In the late 90's we had our first modern financial crisis--lead by the likes of Enron [1] and MCI WorldCom [2]. This resulted in increased regulation, namely Sarbanes-Oxley [3], but it didn't prevent the financial meltdown of 2008. How could the SEC drop the ball so badly between 1998 and 2008?
The problem--according to Diane Mueller, 1st Vice Chair of XBRL International [4] and vice president, XBRL Development at Just Systems [5]--is that the SEC got more and more data and continued to process it manually. By automating the exchange of data in an intelligent fashion and enabling systems to programatically share and analyze data, it could greatly increase the efficiency of the SEC analysts. And that's where XBRL, an XML standard for financial information, comes in.
A brief overview
Back in the late 90's an accountant named Charles Hoffman [6] recognized the problem and helped lead the movement to develop an XML standard to transmit data between accountants, firms and the SEC. But developing a worldwide standard is no simple matter. It takes patience and it takes time, and it just so happens that the next financial tsunami hit just ahead of the implementation of the XBRL standard. Implementation begins this year with the largest companies required to submit reports to the SEC in XBRL format and continues over the next three years until all filers will be required to use this format.
Up until now, firms could submit the data in any format they wanted--html, pdf, ascii, whatever--and a small group of 250 SEC regulators had to pour over this increasingly large pile of data. If there was an error, the whole report had to go back, which delayed approval even further and delayed the business from moving forward. XBRL brings automation and discipline to the process. The data gets validated before submission. If it's not valid, you can't submit it. What's more, the structure enables analysts to analyze the submissions quickly, get a big picture view and see if there are problems early in the process without holding up the business and providing a much more efficient system. XBRL also enables anyone else to analyze data, and because this is public information, watch dog groups with trained analysts can pour over this data in the same fashion.
There can also be a lot of benefits for business, especially for the accounting department, far beyond simply complying with legal requirements. This is much like the benefits other departments derive from using a content management system.
Getting accountants into the flow
Mueller says she has noticed that accountants haven't gotten into a content management workflow. This is particularly interesting to me because just last week we held a FierceContentManagement webinar [7] (which was hosted by Just Systems), in which Gilbane Group [8] analysts Bill Trippe and Dale Waldt discussed how to use another XML standard, DITA, to bring content automation to the documentation department. The same principal applies to accounting, but Mueller says when you walk into accounting departments, nobody has thought about that. They are still working with Excel spreadsheets. There is no move toward automation or validation and they could benefit from the very same efficiencies as the documentation department.
XBRL and a content management system that understands XML enables the accountants to build a logical workflow where they can write once and use many times, just like the documentation department. That means they can use the same information in their SEC filing, the analyst presentation, press release, website and so forth. They can also use it for regulatory requirements and archiving. "And that's not happening in most companies in a connected, structured way. It's mostly paper and Excel and a hope and a prayer," Mueller says. She's trying to get them to understand what works in the documentation department and across the enterprise could also apply in a big way to the accounting department.
This kind of automation could save countless work hours, prevent mistakes and enable companies to use this data in ways that are just not possible with today's systems. XBRL might not prevent the next financial crisis, but it could bring content automation to the accounting department, and make it a little bit easier to see the big picture before everything blows up.
This has just scratched the surface of XBRL. It's a rich and complex standard, so check out some of these resources to learn more:
- Ron [14]
Links:
[1] http://www.time.com/time/2002/enron/
[2] http://money.cnn.com/2002/07/19/news/worldcom_bankruptcy/
[3] http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act
[4] http://en.wikipedia.org/wiki/XBRL_International
[5] http://na.justsystems.com/index.php
[6] http://www.amazon.com/XBRL-Essentials-Charles-Hoffman/dp/0870513532
[7] http://w.on24.com/r.htm?e=144927&s=1&k=4EB51E764F2EAE26CCD696F2D8F6CA8B&partnerref=rm
[8] http://gilbane.com/
[9] http://na.justsystems.com/xbrl_blog/index.php
[10] http://gw.vtrenz.net/?WS3AALPC4M&webSyncID=719d0da3-4d52-b21e-1550-e9681eb7a04b
[11] http://www.xbrl.org/Home/
[12] http://www.youtube.com/watch?v=5F1E-2LkhW8
[13] http://www.thecontentwrangler.com/article/xbrl_in_plain_english_understanding_an_important_business_content_standard/
[14] mailto:rmiller@fiercemarkets.com