SEC buys into XBRL

Add the Securities and Exchange Commission to the growing list of financial regulatory agencies getting ready to adopt Extensible Business Reporting Language (XBRL).

Under a stock exchange pilot program likely to debut next March, company officials submitting annual reports to the regulatory agency will be able to voluntarily attach an unofficial, supplementary XBRL financial exhibit to their filings.

A derivative of Extensible Markup Language, XBRL is an open metadata standard for tagging business and financial data. It simplifies the analysis of financial data.

"It's actually not only a dictionary, but it takes your accounting ledger and

provides not only the link bases of where you got the data from, but how you derived that data," said Richard Heroux, program manager of the SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.

"From a standards perspective on financials, it's the most advanced standard right now," Heroux said. "We're going into this pilot [test] with eyes wide open to see what comes out."

Agencies regulating the banking industry already are in the process of releasing a shared data repository of quarterly call reports submitted in XBRL. Bank officials will begin complying with the mandate starting next year, according to Federal Deposit Insurance Corp. officials.

"Change is really coming," said Liv Watson, an EDGAR Online Inc. senior vice president and one of the specification's original designers. "It's almost like having e-mail in the early days. You never got an e-mail because nobody had it, but could you live without it today?"

The SEC program will test the agency's ability to parse and render XBRL-tagged data, and it will provide investors and others the chance to do the same, Heroux added.

Officials at some companies, including EDGAR Online, Microsoft Corp. and Morgan Stanley, have indicated an interest in joining the pilot test, said Walter Hamscher, a member of the XBRL International Steering Committee and an XBRL designer.

XBRL eliminates the need to rekey data, said a Morgan Stanley analyst. "Right now, analysts get financial data, and they type it into a spreadsheet," the analyst said. "XBRL is going to get data directly and incorporate it directly into the data spreadsheets, which means few mistakes and less typing and more time analyzing."

Studies show that analysts can spend up to 80 percent of their time preparing data, Watson said. "How about if we switch those numbers and spend 20 percent on the mechanics of the data and then make more analysis or do something else?" she asked.

In addition, widespread adoption of the specification could foster greater understanding of company financial data. "I can look for trends over a longer period of time" once financial information is in a searchable XBRL database, Watson said.

"All of the facts in a financial report either refer to a period of time or else an incident in time," Hamscher said. XBRL "essentially gives you the rules of the language, how you say one or the other."