XBRL: What You Don’t Know Can Hurt You

As a draft version of the SEC-favored interactive financial-statement language comes up for review, experts say it's time to get wise to it.

Jeff Klausner, CFO of Infosonics Corp., can sum up his current knowledge of XBRL in about 45 seconds. “I’ve heard of it in passing but not in any sort of detail,” says Klausner. He “would trust and hope it’s less costly than something like Sarbanes-Oxley.” Since neither his auditors nor the analysts following the wireless-equipment distributor have brought it up yet, though, Klausner hasn’t yet investigated the costs or other details for his Nasdaq-traded company with annual revenues just short of a quarter-billion dollars.

Klausner is not alone. Accounting firm Grant Thornton polled CFOs twice in the past six months to find out how many knew about XBRL — which stands for eXtensible Business Reporting Language, and is the new financial-statement filing language due to make its public debut Dec. 5. The results? Despite extensive marketing efforts from the Securities and Exchange Commission — including multiple roundtables, press conferences and benefits for companies that get involved with XBRL — awareness of the new financial-statement filing language actually seems to be slipping. About 53 percent of CFOs reported knowing about XBRL in November, down from about 60 percent in April.

What’s behind those numbers? Dan Roberts, national director of assurance innovation at Grant Thornton and the past chair of the U.S. industry consortium steering committee on XBRL, says the results are likely skewed by the fact that respondents were largely private-company CFOs who will not need to use the coding scheme for their financial statements anyway. About 66 percent of public company CFOs said they were aware of XBRL, for the record. Still, it’s hardly the stuff of water-cooler conversation. Even the intended beneficiaries of the new labeling method, Wall Street analysts, are fairly in the dark. A July poll of analysts and fund managers showed that only about 40 percent had any level of knowledge of XBRL, according to the CFA Institute.

SEC officials say they hope those numbers will change as major XBRL developments occur in the coming months. “I think you’ll see a lot of activity coming from us in 2008,” says David Blaszkowsky, head of the SEC’s newly-created office of interactive disclosure. The office will work with companies and analysts, among others, to help them apply XBRL in reporting. It will also work with the SEC’s division of corporation finance to help it leverage the technology for reviews of companies’ filings.

On Dec. 5, codewriter XBRL US Inc. — a nonprofit firm hired by the SEC to create the system’s code “tags” — is planning to release the draft version of the new language for public review, allowing financial executives to test it out against their own financial results. Companies are expected to take anywhere from one hour to one week on the review process, depending on the level of detail they choose, says Jeffrey Naumann, of the SEC’s interactive-disclosure office. The reviews will let companies actually help shape the language to their needs before it becomes mandatory. “If you think XBRL US has missed something that you need, there’s an outstanding chance they’re going to change it,” saving a company from having to “extend,” or customize the language later, he says.

The comment period is slated to run at least three months and possibly longer.

Meanwhile, SEC chairman Christopher Cox has asked his staff to draft a recommendation on XBRL, which could easily lead to the SEC making XBRL mandatory for filers as early as next fall.

“It’s my own bet that year-end 2008 results filings will be required to be filed in XBRL,” says Roberts. Most agree the process shouldn’t be nearly as arduous as Sarbanes-Oxley implementation, however, as the software necessary to convert statements likely will be widely available and already embedded within most ERP products.

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