ROI on XBRL: Interactive Data Cuts Reporting Costs Today
EXECUTIVE SUMMARY * The reality of XBRL has grown exponentially over the past two years, in large part due to the SEC's focus and encouragement. With the time. money and effort that Chairman Cox and the SEC have dedicated to this initiative, it appears highly likely that XBRL will be either an optional or mandated form of filing in the near future. * For this reason alone, companies need to become involved and get up to speed. However. many are reluctant because they do not understand what XBRL is. what it will cost, what they have to know. and what the benefits are. * United Technologies Corp. found that XBRL can be implemented for a reasonable price and without significant knowledge of the underlying technology. Beyond the potential for an SEC mandate, XBRL can provide many other tangible benefits for companies. * An example of one such tangible benefit--labor saved preparing an SEC filing--is illustrated. XBRL is the future. As more government agencies implement XBRL technology, the benefits to issuers will continue to grow. ********** To SEC Chairman Christopher Cox, XBRL is the next revolution in financial reporting. The technology's proponents assert that it will significantly reduce manual effort, strengthen internal controls, enhance financial statement comparability and level the playing field for all investors. Data that is trapped and lacking context, such as those in PDF or HTML files, can now be electronically accessed and manipulated in seconds from your desktop. Sold? Apparently not. Despite its benefits, fewer than 100 of the 10,000 public registrants have submitted an XBRL filing under the SEC's voluntary filing (VFP) or test pilot programs. Why the apparent disconnect? Our experiences at United Technologies Corporation (UTC) over the past two years as an early adopter of XBRL have led us to conclude that companies have been slow to embrace the technology for three principal reasons: * A lack of knowledge or understanding of XBRL. * Misconceptions regarding resources required, including cost and technical proficiency. * The perception that there is little benefit to participating in the process. In early 2005, we faced these same issues as we sought to determine the implications of XBRL on our financial reporting processes. Through the effort of tagging and furnishing our first document (an 8-K earnings release), we were able to gain a practical understanding of XBRL that we hadn't been able to achieve previously and to dispel the misconception that the process is expensive and time consuming. But more importantly, we began to fully appreciate the capabilities and potential of XBRL as well as the benefits of early adoption. In the two years since that original XBRL filing, we have tagged and furnished all subsequent earnings releases, a complete form 10-Q and all of Part II of our form 10-K. More importantly, we have built our internal processes and controls to support the ongoing tagging and filing as part of our standard financial reporting process. It is with these experiences and from this perspective that we address the three issues above. WHAT IS XBRL? XBRL has been likened to a bar code for financial statements. An electronically readable tag (bar code) is put on each financial statement element, which provides additional context. Staying with the analogy, if you looked at the bar code on an item in the grocery store, the code would contain a series of bars with little relevance to you. However, with the proper tool to read the code, it would tell you the product, the size, the cost, the vendor and the expiration date. XBRL operates in a similar fashion. The electronic tag assigned to each financial statement element contains further information or context regarding that element. If, for example, you apply the tag for gross margin to the gross margin line on your income statement, a tool that can read XBRL would tell you the line item is gross margin, how it is defined, what the balance is, what currency it is in, how accurate it is, what period it covers, and for what company The electronic tags that are applied are standardized and are contained in taxonomies (essentially the dictionaries used by XBRL that define the specific tags for individual items of data) that have been developed and are maintained on the XBRL Web site. …