| INTRODUCTION | | | | costs through the adoption of the XBRL |
| Recent revelations of shady accounting practices | | | | technology, including the reporting companies, |
| have fueled investor demand for more | | | | investors, analysts, regulators and the media. |
| transparency in corporate reporting. New | | | | For reporting companies, reports that previously |
| regulatory rules such as Sarbanes-Oxley are also | | | | took weeks to prepare can be completed at a |
| driving the need for faster and more accurate | | | | fraction of the time and cost using XBRL. Since |
| reporting of financial results to investors and other | | | | XBRL is a consistent language across all software |
| stakeholders. Unfortunately, preparation and | | | | formats, compiling a report is much easier. The |
| distribution of financial information to multiple | | | | right information goes to the decision makers |
| audiences can be time consuming for reporting | | | | more quickly and frequently with less effort. |
| companies since different stakeholders require | | | | XBRL eliminates the need for data to be retyped |
| different levels of detail or format. Even the | | | | and reformatted, thereby reducing the cycle time |
| recipients of these financial reports spend | | | | to prepare, read and distribute the reports. |
| considerable time retyping information into a | | | | Decision makers receive reports early enough to |
| spreadsheet or other database for aggregation or | | | | impact operations positively. The timeliness of the |
| analysis. | | | | data distribution helps with competitive |
| An electronic language for financial reporting called | | | | benchmarking strategic decision-making, and |
| Extensible Business Reporting Language (XBRL) | | | | efficiency. We believe the benefits for investors |
| has been in development for a number of years | | | | and analysts are significant. XBRL technology could |
| and is being utilized by several major corporations | | | | more efficiently generate timely financial |
| around the world to report financial results. With | | | | information and allow investors to more easily |
| XBRL, financial data from internal systems can be | | | | access and compare data. Rather than retyping |
| expressed in a single specification, which can | | | | financial information into a spreadsheet or financial |
| produce multiple outputs with no retyping required. | | | | database from printed documents or PDF files, |
| XBRL is a relatively easy to use standardized | | | | investors could reduce analysis preparation time |
| format that is easily accessible and analyzed. While | | | | and cost by using XBRL tagged data to download |
| XBRL could benefit all companies that publish their | | | | information directly from the Internet or database |
| financial results, we believe this technology is | | | | into a spreadsheet. XBRL has particular interest |
| especially advantageous for small capitalization | | | | for the small cap arena. Small, publicly held |
| companies. | | | | companies often have difficulty getting analysts to |
| WHAT IS XBRL? | | | | track them as a potential investment opportunity. |
| XBRL is a freely licensable electronic language for | | | | Reporting in XBRL format may increase the small |
| financial reporting which provides a | | | | company's chance of appearing in financial |
| standards-based method to prepare, publish and | | | | databases thereby reaching more investors. |
| exchange financial statements of publicly traded | | | | Having information readily available in a standard |
| companies. It can be used across any platform, | | | | industry format that is easily distributed, analyzed, |
| software format or technology. It is important to | | | | and evaluated may increase the likelihood of the |
| note that use of the XBRL language in financial | | | | stock being included in financial databases and then |
| reporting will not result in additional disclosure from | | | | tracked by analysts. Financial reporting in the |
| a company to its external constituents and will | | | | XBRL format may even potentially increase the |
| not require a company to change the way | | | | number of investment firms and analysts focusing |
| financial results are reported under current | | | | on small cap stocks if information on small cap |
| accounting standards. | | | | companies is readily available in a reliable and cost |
| In order to understand how XBRL works and its | | | | effective format. |
| benefits to the companies and end-users, it would | | | | XBRL could also benefit the media. The media |
| be helpful to describe how the current corporate | | | | receives a deluge of information from hundreds |
| reporting process works. In the pre-XBRL world, | | | | of companies, often at the same time. With |
| typical steps involved in corporate reporting | | | | XBRL, the media will be able to immediately and |
| include: 1) processing financial transactions and | | | | automatically extract data from financial |
| collecting data in operational data stores; 2) | | | | statements and earnings releases into |
| posting transactions to a general ledger system | | | | spreadsheets allowing the media to easily report |
| via a chart of accounts; 3) consolidating general | | | | on new developments in a company while being |
| ledgers from different units at a corporate level; | | | | able to focus on the big picture contained in the |
| 4) creating and distributing management reports | | | | Management Discussion and Analysis section of |
| to support management decisions; and 5) | | | | SEC filings. |
| formatting consolidated financial information into | | | | It is likely that XBRL will reduce data gathering |
| various formats required by different external | | | | costs for third-party information aggregators such |
| stakeholders such as the SEC, IRS, | | | | as Edgar Online and Yahoo Finance. Currently, |
| industry-specific regulatory organizations, printed | | | | given the costs and limited resources, there may |
| annual reports and financial statements, PDF or | | | | be more emphasis placed on getting information |
| HTML for publishing via the web, and credit | | | | for larger cap companies than for smaller caps |
| applications to lenders. (1) | | | | since information on large caps may be more in |
| Obviously, preparing financial information for | | | | demand. More efficient data collection should lower |
| various external audiences can be very time | | | | operating costs associated with custom data |
| consuming for the company as well as for the | | | | feeds and reduce errors while allowing these |
| investor who needs to retype information for | | | | institutions to concentrate on adding value to the |
| analysis and aggregation into a database, not to | | | | data. |
| mention the typing errors that may get | | | | THE STATUS OF THE XBRL IMPLEMENTATION |
| introduced during the process. Small-cap investors | | | | Based on the U.S. Securities and Exchange |
| may have an especially difficult time obtaining full | | | | Commission's recent proposal, SEC registrants |
| and accurate information for smaller companies | | | | would be allowed to file their financial information |
| due to the limited resources dedicated to small | | | | using XBRL. On November 2, 2004, the XBRL |
| cap companies by third party data providers. | | | | International Steering Committee approved the |
| Many corporations spend an exorbitant amount of | | | | release of the Financial Reporting Taxonomy |
| time creating financial statements with desktop | | | | Architecture (FRTA) guidelines which became an |
| publishing tools, web design tools, word | | | | official recommendation of XBRL International. |
| processors, spreadsheets, and templates that | | | | XBRL International is a non-profit consortium |
| check their Edgar filings. Companies generally need | | | | whose members include 250 of the world's leading |
| to use a combination of automated and manual | | | | accounting, technology, financial services, and |
| systems to consolidate data for analysis and | | | | government agencies concerned with business |
| reporting. Changes in reporting requirements or | | | | reporting. The FRTA guideline is a set of |
| the need to report in a second jurisdiction have | | | | requirements and best practices for the |
| been constant sources of frustration for public | | | | production of taxonomies that are used in financial |
| companies. Even as there has been increasing | | | | reporting. Currently, the U.S. chapter of XBRL |
| pressure to complete financial reports faster than | | | | International is developing specific taxonomies for |
| before, corporations continue to use a multiple | | | | financial reporting purposes for broker-dealers, |
| incompatible programs to create and edit financial | | | | investment management, banking, oil and gas, and |
| exhibits for its various audiences. (2) | | | | commercial and industrial users among others. |
| HOW DOES XBRL WORK? | | | | It noteworthy, that strong support for the XBRL |
| XBRL is the financial and operational business | | | | standard appears to come from vendors of |
| reporting offshoot of the Extensible Markup | | | | financial reporting software. XBRL is an open |
| Language (XML) that uses tags based on | | | | standard with no proprietary interfaces or hidden |
| standardized accounting industry definitions called | | | | costs that might otherwise impede adoption. Thus |
| taxonomies to describe and identify each item of | | | | we see software vendors moving to the XBRL |
| information in financial statements. Some compare | | | | standard in developing and upgrading software |
| "XBRL tags" to the bar codes used to track | | | | packages. Systems integrators are beginning to |
| inventory and pricing information. Once XBRL tags | | | | work with their various suppliers to enable a |
| are applied to the data within financial reports, | | | | smooth transition to the standard, including |
| that data can be quickly distributed in various | | | | discussion of XBRL in promotional material and |
| formats without the need to retype. A single | | | | white papers. Thus it would appear that some |
| XBRL document can be converted to printed | | | | vendors believe they can make an adequate |
| material, fed into an SEC database, published on | | | | cost-benefit argument in favor of adopting an |
| the Internet, or sent to a creditor for analysis. | | | | XBRL-based reporting solution. |
| Users can leverage those tags with | | | | CONCLUSION |
| XBRL-enhanced tools to automatically search for | | | | XBRL is gaining momentum and popularity in the |
| specific historical data in company financial reports. | | | | financial community and could someday be the |
| XBRL COMPONENTS | | | | electronic standard for financial reporting on a |
| XBRL is a relatively complex technology and a | | | | global basis. Today, approximately 250 member |
| number of components are required to be in | | | | organizations, including the FDIC, Fidelity |
| place in order for it to work. Once these various | | | | Investments, Dow Jones, Reuters, and other |
| components are in place, financial information and | | | | participants from both in and outside the United |
| supporting text from internal systems can be | | | | States are involved in the XBRL initiative. As |
| expressed in a single specification. | | | | evidenced by their involvement in the XBRL |
| Taxonomy - A dictionary of data elements | | | | adoption, there appears to be a growing level of |
| provides corporations reporting according to U.S. | | | | interest in the financial community, especially by |
| GAAP with the ability to produce financial | | | | information aggregators like Standard & Poors, |
| statements marked up in XBRL. A series of | | | | Reuters, EDGAR Online, and Moody's, largely due |
| taxonomies that represent an electronic | | | | to the expectation that XBRL will facilitate |
| description and classification system for the | | | | collection, aggregation and publication of financial |
| contents of financial statements and other | | | | data of publicly held companies. While the XBRL |
| business reporting documents are required. Data | | | | initiative currently enjoys the support of a large |
| Tagging and Document Preparation Software - | | | | number of major organizations, it is unclear just |
| This facilitates the tagging of raw data. An | | | | how extensive XBRL's use and adoption will be. |
| Instance Document - This is the term used for an | | | | We believe wide spread XBRL adoption is |
| XBRL-tagged document. Schemas - Schemas are | | | | worthwhile, especially for small-cap companies. |
| used to validate XBRL-tagged document that | | | | While there are many constituents that will benefit |
| follows the tagging rules for that document's | | | | from the adoption of the XBRL format, we |
| taxonomy. Stylesheet - This allows the | | | | believe small-cap companies and their investors |
| XBRL-tagged document to be read or viewed in | | | | are likely to be the biggest winners. Even smaller |
| human-readable format. Linkbases - There are | | | | companies would likely experience a reduction |
| five different linkbases including: Calculation | | | | erroneous data entry and the elimination of some |
| linkbase, Presentation linkbase, Definition linkbase, | | | | costs for composing and processing internal and |
| Label linkbase, and Reference linkbase. These | | | | external financial reports. Yet for companies that |
| linkbases for each taxonomy file contain rules that | | | | may have been neglected by third-party |
| define the manner in which tagged elements | | | | aggregators of financial information, the increased |
| relate to each other and how calculations or | | | | visibility in the capital markets is even more |
| presentation elements should be handled. | | | | valuable. The availability of easily digested financial |
| Application Software - This should be able to load | | | | data on the small-cap company should help in |
| multiple data sources created using various tools | | | | raising investment capital and gaining research |
| and provides quick comparisons of that data to | | | | coverage. Such "small-cap" advantage would be an |
| the user. | | | | ironic twist in an environment where regulatory |
| Source: XBRL.org | | | | and policy reforms are often implemented with |
| BENEFITS OF XBRL | | | | little consideration for the adverse affects on |
| As a result of the XBRL rollout, the efficiency and | | | | smaller public companies. |
| effectiveness of all business reporting processes | | | | ENDNOTES |
| are likely to increase substantially. Forrester | | | | (1) "XBRL: Enabling Faster, More Transparent |
| Research estimates that $402 billion is spent each | | | | Financial Reporting", John O'Rourke and Michael J. |
| year in retyping financial information. In the | | | | Malwitz, Hyperion 2003. (2) "How XBRL Will |
| investment community there are many | | | | Change Your Practice", Eric E. Cohen and Neal |
| constituents that will benefit from eliminating those | | | | Hannon, The CPA Journal 2000. |