XBRL is here to stay. By 2011, all public companies filing their financial statements with the SEC will be required to tag disclosures with XBRL meta-data. In fact, many businesses have already begun the process – “Tier 1″ filers were required to submit their financial report in the first reporting period after June of 2009. “Tier 2″ filers will follow in June of this year.

The SEC is allowing companies to ease into compliance, laying out a two-phase mandate. During the first year, only the face of the financials must be tagged with XBRL, necessitating anywhere from 300 to 500 discrete XBRL tags. But in year two, that number increases almost exponentially, requiring anywhere from 2,000 to 4,000 discrete tags, depending upon your unique business environment.

For businesses seeking to bring XBRL compliance in-house, there are essentially two types of solutions available: Bolt-On and Embedded. Each tool offers unique advantages.

l          Bolt-On tools tend to snap in at the tail-end of a process. Especially during the less stringent year one of compliance, these tools could make sense for businesses with an appetite for the intricacies of XBRL. A Bolt-On solution comes into play only after the financial report has been prepared in Word/Excel/PDF format, allowing you to tag an almost finished financial report. But depending upon the capabilities of the solution there may be a need to re-tag many parts of your financial report in the subsequent – sometimes even the same – period.

l          Embedded solutions, on the other hand, require a higher initial investment from the business. But as your organization moves into year two of compliance, these solutions begin to show a dramatic return on investment. Embedded solutions allow the embedding of XBRL capabilities deep into the financial close/reporting process so that tagging isn’t an afterthought but blends into the process steps of close/reporting. Hence all the capabilities which you use in producing your regular financial reports like workflow/collaboration/formatting/validation/notification are very much relevant for XBRL tagging as well. In addition embedded solutions allow you to tag content within your financial report once and re-use them every period. This provides the efficiency required to file efficiently when there are 4,000+ tags (especially in year 2) and also helps meet same-day filing deadlines.

When evaluating Bolt-On versus Embedded XBRL software solutions, financial professionals should look for specific functionality to ensure that the efforts in year two and beyond can be sustained internally by their team:

1: Tag Roll-Forward

l          After the initial tag setup, can you re-use XBRL tags in financial reports for future periods with minimal effort?

l          Are the XBRL tags maintained against content within a Disclosure so that edits do not require re-tagging?

2: Formatted View of Tagged Disclosures

l          Do formatting and tagging occur in the same application? E.G. – “What you tag is what you see?”

l          Is the user experience intuitive? Does the system hide the complexity of XBRL from the user, or require them to understand more than is required in order to successfully tag a disclosure?

3: Single Data Repository

l          Are your regular and XBRL filings managed in the same system?

l          Do you have the ability to change content at just one place so that it automatically publishes both XBRL and regular financial reports ?

4: Multiple User Tagging Workflow

l          Can multiple users tag and work on different parts of the document at the same time ?

5: Multi-Jurisdictional XBRL Reporting

l        Can the system help manage the reporting requirements for multiple jurisdictions (SEC, HMRC, etc.)

l        Can the system manage multiple versions of the same taxonomy (2009, 2010, and extensions)? This is important as XBRL US and other organizations publish updates to the taxonomies.

6: Enables Same Day Filing

l          Does the system allow for same-day filing by allowing single button publish of XBRL and regular financial reports ?

7: Integration to Source Data

l        Can the solution import financial data directly from your ERP or other consolidation system?

8: Context-Driven Tagging

l        Does the system present the right tagging levels at the right parts of the financial statement reporting/preparation process? E.G. – Does your system know that certain tags relate to an “income statement”?

9: Audit Trail

l        Who changed what, and when?

10: Extensibility

l        Does the system enable the use of XBRL for internal reporting in the future?

XBRL compliance is a new, sometimes intimidating prospect for most companies. Many will choose the path of least resistance in year one, selecting inexpensive Bolt-On solutions in the hopes that compliance can be achieved easily. But if SOX has taught us anything, it’s that the most successful adoptions of XBRL will include a strategic focus, integrating the increased transparency offered by the language directly into business processes which begin prior to the generation of the financial report itself.