The SEC has announced a proposal that would require all U.S. public companies that follow the U.S. Generally Accepted Accounting Principles, to provide financial information using the 'interactive data' format.Specifically, for companies whose market capitalization is more than $5 billion this requirement would become effective from fiscal years ending in late 2008 and the remaining companies would be expected to comply over the next two years. The first set of financial statements in the new format would be available to the public starting 2009.
The interactive financial data would be in the e(X)tensible Business Reporting Language (XBRL). XBRL is from the family of 'XML' languages. It is a language that is used for transmitting information.
Imagine if you were to download a company's annual report. The way things stand today, this data would be a block of text. However, using XBRL, computer tags would be attached to this data such that each individual financial information would have its own tag that is computer readable. For eg: inventories would have its own tag. A tag would serve the purpose of not only an identifier but also provide information on the tagged item such as whether it is a percentage, fraction or a monetary item. As a result, it would be possible to efficiently collect data from different business units (they may even have different accounting systems) and generate internal management reports as well regulatory filing reports such as financial statements. Instead of wasting effort and money over time consuming data entry, companies can simply validate the received XBRL data through available software and speed up their research and analysis of this data. XBRL tagged data would have particular use not only for companies looking to simplify their financial reporting process but also for analysts, researchers and lenders.
XBRL is a standard that is being adopted worldwide. The most important information- XBRL is free of cost and there are no license fees.Obviously, different XBRL taxonomies would be required for different financial reporting purposes as well as for different national jurisdictions.
The fact that SEC is making XBRL filings mandatory for U.S. public companies is a very important development for vendors of accounting software as well as for outsourced data processing companies. With XBRL tagged information easily available, the need to outsource data entry of financial information or the need to outsource the preparation of financial filings could potentially drop.