Financial Reporting Using XBRL

The needs of investors and other users also sparked a greater awareness in 2004 of the benefits of using XBRL for financial reporting. XBRL, an acronym for eXtensible Business Reporting Language, is an information standard that provides a universal format for a system of tagging data.

Users of financial statements wishing to analyze or compare financial statements typically extract numbers from electronic financial statements and re-key the data into spreadsheets or computer models. Without XBRL, analysis of the electronic financial statements routinely available to investors, creditors, and the general public can be time-consuming and prone to human error.

XBRL "tags" the data in the financial statements and is intended to harness the power of computers to help users extract consistent and comparable information from electronic financial statements. The effects of this tagging have been likened to the effects of barcoding consumer items. The development of the technology was sponsored in part by the AICPA.

Is the company using XBRL? If not, should it adopt XBRL?

In February 2005, the SEC released a rule that allows voluntary financial reporting filings using XBRL. SEC registrants receive certain legal safe harbors if they voluntarily submit tagged exhibits in XBRL as a way of supplementing their electronic filings on the SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The supplemental data would be submitted as Exhibit 100 to their filings.

The rule indicates that:

• No preapproval is required to submit the data.
• One submission will not commit a registrant to future XBRL submissions. In other words, the voluntary program will allow companies to stop and resume their XBRL submissions at will.
• The XBRL data on Exhibit 100 will reflect the same information the registrant included in its filing under the Exchange Act of 1934 or the Investment Company Act of 1940. Use of XBRL for the notes to the financial statements is optional.
• The XBRL-Related Documents must be described as "unaudited" or, for quarterly financial statements, "unreviewed."
• Cautionary language must be provided. The purpose is to advise investors that the program is still in the testing stage and they should not rely on the XBRL data in making investment decisions.
• Submissions designed solely to submit XBRL-Related Documents that present information related to a different filing must reference the official filing form from which the XBRL data was derived.

What are the Costs/Benefits?

The goal of the program is to test and evaluate the XBRL format. The potential costs and benefits include the following:

• The use of XBRL might result in time and cost savings for users of financial statements, who currently rekey and reformat financial information to analyze key ratios, compare companies to peers or indices and perform sophisticated technical analyses.
• The time and cost savings for users may lead to extended analyst coverage for smaller companies, resulting in better information for investors.
• The changes in systems and controls needed to adopt XBRL could affect the level of costs related to Section 404 reporting.
• The use of tagged data might also lead to improvements in controls over financial reporting, (e.g., by automatically checking information in spreadsheets and bridging different internal accounting systems).
• The validation controls and improved consistency in reporting might help the SEC staff review filings and analyze data.

Will XBRL become mandatory? And does it affect non-public companies?

At the conclusion of the test period, the SEC may decide to make XBRL filing mandatory and it may require auditor attestation of the accuracy and completeness of the tagged data. Alternatively, it might decide to stop the voluntary program, if the costs appear to outweigh the benefits. At the same time, the FASB, lenders, tax authorities and rating agencies are all taking a hard look at the technology. Their reactions will likely help determine the impact on non-public companies.

The FASB appointed an XBRL fellow, and the staff has begun an effort to review and verify the U.S. taxonomy, which is the term used for a dictionary of data definitions needed to support the use of XBRL for a certain discipline - in this case U.S. GAAP.

The initial taxonomy for U.S. GAAP was developed by the U.S. part of an international initiative undertaken by the XBRL Consortium, a group of more than 200 accounting, technology and financial services companies and government and non-government agencies in more than 20 countries.

The taxonomy provides coverage for information in both the financial statements and the notes to the financial statements, and it incorporates references to the authoritative literature applicable to the various elements of financial reporting. These elements include captions on financial statements, such as current assets, and line items, such as cash and cash equivalents. For example, a line item for deferred tax assets would likely be referenced to FASB Statement No. 109, Accounting for Income Taxes.

The initial taxonomies under review apply to major industry segments. There are different taxonomies for commercial and industrial companies, banking and savings institutions and insurance companies. A briefing paper prepared by the FASB's XRBL fellow for the Financial Accounting Standards Advisory Council estimated that, upon initial release, the taxonomies would provide coverage for approximately 90 percent of all publicly listed and private companies.

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