Let’s get it straight: Transitioning to XBRL does not simply mean installing new software and converting documents.

There are several common XBRL oversights, and this is a major one. Here’s another, says Michael Ohata, KPMG LLP’s managing director, advisory services, and one of the firm’s top XBRL experts: Executives don’t really need to immerse themselves in XBRL.

“Executives who don’t understand XBRL’s potential impact on the organization’s current financial reporting won’t be able to effectively oversee the XBRL preparation process, develop an XBRL filing process, or assemble a qualified team,” he says. “And regardless of whether an XBRL document is prepared internally or externally, management is responsible for its accuracy.”

In an effort to help shed light on effective approaches to XBRL adoption, I spoke with Ohata recently.

Full Disclosure: Given the likely XBRL requirement, what should CFOs and senior finance executives do right now in terms of preparing their team for this change?

Michael Ohata: First and foremost, CFOs and finance executives should understand XBRL’s potential impact on the organization’s financial reporting processes, including what XBRL reporting looks like and how it differs from current filings. Executives can get started by reading the XBRL U.S. GAAP Taxonomy Preparer’s Guide found on the www.XBRL.us Web site.

Executives should also form a team that includes people familiar with financial reporting and technical resources that understand the workings of XBRL. That team will help executives decide whether they will be preparing their XBRL submissions internally or outsourcing to a third party. Exploring available options can take some time, because companies will want to be comfortable that the software or the vendor they choose is most compatible with their preparation process.

FD: Are you finding that companies are seeking to hire full-time XBRL expertise right now? Do you expect them to in the future (and does it depend on the size of the company)? Why or why not?

MO: It’s too early to comment because companies are just starting to focus on XBRL and explore their options. But according to a poll taken during a KPMG 404 Institute webcast in June [2008], more than 70 percent of the 700-plus respondents said that they were “somewhat” or “very likely” to seek help from a service provider.

I don’t think the size of a company will necessarily dictate choosing one route or another — for example, larger companies may have more internal resources to dedicate to a conversion, yet their financial reporting may be more complicated and may require third-party help. Each company should investigate all options based on its own circumstances.

FD: If not, are they looking for other resources (part-time, co-sourcing, etc.)?

MO: Yes, even companies that choose to prepare their XBRL filings in-house may want the assistance of a consultant who has experience in preparing XBRL filings.

FD: Are there any common misconceptions about XBRL out there? What are they?

MO: I think there is still a misconception that transitioning to XBRL will simply mean installing new software and converting documents, and that executives don’t really need to immerse themselves in XBRL. But executives who don’t understand XBRL’s potential impact on the organization’s current financial reporting won’t be able to effectively oversee the XBRL preparation process, develop an XBRL filing process, or assemble a qualified team. And regardless of whether an XBRL document is prepared internally or externally, management is responsible for its accuracy.

FD: What do you anticipate will be the most time-consuming and expensive element of complying with XBRL rules?

MO: In the same KPMG 404 Institute poll [mentioned above], more than half (51 percent) of the 725 respondents said that developing a sustainable, well-integrated process will be their biggest XBRL challenge. I agree with that because the proposed rule requires concurrent filling of XBRL submissions along with the HTML and ASCII versions, which means the process will have to be integrated into the current filing process. That will be time-consuming. Companies will also need to apply the same discipline in terms of quality assurance and controls over the new process as they always have had, and that can take some effort to ensure.

FD: How, if at all, are you seeing companies leverage (or planning to leverage) XBRL beyond compliance? What are some of the most exciting “beyond-compliance” uses that leaders are considering or may want to consider?

MO: As you know, XBRL has been promoted as a way to provide more transparency to investors. But “transparency” will also allow companies to more easily compare themselves against their peers and to gain some good benchmarking data. But if you look at XBRL as a data-formatting standard, then companies should consider how data standardization can optimize the overall financial reporting process, provide deeper insights into their organization’s performance, and facilitate both IFRS and GAAP reporting. ###