(INVESTOR'S BUSINESS DAILY)
Few realize that Wall Street analysts labor under an 80-20 rule. That is, they spend 80% of their time gathering financial data and just 20% analyzing it.
The challenge in assessing any company involves making sense of corporate financial statements. But the lack of a technology standard for providing such data online makes this task more difficult.
So the Securities and Exchange Commission has issued a call to action. This month, SEC Chairman Christopher Cox urged software firms to provide — and companies to use — a new interactive format for putting financial data online.
This standard is known as extensible business reporting language. XBRL code is used to tag all kinds of data in financial reports. Such tags let analysts extract and use the data.
Much as HTML is the standard language for coding Web sites, XBRL is a standard for coding online financial data.
This technical standard differs from accounting standards. U.S. companies must base their financial results on generally accepted accounting principles, or GAAP. But no such rules exist on how to provide this financial data over the Web.
Now the SEC is asking companies to adopt XBRL on a voluntary basis. In his call to action on Oct. 4, Cox said XBRL tags could "dramatically enhance" the value of financial reports.
In a speech to members of the American Bar Association two days later, Cox said XBRL lets investors cull data more easily from different sources and exchange information over the Web.
"These technologies will let investors manipulate and personalize the information," Cox said. "This information can be made better to meet the individual investor's own ends."
Some 300 companies from the software, accounting and consulting fields have banded into a global consortium pushing XBRL. The group, named XBRL-International, also includes investment banks and government agencies.
XBRL lets analysts study data rather than collect it, says Dan Roberts, chairman of the XBRL-U.S. Steering Committee. He's national director of assurance innovation for accounting firm Grant Thornton.
"XBRL is going to fundamentally transform business reporting," said Roberts.
Most financial results are posted in Microsoft Excel or other spreadsheets that can't be easily accessed or manipulated online.
This forces analysts to often retype whole sets of figures into text or Web files.
"That makes it hard to verify data, and it can be highly prone to errors," said Michelle Savage, head of investor relation services at PR Newswire. The agency sends feeds of financial reports to media clients. Savage is the U.S. steering committee's vice chairman.
The group's next meeting is slated for January in San Jose, Calif.
XBRL is becoming crucial because of "a need for more transparency," said Savage. The result for investors should be wider access to accurate information, she says.
"It provides greater clarity around not just large corporations, but also midcap and small-cap stocks," she said.
Several software makers are working on XBRL programs.
Microsoft, (MSFT) Hitachi (HIT) and Fujitsu are all active. Privately held vendors doing likewise include UBmatrix, DecisionSoft and the Dutch firm Semansys Technologies.
The leader now is privately held Rivet Software of Denver. It sells an XBRL product called Dragon Tags. It lets users simply click and drag financial data.
The software can tag items in Microsoft Excel and Word, says Rob Blake, Rivet's vice president of product marketing.
"Individuals or Wall Street investors can now get information without making a subjective interpretation of the data," Blake said. "This gets those analysts straight to analyzing."
Nine companies in the U.S. have volunteered to post their financial results in XBRL. Rivet has powered 11 of the 14 XBRL filings these firms have made to the SEC since April, says Blake. The nine firms include Microsoft, Adobe Systems (ADBE) and EMC. (EMC)
Starting this month, the Federal Deposit Insurance Corp. requires more than 7,500 U.S. banks to submit data in XBRL.
That FDIC mandate, combined with pressure from the SEC and Wall Street, should prompt widespread use of XBRL over the next few years, says Savage.
"People are aware of XBRL, but they're still in the process of getting educated," she said. "Ultimately, this will become mandatory."
October 25th, 2005 ·
