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Data-Tagging: New Push for a Global Standard

International rulemakers release a "nearly" final version of their XBRL tool, and many see it as a major step toward IFRS.

The closest thing the global accounting community has to the Rosetta Stone — the international financial reporting standards taxonomy for 2009 — was released on Monday for public comment by the International Accounting Standards Committee Foundation. It is the centerpiece of the foundation’s XBRL (extensible business reporting language) project, which when completed should make reporting financial results easier, more accurate, and more easily compared — a big benefit for investors and analysts.

The so-called IFRS Taxonomy 2009 is a translation of the international standards — as they were issued on Dec. 31, 2008 — into XBRL, the Internet data-tagging language that is being touted by the IASC Foundation as “rapidly becoming the format of choice for electronic filing of financial information.” Essentially, the Internet-based language is a dictionary of data tags that explains each tagged number and how it should be treated under IFRS.

For instance, no matter where revenue numbers appear in financial statements, they will be identified or “tagged” as revenue which makes searching for an individual or aggregate number relatively simple compared to manually combing through corporate financial statements or scrolling through spreadsheet documents.

Perhaps more important from a global perspective, some observers believe the adoption of XBRL will help move companies toward IFRS. Indeed, many experts believe that the tagging language makes it easier for companies to migrate from local GAAPs to IFRS. Both U.S. and international accounting rulemakers have been working since 2002 to converge local GAAPs with IFRS in an effort to produce one set of global standards. Anything seen as moving that effort forward is viewed as strenthening and adding transparency to financial reporting, in general.

One proponent, Kurt Ramin, chairman emeritus of XBRL International, pointed out in an article that he wrote last year for the American Institute of Certified Public Accountants, that the IASC Foundation was “involved early-on in building a taxonomy to drive global adoption of both IFRS and XBRL.” Meanwhile, a few corporate accounting managers who have led their companies in the switch to IFRS say that XBRL made the transition easier.

Witness global outsourcer Infosys, one of the 17 companies that signed up for a Securities and Exchange Commission pilot program in 2005 to try out XBRL. In 2005, the company reported in U.S. GAAP, but by last year, Infosys was reporting using IFRS and tagging the data.

Gargi Ray, manager of technical accounting for global outsourcer Infosys, tells CFO.com that XBRL aligns data with broad concepts, such as revenue, which seems to have helped the conversion to IFRS. Aligning accounting concepts that match up with IFRS concepts makes the migration to the international standards relatively easy compared to migrating spreadsheet-based financial statements, opines Ray.

In addition, Ray reported that 82 percent of last year’s financial results were tagged using XBRL without having to create new tagging elements to account for items associated with new accounting rules or that were peculiar to Infosys. Ray calls that tagging effort “pretty good for the first time [using the 2008 taxonomy].”

As for the American push for XBRL, a mandate to file financial results using an interactive format has been looming for so long that most CFOs have long since tuned it out. Only about half claimed to be familiar with XBRL in a September survey by Grant Thornton, and a whopping 90 percent reported no plans to use it. And while outgoing SEC chairman Christopher Cox has been one of XBRL’s biggest champions, the process of making the language mandatory for financial reports has taken a tortuously slow path, culminating in a rule that hung suspended in proposal state for more than six months last year.

Some speculation remains about whether the SEC will adopt parts or all of the IFRS version of the taxonomy, but the SEC has not returned phone calls seeking comment on that issue. Assuming that the commission finalizes the rule as written before Cox leaves office office, companies with market caps of $5 billion and above would have to immediatley start tagging 2008 year-end financials with XBRL code and be able to handle the task of coding footnotes in detail for 2009 10-Ks.

The IFRS 2009 taxonomy, which can be found on the IASB website, will be out for public comment until March 12, with a final version is expected out in early April.

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