Question: What is all this about a new reporting system that companies must use when dealing with the SEC. Is it just a political move? Will it really happen?

Sam Fulstein

Dear Sam,

You are most likely referring to the SEC mandate commonly known as the XBRL Rule. That stands for eXtensible Business Reporting Language. And, just to confuse things, the small “e” and the capital “X” are correct!

The official title of the rule, passed on January 30 of this year, is “Interactive Data To Improve Financial Reporting.” To read the full ruling, go to: www.sec.gov/rules/final/2009/33-9002.pdf.

This relatively new interactive technology uses names or computer “tags” that function like bar codes. (They are similar to those used to identify groceries or to ship packages.) The tags identify each item on an income statement or a balance sheet and are also used to flag numbers, specific words in a narrative text, dates and other facts in SEC filings.

Proponents say that XBRL provides a means of communicating business information quickly and accurately. In fact, with key numbers individually labeled, investors such as yourself, analysts, financial journalists and others can easily search for information and also conduct comparative studies.
XBRL will enable you to search for information previously buried, often in footnotes, such as: audit flags, executive compensation, litigation, pension liability, retirement packages, tax obligations, and the like.

Note: Above, in the third paragraph, we used the phrase “relatively new”. That’s because XBRL is not brand new and, in fact, is  already in use in 40+ countries around the world, from Australia, Belgium, Canada and China to Japan, Spain, Sweden and Thailand.

And, in this country, the FDIC requires all U.S. banks to disclose information using the XBRL format. (Not that doing so prevented our banking crisis!)

A political move

You ask if this is a political move. Well, that depends upon your definition of political. It is seen by many as a way to restore public confidence in the SEC, especially following the Madoff debacle, and to meet head on the ever increasing public demand for financial transparency – a demand that has been unabated since Enron went out of business.

In a press release announcing the ruling, SEC Chairman Christopher Cox stated: "This is all about bringing investors better, faster, more meaningful information about the companies they own… It will transform financial disclosure from a 1930s form-based system to a truly 21st century model that taps the power of technology for the benefit of investors."

Where it will show up

You will find upgraded “tags,” issued last April by XBRL US, Inc., in all company quarterly, annual and interim reports and in SEC registration statements. Each and every public company must post XBRL material on its website on the same day it files the information with the SEC.

Not up and running yet

You asked when this will happen. Although the SEC is requiring all public companies to use XBRL, (some starting as early as this month and all no later than 2011), the majority appear not to be at all happy about signing on. In a national survey of CFOs and senior comptrollers conducted by Grant Thornton, 64% of public companies said they have no plans to use eXtensible Business Reporting Language despite the SEC mandate.

Grant Thornton also reported that while 65% of public companies are familiar with XBRL, only 12% actually use it to report their companies' financial results.

Additional information:
The two best sources for keeping up-to-date on the implementation of the XBRL rule are:

• SEC: www.sec.gov (click on “press releases”)
• Grant Thornton: www.grantthornton.com (type “XBRL” in the search box)

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