XBRL - A New Era for Financial Analysis Has Arrived

A New Era for Financial Analysis Has Arrived The SEC's newly announced pilot project will have significant implications for the CPA profession. by Liv Watson The Internet and electronic communication has ensured that information is more freely available than ever before and that the time it takes to deliver that information has sharply decreased. The key question however is: How accessible is that information? Even when you know exactly what you are looking for and roughly where to find it, extracting information from financial and business reporting today data generally involves a frustrating experience and a time-consuming wait. Until the emergence of the XBRL (eXtensible Business Reporting Language) standard, extracting and comparing financial data across formats could be quite cumbersome. In the wake of the Enron bankruptcy and other malfeasance events we also became much more aware of the shortcomings of market supervision and information provisioning to investors. Investors risked their hard-earned resources in the market relying on information disclosed by companies. To them having access to instant, relevant, accurate financial and business reporting information is critical for the good functioning of democratic markets, and for the fair distribution of profits. Investors need reliable information on a timely basis. They want it in a language they can understand, and they want to receive it in formats they can easily use and reuse for more analysis. Until the emergence of the XBRL (eXtensible Business Reporting Language) standard these mechanisms tended to be proprietary or unique to a particular purpose. XBRL International (www.xbrl.org) is a global consortium initiated by the AICPA with over 250 leading organizations concerned with the exchange and timeliness of financial and business reporting data. XBRL International powerfully connects members representing the whole financial and business reporting supply chain to develop a standards-based solutions for this data that are universally open, industry-driven, and globally endorsed. As AICPA Chair, Robert Bunting, remarked at the AICPA, SEC-PCAOB Conference in Washington two weeks ago, "XBRL is nothing less than a fundamental transformation in the way business reporting information will be exchanged - and the SEC's support represents another big tipping point for it's broad adoption." The format and media on which Financial and Business Reporting Data are authored today varies widely between paper, html, PDF, other human readable forms or proprietary formats tied to an application. Each publishing format has its limitations. Generally paper, html and PDF have similar issues. They can be interpreted only by human manual processing. As AICP's Bunting observed: "XBRL does for business information what bar coding did for product distribution. It offers the same kinds of benefits in information quality and cost savings all along the business reporting supply chain." XBRL is a universal format for exchanging financial and business reporting data. XBRL-based documents allow for the tagging of specific pieces of financial and business reporting information. It allows for the interchange of financial and business reporting data among various parties throughout the information supply chain. While XBRL is nothing more than a market driven standard, it will have a fundamental impact on the analyst market place. The biggest threat to democratic efficient markets is the lack of timely, relevant, and accurate information. Without all the facts, decision makers are pressured to make critical business decisions and assess risks and opportunities based on gut-feelings or incomplete information. Ultimately, XBRL is an important link on the enrichment of information that benefits all users in the financial information supply chain: public and private companies, the accounting profession, regulators, analysts, the investment community, capital markets and lenders, as well as key third parties, such as software developers and data aggregators giving birth to a whole New Era for Financial Analysis. Click here more information about SEC's proposed rules to establish voluntary programs for reporting financial information via XBRL. Liv Watson is an accountant and Vice President of XBRL for Norwalk, Connecticut-based EDGAR Online Inc. (Nasdaq: EDGR)-- a provider of global business and financial information. Questions? The author may be readed at lwatson@edgar-online.com