As you may recall, we blogged about a NIRI session we attended “Understanding IR Strategies Behind XBRL – IROs Evolving Role”.  In this post we provided a broad overview of why XBRL is relevant to IROs and the requirements for adoption, a broad definition and the implications of using it to help improve processes.

Recently a report was published by The Canadian Institute of Chartered Acuntants (CICA) targeted to CFO’s entitled “Transition to XBRL”. In spite of this being issued in Canada, the report provides a balanced review of what is required for U.S. mpanies and foreign private issuers under the SEC’s implementation schle for XBRL as well as highlighting significant developments in the implementation of XBRL as it pertains to Canadian preparers.

It also explores the benefits and downfalls of implementation and offers some practical tips that are applicable and easily adaptable to issuers in both the U.S. and Canada.  I do remmend that you read the report in its entirety and keep it handy for reference, but wanted to provide some of its highlights.

Current state of XBRL in the U.S. and Canada

In January 2009, the SEC introduced a phased mandate for filing in XBRL starting with the largest mpanies in 2009 and then extending to all sizes of mpanies by the end of 2011, which means at that time, all SEC filers, including some 451 Canadian mpanies listed on U.S. exchanges will have implemented XBRL.  This three-year phase-in will impact ten percent of Canada’s public mpanies.

The rules require mpanies to provide their financial statements on their rporate webs in an interactive data format using XBRL at the same time their financial statements are submitted to the SEC.

Benefits of XBRL

Universal language for business reporting

a. Serves as a data channel for information across all languages and acunting standards.

b. XBRL is mpatible with off the shelf-software and investment models for mparative and analytical uses by investors, analysts and journalists.

c. XBRL data can be nverted into various formats, including spreadsheet, database and HTML files.

Adaptable to other applications

a. Crosses over into other financial statement reporting including earnings press releases, rporate tax filings, and the disclosure of non-financial data such as oil reserves.

b. The technology also offers tremendous potential in terms of internal business reporting, and will allow full integration of reporting systems which will enable management to more readily reuse tagged data and, thereby, achieve greater efficiency.

Multi-stakeholder appeal

a. Will save data llectors such as analysts, stock exchanges and regulators a lot of time and resources needed to punch in the data and nvert it for their needs.

b. The errors associated with rekeying the data will be eliminated as third-party intermediaries will not be enlisted to transfer the data – this will also rce the lag time between the reporting and use of data.

c. Potential to streamline preparers’ data llection and reporting processes by uniting legacy systems.

There is one additional point under #3 that I found very interesting and one I hadn’t thought of before……“The elimination of tedious data entry and nversion steps will allow analysts to mpare a broader range of industry participants in less time. Expanded peer analyses uld be positive news for small mpanies, which often go overlooked in such mparisons. This reasoning holds true beyond our national borders; as XBRL ntinues to gain aeptance in global jurisdictions, Canadian mpanies, large and small, uld achieve greater international exposure”.

In providing a fair and unbiased review of XBRL, the report also outlined some of the drawbacks of XBRL.

Implementation hurdles

Associated sts – there will be a financial and human capital st to implementation and most Canadian mpanies that file in the U.S. will face the dual task of adopting XBRL and IFRS in 2011.

Potential for error – the tagging process involves inherent judgement to the extent that preparers must decide which taxonomy elements should be mapped to particular financial statement items.

Customized Tags – preparers may rely on self-defined extensions to capture the unique aspects of their business. This may undermine the reliability and mparability as many believe that extensions are aeptable only when they are applied nsistently across industries.

Misrepresentation – some feel that customization uld allow mpanies to paint a rosier picture of financial performance.  In addition, some feel that this will also allow analysts to influence how a mpany is perceived as XBRL will simplify the practice of extracting specific information such as single lines from the financial statements.

Real-time Disclosure – some feel that because the data will be reported in virtually real-time, it will emphasize short-term performance at the expense of long-term planning.  For example, one unfavourable month might start a sell-off by investors.

The report then provides practical tips for planning and implementing an XBRL strategy:

Planning stage

Evaluate the range of available options within the ntext of the mpany and its operations.

nsider how the potential pitfalls examined in this briefing can be minimized or avoided.

Integrate XBRL into IFRS nversion strategy.

Involve the acunting, finance, and IT departments.

Weigh long-term sts and benefits of self-tagging versus outsourcing.

Enurage nsistent use of extensions among industry participants. Support industry associations in the development of standardized tagging methodologies, which can then be inrporated into the IFRS taxonomy through the joint project of XBRL Canada and the IASB Foundation.

Implementation stage

nsider voluntary filing in XBRL.

Simplify first-time tagging with a less mplex filing such as a quarterly filing.

Address outstanding questions with software vendor or outsourcing partners.

Thoroughly review the tagged document prior to filing.

Be prepared to receive questions and provide explanations much sooner.

I like the practical tips provided in this report – from an IRO perspective it should be viewed the same way as integrating any new tool into your IR program.  Which means you should:

Be cated and well versed in the pros and ns so you can have an intelligent nversation with the executive team.

Assess how it will fit in with the mpany’s current environment including talking with other departments who will be affected by its implementation such as acunting, finance and IT.

Talk to outside vendors and get the mplete picture of the st and time associated with either outsourcing or taking it internally.

Test it out for yourself – as time goes by quickly and before you know it, it will be mandatory for all U.S. issuers by the end of 2011 and in Canada it is likely to beme mandatory after Canada transitions to International Financial Reporting Standards (IFRS) also in 2011.