XBRL: Don't Know It? You Will Soon.

by Walter Hamscher

No. We don't all speak the same language. But we will soon – the language of XBRL. This open standard language, already in use by Morgan Stanley, Microsoft and EDGAR Online, promises to bring consistency to financial reporting.

XBRL (eXtensible Business Reporting Language) is a royalty-free, open standard for tagging information to improve the quality and transparency of business reporting. XBRL permits the automatic exchange and reliable extraction of financial and business information across all software. XBRL is not a proprietary software product but an open standard developed by XBRL International Inc., a not-for-profit consortium of some 250 companies and agencies.

Participants in business information supply chains summarize and exchange information across organizational boundaries. These participants encompass public and private companies, lenders, investors, regulators, business partners and capital markets. Currently, all participants suffer from the variety of formats and even types of information they collect, and then they, in turn, must publish inconsistent information. No matter how powerful and flexible participants' databases and applications may be, inconsistency and poor- quality data from source systems costs them time and increases their business risk.

XBRL is a common data language to be used across the entire supply chain, from reporting individual business events and financial results inside an organization to reporting to external stakeholders. Using a tagging scheme for all business reports, XBRL enhances the usability of business data by eliminating the need to re-key, thereby minimizing the risk of error.

Any piece of business information can have a tag attached to it so that it is identifiable to software that understands XML and that conforms to the XBRL 2.1 specification. As with a bar code, the software used by any recipient can recover all the pertinent context of the data – for example, whether the information is segment information, part of an audited statement or another type of business data.

XBRL organizes data using dictionaries of business terms and their corresponding tags. The members of XBRL-US, a part of XBRL International, include more than 50 leading companies in the software, accounting and financial services sectors. These members have collaborated to develop the U.S. Generally Accepted Accounting Principles (GAAP) taxonomy that comprises more than 3,000 distinct terms. Other published taxonomies include a ledger taxonomy that provides a common set of terms for describing journal entries in all kinds of accounting ledgers, an International Financial Reporting Standards (IFRS) taxonomy, and taxonomies for reporting under Japanese, Korean and Canadian GAAP.

The U.S. Securities and Exchange Commission has proposed a voluntary filing program, scheduled to begin in March 2005, under which companies that file 10-K, 10-Q and other required reports may also voluntarily provide that same information in an XBRL file. Companies benefit from this reporting because XBRL-tagged financials communicate their substance to investors, analysts and other stakeholders with great precision and without relying on third parties to interpret and repackage the information for analysis. Because it can be imported into any XBRL-enabled software program, the XBRL document itself enhances the user's ability to find and organize information.

Studies have revealed that investors respond positively to clear, comprehensive reporting, and corporate filers can demonstrate their tangible commitment to greater transparency by using XBRL. Markets will take notice: Companies following in the footsteps of other early adopters, such as Morgan Stanley, Microsoft, EDGAR Online, Software AG, Reuters and other companies that publish their financials in XBRL, are likely to pique the interest of the financial press, analysts and others interested in learning more.

XBRL and the U.S. taxonomies that contain U.S. GAAP tags are currently supported in document-creation tools from Blast Radius, CaseWare IDEA, Fujitsu, Hitachi, Rivet Software, Semansys and UBmatrix. Oracle, SAP, AccPac and other ERP vendors are able to export XBRL, making it easier to import data into powerful analytic software from such companies as SAS.

Bio: Walter Hamscher is president and CEO of Standard Advantage. He is a co-author of the XBRL specification and several XBRL International publications; a member of the executive committee and past chair of XBRL International; chair of the XBRL U.S. Adoption Working Group; and a consultant to PricewaterhouseCoopers. More on Hamscher: www.hamscher.com.