting firms are very excited about XBRL because it will help them automate their auditing processes," she said.

"One of the major issues is getting banks to sign on," she continued. But if there were incentives to adopt the XBRL dialect,such as accounting firms realizing cost benefits from the automation of its auditing processes, and subsequently passing on those savings to win more banks as customers,any number of financial institutions might just fall in line, Knox said.

PricewaterhouseCoopers is one of the accounting firms with resources invested in XBRL. Kim Jones, an independent consultant with his own firm, San Francisco's Spinning Electrons, is under contract to PricewaterhouseCoopers to help it devise its XBRL strategy. Microsoft is also closely aligned with this effort, Jones said.

"The basic reason for XBRL is that it allows you,say, a midmarket company,to talk to me, a potential lender," Jones said. "You could also be a multinational company trying to understand the financial information" of a number of disparate units spread around the globe. With XBRL, "we would be using the same terms to describe the balance sheet," he said.

Vendors such as Oracle and Microsoft are working to add XBRL support to their products. Another company, OneSource Information Services, just released its AppLink Software Development Kit 2.0. The SDK, which includes support for XBRL, lets solution providers integrate financial content about public companies from OneSource's content partners into their clients' CRM applications and portals. "We're looking at how people are going to consume the XBRL data, not just how they are reporting on it," said Mark Israel, chief architect at OneSource, Concord, Mass.