EXECUTIVE SUMMARY

The reality of XBRL has grown exponentially over the past two years,in large part due to the SEC’s focus and enuragement.With the time,money and effort that Chairman x 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,mpanies need to beme involved and get up to speed.However,many are reluctant because they do not understand what XBRL is,what it will st,what they have to know,and what the benefits are.

United Technologies rp.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 mpanies.

An example of one such tangible benefit —labor saved preparing an SEC filing—is illustrated.XBRL is the future.As more ernment agencies implement XBRL technology,the benefits to issuers will ntinue to grow.

John Stantial ,CPA,is director of financial reporting for United Technologies rporation.His e-mail address is john.stantial@utc.m.

To SEC Chairman Chrisher x,XBRL is the next revolution in financial reporting.The technology’s proponents assert that it will significantly rce manual effort,strengthen internal ntrols,enhance financial statement mparability and level the playing field for all investors.Data that is trapped and lacking ntext,such as those in PDF or HTML files,can now be electronically aessed and manipulated in sends from your desk.Sold?Apparently not.Despite its benefits,fewer than 100of the 10,000public registrants have submitted an XBRL filing under the SEC’s voluntary filing (VFP)or test pilot programs.Why the apparent disnnect?

Our experiences at United Technologies rporation (UTC)over the past two years as an early adopter of XBRL have led us to nclude that mpanies have been slow to embrace the technology for three principal reasons:

• A lack of knowledge or understanding of XBRL.

• Misnceptions regarding resources required,including st 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 misnception that the process is expensive and time nsuming.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 mplete form 10-Q and all of Part II of our form 10-K.More importantly,we have built our internal processes and ntrols 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 de for financial statements.An electronically readable tag (bar de)is put on each financial statement element,which provides additional ntext.Staying with the analogy,if you looked at the bar de on an item in the grocery store,the de would ntain a series of bars with little relevance to you.However,with the proper tool to read the de,it would tell you the product,the size,the st,the vendor and the expiration date.XBRL operates in a similar fashion.The electronic tag assigned to each financial statement element ntains further information or ntext regarding that element.

If,for example,you apply the tag for gross margin to the gross margin line on your inme 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 aurate it is,what period it vers,and for what mpany.The electronic tags that are applied are standardized and are ntained 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 tags are applied using a tagging tool that retrieves the tags from the standard taxonomies and applies them to whatever format your financial statements are created in,such as Microsoft Word or Excel.

The benefit to users of financial statement information is that they can now electronically retrieve data in a matter of sends with the additional ntext that is provided by the tags and with greater assurance of auracy given the standardized ntext of the tags.Although standardized,the expandability of the taxonomies allows mpany-specific and unique information to be captured and reported aurately.Because XBRL uses standardized XML technology,it can be read by multiple,diverse software systems.

MON MISNCEPTIONS ON ST

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(see the XBRL Web at for a listing and links to the various tools available).Each of these tools is designed with the layperson in mind,takes very little time to learn and does not require a technical knowledge of XBRL (or XML—the language of which XBRL is a dialect).

Our initial effort at tagging and furnishing an XBRL document to the SEC nsumed approximately 80hours of an employee’s time.But to adequately evaluate this mmitment,it is necessary to understand the spe and ntext of the effort.The hours included not only the time to tag the underlying document,but also the time to learn how to use the tagging tool,understand the requirements for filing under the SEC’s VFP,create tags that did not exist in the standard taxonomy,and to build a process that would allow the ongoing tagging and filing of documents.Our current effort to tag and file an 8-K earnings release is down to approximately four hours now that the learning curve has been eliminated.

Also important to evaluating the initial time mmitment is the ongoing development of the tagging tools,the skills of the individuals involved and the extent of any custom tag development that may be required (known as “extensions”as they extend the existing standard taxonomy).Since our initial efforts almost two years ago,the tagging tools have beme significantly more robust and mprehensive.This facilitates the tagging effort and allows for the efficient creation of new tags and the editing or rrecting of previously tagged data.

Knowledge of XML would help the tagging effort,but it is not required.We have tagged and furnished our nine filings to date using internal staff,none of whom had,or have,a working knowledge of XML.Lastly,the current voluntary filing regulations only require the basic financials to be furnished;therefore,depending on how mplex,simple or unique these basic financials are,you may be able to use only the standard taxonomies and not develop any extensions.For example,at UTC we report revenues and operating profit by business segment,so we needed to provide extensions for each of these segments.

WHY PARTICIPATE NOW?

With the never-ending demand placed upon finance anizations,the need to prioritize and focus resources invariably arises.While individual circumstances will dictate how this is done at each mpany,there are several strong reasons to nsider XBRL among these priorities.

Although the SEC has deferred responding to inquiries on whether XBRL will be mandated as a filing requirement,the agency has noheless taken significant actions that would suggest it is a strong likelihood,including the recent $48million upgrade of EDGAR to aept interactive filings,and the $5.5million project with XBRL US to fund the development of U.S.GAAP taxonomies.Given this potential,it would seem advantageous to set up processes and work through the learning curves now,in the open and relatively unnstrained environment provided by the VFP,rather than at some future point when the filings are subject to the ntent and timing requirements of current documents.

In a similar vein,the SEC has structured the VFP with an avenue for mpanies to provide feedback on the XBRL process.Therefore,by participating now,preparers,analysts,auditors or any other nstituents in the financial reporting supply chain can help develop an efficient,effective and workable process that takes into acunt their particular needs and circumstances.As with the SEC,the tagging software vendors are eager to receive feedback on the ease of use,features and effectiveness of their tools.

REAL BENEFITS TODAY

Exhibit 1provides an overview of the current financial reporting process UTC uses to file its quarterly form 10-Q.There are hundreds of locations worldwide that capture their underlying financial data in a multitude of ERP systems.This information is then fed into Hyperion Financial Manager (HFM),where it is nsolidated at the segment level.The segments then upload nsolidated HFM information to the rporate office,where the overall nsolidation of UTC’s results is done.Needed information is then manually extracted from HFM using reports or retrieves and entered into a Word document that will beme the form 10-Q.

                     Current 10-Q Process Flow

Other information needed for the 10-Q that is not ntained in HFM is received through various supplemental files that are e-mailed to rporate headquarters where the information is again manually extracted and entered into the Word document.As data is manually manipulated,there is an ongoing validation required that is nstantly checking that the information nforms with certain rules and renciles with its source.

As the 10-Q approaches mpletion in Word,it is disseminated to all the involved parties such as legal unsel,CFOs and business segments for review,mmentary and approval.Changes from this review group are manually entered into the Word document and again proofed back to the source documents.When mplete,the Word document is provided to the filing agent for nversion to HTML,after which a full proof to the underlying Word document is made before the 10-Q is filed in EDGAR.

The entire quarterly reporting process takes an average of 845hours.As data is extracted from the financial reporting system and is managed between multiple documents,nearly 20%of those hours are spent on the non-value activities of proofing,reading,checking and footnoting.Additionally,it is this manual aspect of the process that has the most potential for errors.

Exhibit 2portrays the future financial reporting process that inrporates XBRL.In this process,the entire 10-Q is created as a report in HFM,where it is then tagged in XBRL.At no point will the information be taken out of HFM and placed into Word or another document format.For management’s review and approval,an HFM report will be run and disseminated.Any changes will be made directly in HFM and will automatically update the report.

                      Future 10-Q Process Flow

When the review is mplete,the financial statement files will be generated from HFM in XBRL and transmitted to EDGAR.By not manually extracting the data and working in multiple documents,the effort to proofread,review,check and add footnotes is not required.This eliminates 150–200hours of labor from the quarterly reporting process,while ncurrently strengthening the overall process ntrols.

FUTURE BENEFITS

So,there isn’t a st barrier,the tools are available,technical knowledge of XML is not required,the resource mmitment need not be extensive,and there are a number of reasons to begin participating now.But this is all reactive information.The benefits to XBRL me in the future when tagged information is readily available from all mpanies and can be aessed electronically for analysis,benchmarking,reporting uses and financial modeling.Not only can XBRL enhance external financial reporting,but it can also be applied internally for st acunting,performance measurement,analysis and decision-making purposes.

Analysts and investors will be able to dramatically increase their breadth of knowledge with data readily available that does not require hours of manual manipulation.The data will be much more aurate and mparable;and ntext to the numbers will be aessible,ensuring they are used rrectly.While these attributes will benefit preparers,the integration of the technology into mpanies’acunting and reporting systems will produce the real benefits,especially through significant rction in current manual efforts.

LOOKING EVEN FURTHER AHEAD

But the benefit needn’t s there.If other users of financial information,such as the IRS,the Bureau of Enomic Affairs and the Department of Labor,were to aept XBRL files,mparable benefits uld be realized as the necessary filing documents uld be generated and transmitted from the same tagged database—in our case HFM.

XBRL is not a fad;it is here to stay.It is already mandated by the FDIC for the filing of all U.S.bank call reports and is in use in other untries around the world.The tools are available,the resources are there to assist,and the potential benefits are tremendous.With the flexibility and generally open-ended nature of the SEC’s VFP,now is the ideal time to begin.