Is XBRL a Solution Searching for a Problem?

By Maria Trombly | Securities Industry News | September 18, 2006

Securities and Exchange Commission chairman Christopher Cox, who took office more than a year ago, has been an unabashed promoter of extensible business reporting language (XBRL) as a standard for business data reporting. Yet to date, only 24 U.S. corporations have adopted it for their SEC filings. More use it overseas, but the technology, touted by advocates as a boon for financial reporting, research and analysis, is still on an uphill climb.

"Today, most investors are still receiving stacks of paper, that high-tech invention of 105 A.D.," Cox said in June at an SEC-sponsored Interactive Data Roundtable in Washington, D.C. "Yes, these documents have allowed countless Americans to treat insomnia without resorting to pharmaceuticals, but they have proven deeply flawed as vehicles to inform the investor."

Institutional investors don't have it easy--analysts cut and paste data from corporate disclosures into Excel spreadsheets, or key in numbers by hand. The process is time-consuming, can introduce errors and serves to limit the number of firms an individual analyst can cover. If the data were available in XBRL format, analysis would be far more efficient--and available to anyone interested in making comparisons across a vast financial database.

The SEC had retail investors in mind when it issued a request for proposals last month for vendors to come up with interactive Web tools for comparing information from different companies. "Instead of a dense, unsearchable morass of lawyer-isms," as Cox put it, "imagine disclosure documents with the flexibility of your favorite Web site, giving you access to basic information and then myriad options to drill down more deeply for more information on a practical topic or to make a comparison."

Brokerages are also working on creating online tools for investors. At the Washington roundtable, Morgan Stanley vice chairman of client services Trevor Harris presented a tool kit that allows investors to compare companies on a basic level, then refine the search for more detailed information. Once the reporting is in XBRL, the tools can instantly pull data from SEC filings for processing.

"If we can actually take this data and get it in that form, it will certainly improve the analysis from a transparency and timeliness point of view, and our ability to deal with complexity," Harris said. Morgan Stanley analysts would be able to cover more companies, spending less time on data entry and more on what they get paid to do. "So it changes the dynamic, and we can actually, I think, make the capital markets much more efficient for everyone," he said.

Struggling for Traction

There are two possible explanations for XBRL's slow take-up: Technological fixes are lacking, or it may just be a solution that hasn't yet found its problem. "Part of the problem with any standard is trying to build into it the flexibility to be a custom solution while remaining standardized enough to be easy to use across many platforms," says Tabb Group analyst Jeromee Johnson. XBRL has to be able to handle all the financial information that a company puts into its reports--including footnotes.