April 13—XBRL D-Day

The first time I wrote about eXtensible Business Reporting Language (XBRL) was in June 2005. At that time XBRL already was seven years old and gaining adoption by the big banks.

Now, almost four years later, XBRL is becoming a reality, at least for public companies. On Friday, Jan 30, the SEC posted the final rule mandating XBRL for public companies. It becomes effective April 13, 2009. SEC announcement, http://www.sec.gov/rules/final/2009/33-9002.pdf

As I wrote then, XBRL provides a way to automate the extraction of information from financial documents. It defines data-formatting conventions and vocabularies for marking up and describing business report data, such as sales or net assets. Essentially a subset of XML (eXtensible Markup Language) XBRL uses tags that are attached to the various elements of business data. The tags describe the particular piece of data in terms of an agreed-upon vocabulary, which is referred to as an XBRL taxonomy. XBRL makes it possible for a system to automatically parse a financial report, recognize specific information, and extract it accurately.

Once the organization has the appropriate taxonomy, it can enable its reports for XBRL by attaching the appropriate tag to various elements. Then organizations can automatically extract, use, and share data from the reports within the organization and between organizations. XBRL-aware applications can take advantage of the high level of specificity and self-describing nature of the tags to automatically process the information for purposes of reporting and analysis. XBRL is independent of any hardware platform, software operating system, programming language or accounting standard

In short, XBRL allows systems to automatically scrutinize financial reports and extract key information for subsequent analysis by various intelligent applications and financial analysts. XBRL will even dig out the arcane details buried in the footnotes of financial filings.

The requirement for public companies to file reports in XBRL certainly will be welcomed by the financial wonks who scrutinize financial data as part of financial and competitive analyses. XBRL will save countless hours of copying and pasting data manually into spreadsheets and various analytic tools. This will effectively streamline the analytic process, saving enormous amounts of time while greatly improving the accuracy and completeness of the analysis.

For corporate financial managers XBRL presents a mixed blessing. It will require an investment in tools and/or services (which we will look at in subsequent posts) to deliver the required SEC reports in XBRL format. Of course, it will allow the company to more easily analyze, say, the financial results of competitors just as competitors will be analyzing theirs.

Is this a good thing? It depends on whether or not you’re going to take advantage of it. What is certain is that for publicly held companies, the SEC is expecting XBRL reports starting April 13.