XBRL Implementation Status: Doing a Reality Check

It was only few months back when I wrote the post - Semantic Technology, Financial Reporting and Toxic Assets. The post was more about how XBRL and the Semantic technology can play a big role in addressing issues related with toxic assets in the world of financial derivatives. It is becoming more clear now that XBRL is almost a movement which is going to have deep impact on how information between businesses, regulators and investors across the Internet will be communicated in the next decade. XBRL is not only considered the most revolutionary change in financial reporting since the first general ledger but also one of the most successful semantic web format. So what is the status of XBRL implementations? You can check this  interview with Eric E. Cohen, co-founder XBRL, about the recent updates. You can also find some good information at Charles Hoffman's blog or  http://xbrlplanet.org/. I also liked the section on XBRL in David Siegel's Pull where he talks about the history of XBRL.



Some of the points which I found interesting are:

• XBRL is almost ten years old but the real adaption has started in the last few years only
• Regulators are one of the first group to adopt it. Regulators who are adopting XBRL are : Capital market regulators, tax offices, banking regulators, national statistic offices, corporate registrars
• Corporate America has already been complying with a mandate from the Securities and Exchange Commission for nearly a year to “tag” financial data in XBRL
• There have been issues in many projects but no significanlty failed XBRL project has been reported
• June 15th, 500 public companies did XBRL filings. Another 50 have started doing this even though they didn't have to file. 2009 taxonomies came late so 2008 taxonomies were used
• June 15th 2010, another 1500 will start filing in XBRL
• June 15th , 2011, another 10,000 will do
• One pending bill in Congress would direct all federal agencies to adopt XBRL for all requests for government bailout funds and all required reports on how those funds are used
• Edgar Online gets $12 million from Bain Capital  for XBRL efforts
• Using XBRL, FDIC reduced the time to report information from 45 days to 2 days
• European Parliament is the largest government body who has expressed interest in XBRL
• The Securities and Exchange Commission launched its XBRL information portal, which can be found at http://xbrl.sec.gov/
• The investment in person hours that it took to create either the IFRS or the US GAAP taxonomies dwarfed the total hours needed to create XBRL itself
• Over 90% of Spanish banks now report in XBRL
• Holland and Newzealand are already accepting tax returns and other government required documents in XBRL
• Nevada is one of the first US state who is trying to use XBRL in many of its operations
• XBRL taxonomies may not be interoperable. For e.g, the US GAAP and the IFRS taxonomies are all used for financial reporting but are significantly different
• MIX (Microfinance Information Exchange) which collects information from more than thousand microfinance institutions is using XBRL. It is the first non-profit to use XBRL
• Data aggregators and distributors have not embraced XBRL in any significant way
• Taxonomy extensions is one of the hardest issue to solve as it reduces standardization and make interoperability very difficult
• You can find some common errors in XBRL implementations in this excellent article
• It is observed that few technologists have accounting domain knowledge and few accounting experts have technology domain knowledge in XBRL projects
• XBRL International, Inc. (XII), has released “XBRL: Towards a Diverse Ecosystem," a discussion document seeking public comment on the future business requirements and technical roadmap for the XBRL business information standard. The document may be downloaded here.

I am sure that there will be many more highlights but it gives good idea that things are looking good for XBRL despite some initial challenges. It is still in early stages of adoption on Wall Street. But the progress is being made and it looks like that the financial reporting and analysis landscape is going to be a very different one in the coming years!

Semantic Technology, Financial Reporting and the Toxic Assets!

Financial markets, traditionally the earliest adapter of any new technology relative to other industries, has been a laggard as far as Semantic Technology is concerned. It seems that the turmoil in the capital markets in last two years has managed to dampen enthusiasm for new technologies in capital markets and banking industry. All of it is about to change! The two obvious reasons are: we are coming out of recession and  new regulations regarding financial reporting in XBRL. I believe that the third reason is the inherent limitation of XBRL as far as Semantics is concerned!

As we know, XBRL, solves two significant problems for companies who prepare financial statements along with analysts, investors, regulators, financial publishers and data aggregators:

• The first problem is that preparing a financial statement for printing, for a Web site, and for filing today means that a company could typically enter information three times
• The second problem is that today (if the report is not in XBRL), extracting specified detailed information from a financial statement - for e.g we still can't ask questions like "Give me depreciation expense from 2003 a financial report."

The basic idea behind XBRL is to provide grammer and syntax behind financial reporting so that it can be extracted, analyzed and queried. Although XBRL has been around for 10 years now, the adoption and acceptance has only begun to significantly accelerate during 2007 with the support of  SEC. Since the year 2009, the filing has become mandatory for largest five hundred US corporations and other companies will follow in a phased manner from 2010 onwards. Market is already flooded with XBRL products , services and tools. Most of these products and tools help in one or more of following things : creation, viewing, analysis, taxonomy creation, custom document creation and various other automation features. XBRL can be stored in RDBMS as well as XML databases like Marklogic.


So what is the problem? Why do we need Semantic Technology in this context? While XBRL allows for more accurate consumption and interpretation of financial information, there is still a need to connect to the authentic source of the document and to recombine the XBRL content with other data sources. The fundamental issue here is that XBRL document working with other dat source doesn't understand anything about the semantics of data. There is just no meaning associated with the nesting of tags. The limitation of XBRL becomes more obvious when you have to use/analyze/query XBRL reports along with other sources of data which is not XBRL compliant.

If you read this  article in Wall Street Jornal on Toxic assets then it will make you think more clearly about importance of "semantics" in reporting in the world of derivatives.. The key points are:

1. Ever since humans started trading, lending and investing beyond the confines of the family and the tribe, we have depended on legally authenticated written statements to get the facts about things of value
2. Derivatives are the root of the credit crunch. Why? Unlike all other property paper, derivatives are not required by law to be recorded, continually tracked and tied to the assets they represent. Nobody knows precisely how many there are, where they are, and who is finally accountable for them.
3. Every financial deal must be firmly tethered to the real performance of the asset from which it originated.
4. All documents and the assets and transactions they represent or are derived from must be recorded in publicly accessible registries
5. Governments can encourage assets to be leveraged, transformed, combined, recombined and repackaged into any number of tranches, provided the process intends to improve the value of the original asset
6. Financial institutions will have to serve society and fully report what they own and what they owe -- just like the rest of us -- so that we get the facts necessary to find our way out of the current maze
7. Governments can no longer tolerate the use of opaque and confusing language in drafting financial instruments. Clarity and precision are indispensable for the creation of credit and capital through paper.

XBRL, by itself can't fulfill all of these requirements as we need to corelate/link/resolve various reports to the source data - a very important thing in the world of derivatives reporting. You need Semantic Technology for that! We need to represent XBRL in RDF or OWL representation. I will recommend my readers to read another rebuilding public trust - a nice article on the same topic. The author is also talking about services which can allow the financial data in XBRL to be combined with data from other industry and government sectors — basically, transforming the way we explore information.

There are various techniques to convert an XBRL document to RDF. I will not go into those details in this blog. One example -  GoodMorningResearch.com machine automates XBRL tagging of Excel data in RDF format with one-click Save As XBRL functionality.

I believe that  long-term (probably very long-term) vision of XBRL reports should be to publish it as RDF triples and make it a part of Linkedata cloud. This will help in achieving all linkages, transparency and verification as far as financial reporting is concened. I would like sceptics to know that by April 2009, more than 600 XBRL reports, approx. 1,3 million RDF triplets,  were already part of Linked data cloud.  But at the same time, you need lot more governance, regulations and process behind this effort to get real value. Also, there has to be some kind of incentives for financial organizations to do this.