USA

An Accountant’s Quick Guide to XBRL – Part I

  • 07 Apr 2016
  • Neal Hannon
  • EDGAR

An Accountant’s Quick Guide to XBRL

XBRL has been around since the start of the SEC’s voluntary program in 2005. Introduced as a markup tool for financial statements, XBRL today is much more.  Clear and accurate presentation of financial statements is essential to understanding company performance.   So why have accountants failed to embrace XBRL to express financial information more clearly?

The present US reporting system has evolved over the last 25 years under the guidance of financial reporting specialists, external auditors and various government regulations and regulators.  If your company has been in existence for 25 years or more, chances are you have people in senior management roles whose first introduction to financial reporting began in the paper-based era. Given this background, the natural reaction to the interactive data approach to business reporting is to look to the presentation first and not the data behind the presentation.  Change is coming slowly but surely as more financial reporting accountants discover the breadth and depth of digital financial reporting.

To see more clearly where we as accountants are today and were we need to be going, let’s take a quick look at the past then explore where we need to change.

Pre-EDGAR

Prior to 1996, gathering financial information from companies was a laborious paper crunch.  Most annual reports were short (See Sony Corporation’s 27 page 1980 annual report here) containing little information beyond management discussion and analysis plus financial statements with footnotes. For accountants, the process of producing financial statements in the pre-Sarbanes-Oxley Dodd-Frank era consisted of complying data, creating financial statements, and writing supporting notes to the financial statements.  After senior management and auditor approval, documents were sent via courier or FAX to a financial printer.  Once printed, the document went back to the company for approval before distribution to the financial community and the SEC.  The company was in complete control of the numbers and how they looked at all times.  This is an important point to consider.  Accountants in the 1980’s and 1990’s had complete control of the content and the presentation of financial data. Even though there was a parallel path creating SEC 10-K reports and annual reports, the company’s reports were similar and the focus was on presentation. The uncomplicated 1988 General Electric Corporation’s 47 page 10K is here.

Internet Browser Retrievable EDGAR 1996-2004

The Electronic Data Gathering, Analysis and Retrieval system (EDGAR) began in the mid-1980’s. EDGAR-Online, an early user of EDGAR  gave this historical perspective:

In 1984, the SEC allocated $30 million to start the EDGAR (Electronic Data Gathering Analysis and Retrieval) pilot program. Its purpose was to create an electronically accessible database providing a more efficient and less costly method whereby the investing public could get the information it needed. A gradual phase-in schedule was established mandating public corporations to file SEC documents electronically. As of fall 1995, more than 92% of all public companies were filing with EDGAR.

For a more about the evolution of the EDGAR system, please visit the SEC website here. EDGAR offered a unique value proposition.  Financial data was available very shortly after submission to the SEC in a format that could be viewed in a web page.  Again note the emphasis on the visual representation of the financial reports.

By 1996, all companies reporting data to the SEC were required to submit paper-based financial statements, schedules and disclosures and the same schedules in approved EDGAR format.  “On June 28, 1999, the Commission began accepting live filings submitted to EDGAR in HyperText Markup Language (HTML) as well as documents submitted in American Standard Code for Information Interchange (ASCII) format. The Commission gave filers the option of accompanying their required filings with unofficial copies in Portable Document Format (PDF).” (See Electronic Filing and Edgar, 2006) Companies such as EDGAR-Online (EOL) found a way to capture this data and re-purpose the same into analytical reports.  Note that the data used by EOL was “scrapped” from the online reports posted by the SEC.  The underlying meaning of the data had to be inferred by its position within a financial statement.  This was a welcome step forward but short of where we are today.

In 1998, The World Wide Web Consortium published XML standard 1.0.  Almost immediately, experts in many different fields of study began asking how to develop a set of XML tags so that they too could communicate data directly to machines. As the Internet community began to focus on a more dynamic markup system, XML, XBRL pioneers like Charles Hoffman began to experiment with developing a set of robust tags specifically for the markup of business reports.  Back in the colleges and Universities of the US, accounting was still being taught as if everything accounting was paper based.  Financial reporting teams were dealing with sending live filings to the SEC in HTML or ASCII format, both of which were essentially mirrors of paper based systems.

The ability to retrieve financial data almost as soon as it was filed with the SEC was a huge improvement over the mail delivery of paper-based reports. While many users of financial information applauded the SEC’s efforts to move business and financial reporting on to the internet, limitations of the format were soon apparent.  In order to complete analysis of two or more companies, analysts needed to cut and paste data from one report and re-enter it into another.  This usually took the form of an Excel spreadsheet.  The obvious limitations include manual input errors, calculation errors and the inability to share results from one software program to another.

How XBRL relates to XML and HTML

HTML XML XBRL
For Display on a Website For Data Structure Designed for Data Structure and analysis
Closed Language, Standard Tags Open language; design your own tags Open but works best with highly developed taxonomies
Well suited to Display Paper-based reports Carries underlying data with structure; not intended to mirror paper based display Carries underlying data from business and financial reports with instructions for display.
Not suitable for direct analysis Lacks instructions specific to business reporting Adds report instructions, business rules, presentation, validation criteria enabling analysis

 

EDGAR Enabled with XBRL 2004 to 2011

Starting with the first volunteer reporting program announced in 2004 through the rollout of mandatory reporting in the XBRL format in 2009, the EDGAR system has been continuously updated to accept business reporting data in the XBRL format.  As of January 25, 2016, EDGAR is on version 16.0.1.  The current EDGAR filing Manual contains the rules and regulations for filing with EDGAR.  As of this writing, the EDGAR manual is in version 24. The current version of the EDGAR Filer Manual Volumes I – III can be downloaded here.

From a financial reporting accountant’s perspective, the advent of the XBRL rules for filing was initially met with one of three approaches:

  1. Learning XBRL and purchasing markup software from companies such as Rivet or Fujitsu. This approach appealed only to the largest corporations.
  2. Asking the large financial printers to assist in marking up the financial product after the normal cycle of the paper based approach was completed.
  3. Asking consultants from large CPA firms to assist in the markup of financial data to the XBRL format.

Why was the filing of XBRL with the SEC completed in this manor?  First of all, many of the experienced accountants on the financial reporting team learned accounting taught in colleges and tested for on the uniform CPA Examination.  All understanding of accounting was based upon how the results would look in a paper based report.  Internal auditors, external auditors and financial accountants were not trained in systems or in database management.  When XBRL became a mandatory filing format, the initial reaction was to treat this event as a regulatory requirement and not as a strategic method for storing, analyzing and retrieving business data.

Innovative companies such as Clarity Systems (now IBM Cognos) and WebFilings (now Workiva) began introducing products that integrated financial reporting procedures with the filing process.  Once separate activities, these companies brought cloud based tools that help in two basic areas. First, the products introduced cloud-based collaboration during the financial reporting cycle and second, the immediate integration of XBRL tagging within the financial closing process. (Editor note:  DataTracks is also using a cloud based collaborative approach to XBRL). This approach helped the financial reporting community move forward but there is still work to do.

Next month, we will examine the changes since 2011 and introduce a step by step guide for you to significantly improve your digital reporting skills.

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End of part I

 

Next month Part II

Accountant’s Guide to XBRL: Implications for Accountants

Sub-title: How XBRL can lead the way to financial reporting excellence