Originated in the 1990s, the eXtensible Business Reporting Language (XBRL) was designed as a standards-based format for communication and information exchange between business systems. Interest in XBRL has grown in recent years as global regulatory organizations -- including the U.S. Securities and Exchange Commission and the U.K.’s HM Revenue & Customs -- have begun to require its use. Other regulators are following suit: By 2013, for example, foreign companies that use International Financial Reporting Standards will also be required to use XBRL tagging when submitting financial returns to the SEC.
But are there business benefits to using XBRL, or is it just another headache-inducing compliance regulation, especially for smaller companies? One person who sees the upside is David A. Frankel, chief marketing officer of EDGAR Online, a firm that provides XBRL company information and services. SearchCompliance.com recently talked with Frankel about how XBRL tagging, when done correctly, can actually help companies of all sizes from a business standpoint.
Has the evolution of XBRL created a hardship for companies, especially smaller ones?
Frankel: If you were to ask filers, some might say the fact that the SEC is mandating XBRL-tagged filings is a hardship, as they have the burden of the costs for compliance. However, there are plenty of solutions available in the marketplace that allow efficient tagging to occur, and ultimately, everyone can see the value -- filers included -- from better tagging of this information. More transparency equals better analysis. My guess is that those companies not fully realizing the value of XBRL tagging would be first to say it is a hardship.
How can companies use the information gathered under SEC mandates surrounding XBRL to their advantage? Can it help them from a business perspective?
Frankel: It can absolutely help from a benchmarking and risk analysis perspective. The ability to analyze granular data on competitors, suppliers, customers, shareholders, stakeholders, etc., allows issuers to truly understand the risks involved with running their business. It empowers them to make better decisions and react quicker to changing market conditions. Governance, risk and compliance across the enterprise is a huge issue for companies right now -- and the solutions all revolve around harnessing intelligence from the data they and comparable companies are producing with their filings. The key to finding value in this XBRL-tagged data is integrating solutions that can present this data in a meaningful way.
Is it easier for larger companies to adhere to the SEC mandates surrounding XBRL than it is for a smaller company? Why or why not?
Frankel: In some ways it can be easier for larger companies, some ways more difficult, and some it makes no difference. It all depends on the company, the industry in which it operates, market conditions, etc. In very stable industries or with conservative companies that have an established business model, deployment of XBRL can almost be a "set it and forget it" type experience.
XBRL tagging can help companies better understand trends around what is going on with their companies, and surrounding competitive landscapes.
David A. Frankel, chief marketing officer, EDGAR Online Inc.
Once the tags are selected, they will not likely fluctuate from quarter to quarter, so it can be pretty painless. For companies that have a more complex structure or are rapidly changing businesses, the quarterly reporting process can be cumbersome to begin with. Proper XBRL tagging can just add to the process, as it takes some expertise to do it right.
Understandably, the larger company usually has a bit of an advantage initially, as it generally has more resources (and in some cases, highly skilled internal reporting personnel) that can manage the onboardingprocess. Smaller companies can have a bit of a steeper learning curve (thus, the SEC mandate for larger companies to initially take on the tagging burden). In either case, however, alignment with a highly skilled tagging partner -- one that understands the company, its industry and trends in use of XBRL -- is key. The great news is that there is an emerging trend around "assisted self-service" tagging, that deploys a combination of technology/software and consultative services that makes the process less painful and more cost-efficient.
How does using XBRL help companies, especially smaller ones, gain transparency and exposure?
Frankel: As mentioned before, XBRL tagging can help companies better understand trends around what is going on with their companies, and surrounding competitive landscapes. For smaller companies, the ability to get in front of emerging governance, risk and compliance problems before they make an impact can be a huge advantage -- as even small issues can have a tangible impact on such firms, and the amount of resources it takes to react and recover when it is too late can be significant.
The key to gaining value from the transparency and exposure opportunities created by XBRL, however, will only be realized when companies (large and small) enter the process with usability as the goal over simple compliance. Complying with SEC disclosure mandates does not necessarily yield useful results -- just compliant filings. Companies that stick to a consistent, intuitive tagging strategy (one that minimizes the use of extensions) will be the ones that produce the most meaningful data -- and will be the ones who benefit most.
Let us know what you think about the story; email Ben Cole, Associate Editor.