XBRL's rise to mandatory status seems inevitable, but it's a language some IROs have yet to learn
Extensible business reporting language (XBRL) is taking the world by storm, but many IROs and investors are still unaware of what it is or the benefits it can bring. Admittedly, its title does it no favors. ‘Interactive data’ is what the SEC likes to call this newfangled filing technology to make it sound slightly more appetizing.
Sooner or later, all IROs are going to have to face up to XBRL. The good news is that although the concept is littered with enough jargon to fill even the most techno-friendly IROs with dread, once the geek speak has been cracked, there’s really not much to it – although this depends on where your company is based.
Effortless filing
Spain is the only country in Europe to have taken the leap to making XBRL reporting mandatory, and most IROs have taken to the system like a duck to water. ‘It makes my life much easier now, because the information is delivered in seconds, it cannot be manipulated and it’s very easy to send,’ enthuses Ignacio Cuenca, director of IR at Spanish power giant Iberdrola. ‘It’s hard to imagine now the stress we used to have on results day.’
XBRL filing in Spain is straightforward because companies simply have to fill in a form, which is automatically converted into XBRL. ‘At the end of 2004, we decided to receive information in a way that’s helpful to everyone,’ explains José-Manuel Alonso, head of IT at the Spanish securities regulator, CNMV. ‘We timed making XBRL mandatory to coincide with the changing content of our own regulation in 2005.’
Spanish companies are given the option of either using the template provided by CNMV, which is free of charge, or developing their own software to file in XBRL. Most firms opted for the former. ‘Companies more familiar with XBRL or already using it internally, like Telefonica, chose to stick to their own systems,’ adds Alonso.
India has a similar system in place, instigated by software provider Iris instead of the Indian regulator. Former analyst Deepta Rangarajan recalls how she hit on a new way of tagging data and co-founded Iris. ‘It was an exciting development, as I was all too familiar with the frustrations analysts suffer,’ she says.
Once Iris had created its Corpfiling system, the tough part was convincing the stock exchanges and market regulators of the benefits. ‘We thought we’d have more luck with the newer National Stock Exchange, but it already had its own out-of-date system in place so it wasn’t interested,’ explains Rangarajan. ‘Eventually we went to India’s oldest exchange: Bombay Stock Exchange (BSE).’
BSE had been used to filing everything manually, so it was keen to pilot the new system in 2006. ‘Soon afterwards, the National Stock Exchange starting showing interest,’ says Rangarajan with a smile. The Indian regulator, SEBI, followed suit and mandated Corpfiling for the top 100 Indian firms in January 2008. Rangarajan predicts the whole Indian market will move to XBRL filing within 12-24 months.
Despite XBRL’s obvious success in India, its simplicity had led to a lack of understanding of its benefits. With IROs barely aware they’re even using XBRL, it’s hard for analysts and investors to reap any rewards either. Iris is busy trying to resolve this by developing a prototype IR portal aimed at showing companies how XBRL can enhance the value they provide through their own IR portals.
Leading by example
Although mandatory XBRL filing has only recently been approved in the US by the SEC (for larger companies with a public float over $5 bn), developments in the States are having a profound impact on countries like India, which are still working hard to increase awareness of the benefits of XBRL.
Rangarajan says the recent SEC ruling, coupled with commission chairman Christopher Cox’s ‘ passionate evangelism of XBRL’, has made it much easier to spread the word in India. ‘It also helped that Infosys, one of India’s most admired companies, participated in the SEC’s voluntary filing program,’ she adds.
Infosys has been in the SEC’s voluntary filing group for two years. ‘We liked the concept and decided it would be good to do ahead of time,’ says Sandeep Mahindroo, senior manager of IR at the Indian IT firm. With shares listed in Bombay and New York, Infosys reports both Indian GAAP and US GAAP financials.
While Infosys’ data is available in XBRL, however, New York-based Mahindroo thinks that even in the US analysts and investors are not actively using it yet. Many still take data in their older forms from the company’s IR website.
Unlike their Spanish and Indian counterparts, US IROs need to do a little more legwork than simply filling out a form. This is mainly due to the increased complexity and rigor of financial reporting standards in the US.
Another early participant in the SEC’s pilot group is Ford Motor Company. ‘After researching the different ways of preparing XBRL financial statements, we decided to partner with a supplier rather than buy software to undertake the process in-house,’ says corporate news manager Marcey Evans. Once the vendor had helped the team assign appropriate data tags to its financial statement line items, converting 10K and 10Q statements each period proved a relatively smooth affair.
‘We are pleased with the results of this process and are glad to be able to offer XBRL-tagged data to the investment community,’ says Evans.
EDGAR Online hosts the world’s largest XBRL repository and is one of several software providers directly accessible via the SEC’s website. Liv Watson, vice president of global strategy for EDGAR Online and founding member of XBRL International, cannot understand why the SEC ruling took so long to happen, as XBRL was created 10 years ago. ‘Making information transparent, reusable and self-discoverable is not always welcomed by management,’ she asserts.
Germany suffered a major setback when corporate filing organization the Bundesanzeiger ruled that all German companies needed to submit financial statements in XBRL format in early 2007, without realizing that this was an impossible order. ‘Clearly, the Bundesanzeiger hadn’t done its homework, because its system wasn’t compatible with current German regulation,’ states Kay Bommer, managing director of German IR society DIRK.
The Bundesanzeiger was forced to make an embarrassing U-turn a few months later, when it was confronted by DIRK and German investor association DAI. It then ruled that German firms should again file in the more rudimentary XML format. Bommer hinted that the former government-owned body had been keen to process company information in XBRL format in order to make money by selling the data on.
Although the Bundesanzeiger has recently announced it can accept XBRL data again, a German XBRL software provider, who wishes to remain anonymous, laments that the way it dealt with the issue has cast XBRL in a very unfavorable light. ‘To make matters worse, it signed an agreement for 30 years with a company with no IT experience,’ he adds.
Catching on
Despite all the negative press and resulting absence of any German companies filing in XBRL, DAX 30-listed ThyssenKrupp is well on the way to making the change. ‘It’s another service we want to add to our existing portfolio to benefit analysts and investors,’ says head of IR Claus Ehrenbeck matter-of-factly. Luckily for the IR team, the accounts department at the €20 bn ($31.5 bn) industrials conglomerate has developed an effective taxonomy and the company aims to begin filing in December 2008.
While some companies clearly have it easier than others in terms of XBRL, it’s sadly often the case that the slicker the process, the less aware IROs are of the benefits it can bring. It’s a comparability tool for IR teams, not just for analysts. IROs need to take note of what’s going on around them, or they’ll be left behind. The time is fast approaching when people will no longer be talking about XBRL; they’ll just be using it – and wondering how they ever managed without it.
