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Ready or Not, XBRL Is Coming

The SEC and FASB are gearing up for XBRL, suggesting it's only a matter of time before its use becomes mandatory.

Testifying before the Senate Banking Committee Tuesday, Securities and Exchange Commission chairman Christopher Cox found it difficult to keep from straying onto his pet topic. “I’m tempted to go off on a riff on all the benefits of interactive data,” he said in answer to one question about mutual funds.

He refrained, but by then his testimony already had been peppered with plenty of plugs for interactive data. By that, Cox is referring to XBRL, the Internet-language method of tagging financial data that he believes would greatly improve transparency. Many of Cox’s public speeches — a third of them, by one count — have also heavily emphasized the ease with which public companies could be examined and compared if they all were to use XBRL.

Which raises an obvious question: Just how long will Cox stick to the bully pulpit before the SEC simply mandates that all companies adopt XBRL?

Last October, SEC deputy chief accountant Andrew Bailey told CFO.com that the SEC might indeed want to make XBRL mandatory. That makes Cox’s current campaign sound like a clear message to Corporate America. “It’s pretty difficult to see the chairman of the SEC give XBRL that much play and not get the message that this is coming down the pike and it is not going to be optional,” says Dan Roberts of Grant Thornton. Roberts is chair of the XBRL-US Steering Committee, part of an industry consortium working to develop XBRL in the United States.

So far, that work has been voluntary — and slow. Although XBRL, which stands for eXtensible Business Reporting Language, has been under development in this country for more than five years, it has yet to have much of an impact on financial reporting. “The United States is, to its potential detriment, significantly behind other major markets in its adoption of XBRL,” says Roberts.

Indeed, a pilot program by the SEC to encourage companies to report their financial results in XBRL has attracted only 17 companies. And while International Financial Reporting Standards include a full taxonomy — that is, XBRL tags for all major financial reporting line items — the tags for items involving U.S. generally accepted accounting principles are still being written. By some counts, that project, which includes some 3,000 tags, is less than half complete.

That may soon change: The Financial Accounting Standards Board appears poised to significantly increase its role. FASB Chairman Robert Herz has repeatedly expressed support for XBRL. Indeed, while it is clearly Cox’s initiative, he and Herz have both been beating the drum for XBRL as part of Herz’s much broader public campaign to reduce accounting complexity.

“As you know, Chairman Herz is fiercely committed to exploring matters that would seek to reduce complexity and improve the financial reporting process,” said FASB spokesman Gerard Carney. “Along these lines, the FAF continues to discuss how interactive data can be used to improve financial reporting with other interested parties. With respect to those discussions, no definitive plans have been formulated.” (FAF, The Financial Accounting Foundation, oversees and funds FASB and chooses its members.)

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