Feds Lead The XBRL Charge

May 28, 2006 (08:05 PM EDT)

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Federal regulators usually aren't at the forefront of technology adoption. But the folks in Washington who oversee banks and financial services providers are spearheading the adoption of XBRL, the Extensible Business Reporting Language, an emerging international standard for the electronic transmission of business and financial information. However, with their focus on using XBRL to file regulatory reports, financial services firms are missing many of the benefits that the standard is supposed to provide.

One of the biggest proponents of XBRL is the Federal Deposit Insurance Corp., which last year implemented a system that requires banks to file quarterly reports, known as call reports, in XBRL. Around 8,200 U.S. banks use XBRL to submit their call reports, which include information on balance sheets and income statements.

"In the past, we accepted whatever data was sent to us and processed it on a mainframe system," says Martin Henning, associate director of the agency's statistics branch. FDIC analysts would double-check and validate the information in a two- to three-week manual process that required them to work with a bank via phone, e-mail, or fax.

To shift to the open standard, the FDIC deployed a hosted system from Unisys that bankers and agency staff access through a Web browser. At the core of the system is an XBRL engine supplied by UBmatrix that lets the FDIC exchange XBRL-tagged documents with banks. The agency gets more accurate data sooner than it used to and can validate it faster, Henning says.

The FDIC made it easy for banks to comply--perhaps too easy. It asked vendors that provide regulatory reporting software to the banks to create an interface that would allow them to submit call reports in XBRL. As a result, banks didn't have to make changes to their internal IT systems or incorporate the XBRL data standard into their own financial records.

"We're seeing fairly slow [internal] adoption of XBRL in the banking industry," says Doug Johnson, a senior policy analyst at the American Bankers Association.

Banks and other financial services firms could use XBRL to label and automate the content of financial documents. XBRL places a unique tag on, say, a company's net profit figure. The software then selects, sorts, stores, and exchanges tagged information with other companies or regulators, without having to manually re-enter numbers and copy them to spreadsheets. Accountants "can perform analysis of a company, of a sector, of a specific topic in a matter of seconds, instead of spending all their time finding the data, accessing it, and validating it," says Mike Willis, a partner at PricewaterhouseCoopers and founding chairman of XBRL International, the global consortium that's developing the standard.

Reluctant To Talk

In addition to the FDIC, other members of the Federal Financial Institutions Examination Council, including the Federal Reserve System and the Office of the Comptroller of the Currency, require banks to file quarterly call reports in XBRL. Federal banking agencies have built a shared data repository for XBRL-tagged call report data. Companies are reluctant to discuss their XBRL deployments; InformationWeek contacted eight of them, but none would talk.

Money In The Bank
Regulators say XBRL is helping banks
>> Generate cleaner data, including written explanations and supporting notes
>> Produce more accurate data, with fewer errors that require follow-up by regulators
>> Transmit data faster to regulators and meet deadlines
>> Increase the number of cases and amount of information that staffers can handle
>> Make information available faster to regulators and the public
>> Address issues and concerns in their filings rather than after the fact

Data: Federal Financial Institutions Examination Council
The council says XBRL has proven its value: All XBRL-tagged data received from banks was accurate, compared with 70% accuracy before implementation of XBRL, and an analyst who could handle 450 to 500 banks before implementation can now handle 550 to 600 of them.

The next step is to encourage public companies to file their quarterly financial reports in XBRL. The Securities and Exchange Commission began a program to do that last year, but it's "unofficial and voluntary, to give companies a chance to test this out," says Jeff Naumann, enabl- ing technology specialist at the SEC's office of the chief accountant. Only nine companies participated last year, and 20 more plan to join the program this year. The SEC may mandate the use of XBRL, but it hasn't set a deadline, he says.

XBRL can make life easier for regulated businesses. Banks, for example, use XBRL for their FDIC filings and can use it for their SEC financial statements. "Historically, these have been two separate filing processes, and different systems and data formats were used to create the filings," Naumann says. "If regulators use the XBRL standard, it will be more efficient for companies to comply with requirements from multiple regulators."

More tools are becoming available to help companies deploy and use XBRL, Gartner analyst Mary Knox says. Edgar Online last year rolled out its I-Metrix software, which lets companies access XBRL-tagged SEC filing data online within hours of its being filed with the commission. Companies can import the data to a Microsoft Excel spreadsheet, verify information with the SEC by clicking on tagged elements within the document, and analyze business performance by comparing the current data with past filings or filings from other companies.

Text-mining tools for XBRL also are available from a variety of vendors. UBmatrix plans to launch an online platform next month for designing and publishing XBRL taxonomies, the dictionaries XBRL uses.

The push from regulators and vendors will help increase adoption of XBRL. But too many companies are taking a wait-and-see approach and missing out on the benefits that XBRL offers.