Summary

In late 2008, the United States Securities and Exchange Commission (SEC) mandated that companies filing financial statements would have to make them available in an interactive format that uses eXtensible Business Reporting Language (XBRL). Prior to that time, the SEC had a voluntary program in place. To meet this new requirement, major software vendors have been taking steps (or, in some cases, additional steps) to make this technology available in their business applications. While companies can outsource the XBRL tagging process to their financial printer, we believe that over the long run finance departments will find that it makes more sense to do the tagging themselves. We expect software vendors will make it increasingly easy for them to do so.

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The decision by the SEC to switch from voluntary to mandatory XBRL tagging was an important step in the evolution of the technology. Not that the US is leading the pack on XBRL: XBRL-enabled reporting rules have been in place in many countries for years for equities-related filings, bank regulatory submissions and taxes. (Banks in the United States began filing their Call Reports with the Federal Deposit Insurance Corporation in 2005.) The SEC mandate, however, is important because it affects many more large corporations that have much more complex external reporting requirements. Beyond satisfying the immediate compliance mandate, we expect at least half of U.S. public companies to implement internal reporting systems that use XBRL within five years.

While the major enterprise software vendors IBM, Infor, Oracle and SAP have dabbled in XBRL for years, the SEC's interactive data mandate has forced them to get serious about enabling their applications to use the technology. In February, SAP started offering its SAP BusinessObjects XBRL Publishing application by UBmatrix, the first in what is likely to be a series of XBRL offerings. In March, Infor announced that it had integrated XBRL capabilities from Rivet Software into Infor PM 10, a suite of performance management applications. Oracle/Hyperion has offered XBRL support for several years and last year IBM/Cognos teamed with Symansys to provide XBRL functionality in its Controller consolidation application. Last year, Clarity Systems began offering an application suite that manages the preparation of external financial filings from closing the books to the final publishing of XBRL-tagged statements (the "close-to-report cycle").

The four large vendors and Clarity are integrating XBRL into their applications because it is quickly becoming a must-have capability. All offer business intelligence, statutory consolidation and reporting software applications. We expect virtually all companies will start their financial statement tagging process after they complete the quarterly/annual close cycle (including consolidation) and they have updated and assembled all of the necessary information for the footnotes. Some, but not all, of the data for the financial footnotes will come from a company's ERP system (Infor, Oracle and SAP have the largest installed bases among midsize and larger companies). Ultimately, however, it makes sense for corporations to routinely assemble their footnote data in a centralized and secure financial data repository (which all five vendors can provide) rather than keeping this information in a mess of spreadsheets, which is where much of it currently is stored.

Moreover, we expect companies increasingly will use XBRL in their internal reporting. Our research confirms that data from BI systems routinely winds up in desktop spreadsheets, which is where people analyze the numbers and create reports. Too often this creates data integrity and data consistency problems because all of the data's context is lost when it is dropped into a spreadsheet. The "revenues" number confuses gross with net; the "three months" may be February through April, not March through May. Tagging the data with XBRL insures that the context remains with each data point even as it is reused from one spreadsheet to another, increasing the accuracy of reports and reducing confusion.

Assessment

We expect that XBRL tagging will soon become a must-have capability in financial consolidation and reporting systems because of the spread of XBRL tagging mandates worldwide. Companies that must file with the SEC now will have an additional burden to bear in their close-to-report cycle. Finance departments will have to adapt their post-period-end processes to be able to handle this increased workload within the filing deadlines. Ventana Research recommends that if they haven't already, public companies should begin investigating ways to automate some or all of the processes associated with filing XBRL-tagged reports. But as we've noted, XBRL is not just for external reporting. We recommend companies also look into using XBRL to manage their internal reporting requirements. This will be increasingly easy to do as the major vendors of financial software will be offering XBRL for internal reports as well, making it easier for users within the company to maintain data integrity while saving time and eliminating confusion.

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