Neal Hannon is an XBRL nsultant and the former Director, Financial Reporting Technologies for the Financial Acunting Foundation (FAF). Prior to joining the FAF, Neal was a member of the acunting departments at the University of Hartford and Bryant University. Active in the XBRL mmunity since 2000, he served on the first XBRL US steering mmittee and has written over 60 articles on XBRL. You can ntact him by email: nhannon@gmail.m.

Now is the time to get the Information Technology (IT) professionals and the acuntants together over XBRL. Mandatory XBRL mpliance is simply too important strategically to rporations for them to relegate the activity to the acunting team only. In this post, I will explain why the IT people have so far been left out of the picture. I will then make the case for active IT involvement in ongoing XBRL SEC mpliance. 

How the exclusion of IT started

Up to this point, XBRL has been nsidered an exercise for acuntants only.This perception has been created, in part, by the SEC’s former Chairman Chrisher x. Public speeches from Mr. x attempted to present XBRL as making life easier for preparers of SEC-required schles.

For example, in a December 2006 speech at an XBRL International nference he said “…Automating the process of applying today’s excruciating acunting detail using XBRL can save mpanies valuable time and money.”  And there are these remarks he made to the House Financial Services mmittee in May of 2006: “For preparers of financial reports, interactive data uld streamline and aelerate the llection and reporting of financial information to the SEC and the public.”

In the private sector, John Stantial, Director Financial Reporting for United Technologies rporation, had the following to say about his mpany’s initial XBRL efforts: 

Not surprisingly, resistance to the adoption of XBRL often takes the form of st or resource ncerns; however, neither need be a valid obstacle. The only required out-of-pocket st is for the tagging software, of which there are several options available and which st as little as $1,000. 

Within the ntext of the SEC’s Voluntary Filing Program (VFP) and the attempts by the SEC Chairman to create a political climate for XBRL aeptance, the soft sell was probably the rrect approach. The final rule for mandatory filing passed the mmission without resistance, excluding mmissioner Aguilar who voted against the proposal because he objected to the softness of the liability requirements ntained in the final rule.

What’s Different Today

From an enterprise perspective, the exposure to rporate acunting is about to significantly increase. The SEC’s ending of the VFP signals the end of the anything goes approach to XBRL filings and the very limited liability granted to VFP exhibits. The SEC had aepted all filings, even if they ntained errors during this experimental phase of the interactive data era.

All of that changes starting with quarters ending after June 15, 2009, for the 500 largest rporations. Although the final rule granted an additional two years of limited liability, mpanies in the first group will be required to submit XBRL exhibits subject to a series of technical validation and business rules. The SEC will closely monitor the filings to ensure mpliance with regulation and to help spot acunting irregularities. The rest of the acunting information supply chain will be able to slice and dice rporate filings in ways that expose more about the acunting than has ever been revealed in the past. For the first time, mputer programs can analyze SEC schles along with the acunting definitions and have visibility into the acunting authoritative literature for a particular XBRL element.

From a rporate process perspective, the SEC has significantly shortened the window for producing XBRL schles. After a 30 day grace period for the initial quarterly report only, interactive data exhibits will be required at the same time as the rest of the related report or Securities Act registration statement.  In my view, mpanies who initially elect to outsource the creation of XBRL exhibits will be rensidering this decision given the severe implications of a late filing. This is why involving the IT department is so important. mpanies that bring the process back in-house will need to integrate the XBRL activity tightly into the acunting close-to-file cycle.

So as the rporate exposure of acunting close-to-file cycle performance significantly increases (SEC slicing and dicing filings, late filing issues, exposure of acunting to analysts/investors), mpanies will want to bring in the IT professionals to make improvements in reliability and timeliness of the close-to-file process. IT professionals typically bring a skill set to the table that can be critical to process improvement.  Here are a few additional reasons to add a strong IT presence to your mpany’s XBRL project team:

IT professionals are experts in understanding how the processes that are relevant to the close-to-file process work.

IT professionals have the knowledge of how the internal systems fit together. This information is critical to deliver the rrect data to a process where the data gets automatically tagged with XBRL during the close-to-file process, not afterward. They also are well schooled in project management which should be very helpful.

IT is mfortable with data in XML formats

The typical IT department has been dealing with various flavors of XML data for a few years now. XBRL is unique in the XML world in that it extensively uses XML Schema and XLink. The IT department, which is familiar with XML, will be invaluable in helping the team understand how the use of XML Schema and XLink enhances and enriches the data used by XBRL. Although this knowledge is not mmon even in shops that are familiar with XML, the IT professionals are in a good position to learn how XML Schema and XLink work with XBRL. Additionally, major XML tools are beginning to add XBRL capabilities.

The acunting team and IT jointly need to get the acunting right

The financial markets and the SEC are very unfriendly to mpanies that make errors on SEC filings. Regardless of the initial period of limited liability, mpanies will want to produce rrect XBRL from day one. The IT department will be called upon to help create the mapping of financial system data to the XBRL elements and to expose to the acuntants the relevant disclosure ncepts in acunting policies and the US GAAP XBRL taxonomy. These activities will be critical to helping the acuntants get the acunting right.    

Bringing the XBRL project in-house requires the close llaboration of the IT staff and the acunting department. Due to the unique way in which XBRL mbines XML Schema and XLink with the base XML specification, most IT staff members will need additional technical training in XBRL. IT also has the expertise to deal with the backend of acunting systems for setting up exports and mappings. 

Leading XBRL experts have mmented on this theme. Mike Willis, Partner at Pricewaterhouseopers, told me “Over time, the idea of setting up data exports and mappings of financial data will be“exported” to nsumers in the same way that HTML has enabled a nsumer-driven supply chain when nsidering purchases of music, books, insurance and cars.” The IT department will need to be involved to ensure future data exports are aurate.

And in a recent article, Diane Mueller of JustSystems had this to say about the XBRL project effort:

Bringing the tagging effort inside, or ‘in-sourcing,’ initially offers the opportunity to gain a better understanding of the technology as well as to examine the benefits of bringing XBRL-based structured ntent reuse into the rporate reporting process.

The decision to integrate XBRL directly into normal business processes will require close ordination between IT and acunting. To do it right, the IT department needs to learn more about the uniqueness of XBRL, while the acunting department learns more about how data flows into their close-to-file cycle. By executing a well designed plan, the enterprise will be able to vastly improve the efficiency and effectiveness of the financial closing cycle while meeting the SEC’s XBRL mandate with excellence.

Finally, here are a few posts from this blog that may be useful to your data management efforts:

The Entity Problem

Relationships Matter

In Pursuit of Process

Master Data Management the XBRL Way

Adaptation or Evolution: What Is Your XBRL Strategy?

Enomic Crisis and the Dawn of the GRC Era for XBRL

These posts address the pervasive ncepts of entities, relationships, processes, Master Data Management, and implementation nsiderations.