The XBRL computing language for facilitating interactive data became a financial reporting reality in May 2008 as the SEC voted unanimously to propose a rule dictating the implementation of XBRL reporting. The proposal was officially accepted Dec. 17, 2008.

Beginning with fiscal periods ending on or after June 15, 2009, companies with a market capitalization of more than $5 billion will be required to file XBRL financial statements. All other U.S. public companies would have to launch XBRL financial reporting over the following two years.

The SEC expects the interactive data will provide investors with quicker access to the information they want in a form that is easy to use and will help companies prepare their information more quickly and more accurately.1 Christopher Cox, former chairman of the SEC, has said XBRL filings will enable investors and analysts "to vastly improve their comparative capabilities"2 between financial statements of different companies.

Upon implementation of XBRL, companies will perform a mapping process from line items in their financial statements to a standard taxonomy. The taxonomy is a catalog of tags used to label data in the XBRL format. The "extensible" part of XBRL allows for the creation of company-specific tag extensions for those line items not included in the standard taxonomy. This is a necessary and beneficial function, but it may also be a potential drawback for investors interested in comparability. Managements discussion and analysis, as well as footnotes to the financial statements, will still be important factors when considering the pulse of a company.

Taxonomies are basically pro forma charts of accounts that have been created for various industry types, such as banking and retail, among others. Every account tagged is essentially bar coded. This is comparable to when an accountant creates a financial statement using a trial balance/general ledger software package. Every account is linked and has a place on the balance sheet or income statement.

Once the data is tagged, the financial statements are generated. Bear in mind that these financial statements are not those of a typical family-owned, closely held corporation, but rather large capitalization entities. There should be substantial long-term cost savings with the implementation of the universal platform; however, there are some areas that warrant further analysis and development.

To analyze the performance of three industry-similar companies, an investor could, in theory, download their "comparable" data into an Excel spreadsheet and begin to perform due diligence. However, Excel spreadsheets are not write-protected. Therefore, one could change a figure, perform an analysis based on such, and present erroneous findings to an individual who may be relying on the integrity of the figures. Given the multitude of known incidents dealing with misrepresented financial data, this is a real concern. The question now becomes, how can this data be downloaded to allow analysis while being write-protected?

When looking at a comparative analytical review, it would make sense to have the Excel file write-protected as well as have built-in capabilities to perform ratio analysis. The user should have thirdparty assurances that comparisons are apples-to-apples. A best practice may include preparing the data with a "Verisign" tag, which provides the end user with assurance that there was no manipulation.

Currently, when a downloaded, tagged amount is changed, the XBRL "bar code" reference for that cell is lost. Other cells would most likely be affected. For an audit trail, the formula for the specific cells would no longer have an XBRL element name, which, if found, would indicate that a change was made. One could also compare the XBRL data to the source information, if available. At least one financial-modeling vendor offers a one-click verification as to the source of any cell.

The SEC Web site provides an interactive financial report viewer (http://viewerprototype1.com/viewer) where one could view XBRL filings of specific companies or create company comparison reports. The site currently has limited options as to available company financial statements, but we tried to create a comparative financial statement that was useful. We compared the annual income statements of two utilities, Commonwealth Edison and PECO Energy, using the comparison report option.

As you can see, the data was not in a user-friendly comparative format. Lines do not match up and descriptions are different. We attempted to create more substantive comparable financial statements by downloading the income statement for the period ended Dec. 31, 2007, from Commonwealth Edison and PECO using the "View Filings" feature for each. This was then exported to Excel and with some limited cut-and-pasting, produced a much more comparable financial statement. It appears the SEC Web site's comparative generator needs updating.

It is worth noting both downloads to Excel only produced cell values. Should one want to analyze historical data, it would currently take a good deal of time not only to create XBRL documents but also to create a framework that facilitates what-if analysis.

By making data portable, with search capabilities that can be used when performing third-party analysis, a very powerful analytical tool will become commonplace. To automate the financial statement reporting process using XBRL is a big step forward, given that the long-term costs to report will be a good deal less as XBRL leads to time-savings and reporting on a "level" playing field. However, there is still work to be done.

There are some interesting features and advantages to interactive data when researching a single company. The SECs Web site currently lists over 120 companies that have volunteered to submit filings using interactive data. Customized charts can be created by a potential investor to compare any line irem in the financial statements over time. Another feature uses interactive diagrams to visually display the results of a company across periods. For example, see the change in Comcast Corp.'s current assets from 2006 to 2007. Notice the overall decline in current assets was mainly due to a 94 percent decrease in marketable securities. This type of analysis would traditionally take more time to compute and conceptualize than it does with interactive data. The user also has the ability to drill down further into the components of a line item if the information is available.

Another interactive tool on the SEC s Web site allows a tailored view, in table or graph form, of the executive compensation disclosure summaries between various companies. For demonstration purposes of interacrive capabilities, the SEC applied data tags to the 2006 year-end compensation disclosures of 500 public companies. We created a basic graph of three airline-industry CEOs total compensation for the year. The amounts represent salaries plus bonuses and stock option awards, just as they would in the summary table in the public filings. This comparison between several companies is possible because the specific disclosure requirements, and therefore the "tags" behind them, are uniform for each filer. Similar analyses would be possible for other footnote disclosures, provided the companies involved are bound to standardized data tags and there is no room for extensibility.

The primary focus of XBRL implementation is clearly on external financial reporting. Eventually, though, interactive data can be used internally as an audit tool to monitor risk and analyze accounts, but those benefits could be years away. Many companies will need to outsource the conversion to interactive financial reporting due to a lack of resources or expertise. In fact, the Institute of Internal Auditors (IIA) conducted a survey of over 200 internal audit executives across the globe that showed a current lack of awareness. Over 50 percent of those surveyed have no XBRL knowledge at all, and 90 percent are seeking guidance on the internal audit function's role. The IIA's Research Foundation planned to release guidance on this issue in January 2009. 3

A renewed focus on internal controls over financial reporting necessitates appropriate checks and balances. The controls surrounding transfers of XBRL language into a filing may be lacking. Employees or outsourced vendors implementing XBRL have the ability to modify numbers, accounts, and so on. Best practices to maintain an efifective XBRL control environment include performing a reconciliation between the interactive data and the traditional financial statements, ensuring the mapping and financial data tagging process is accurate and complete, and properly approving new tags or authorizing taxonomy changes through a control log. In addition, auditors may desire to test the application of a company's taxonomy, not only to the correct line items, but also to the correct periods. Information technology controls also must be reviewed in areas such as system application and integrity as well as network security.

Countries across the globe have already started adopting XBRL reporting. Discussions with their international counterparts may help U.S. companies avoid certain controls pitfalls. XBRL technology has also been applied to banks and stock markets in other countries. The SEC is not far behind. Recently, the SEC announced that mutual fund regulatory filings will be accessible online for investors, and a prototype mutual fund viewer is available on the SECs Web site. Eventually, the SEC will replace the current database of financial reporting with its successor system called IDEA, which stands for Interactive Data Electronic Applications. Until then, we will keep an eye on the first wave of XBRL filings beginning in the second quarter of 2009.