CFA Institute Co-Sponsors XBRL Challenge to Increase Investor Awareness
In late 2011, CFA Institute conducted its latest member survey on XBRL (eXtensible Business Reporting Language). This new reporting technology is being adopted by financial regulators across the globe, but the level of awareness among CFA Institute members — 47 percent — is low relative to expectations given the wide range of benefits touted for investors.
For the benefit of readers, XBRL is intended to make financial information findable and readable by other software programs. Reporting companies assign a defined tag to individual financial values before submitting the reports to their regulators. The ultimate goal is for investors to extract the data directly from these reports and incorporate them into their valuation models and forecasts. This potentially saves time and reduces errors by eliminating the re-keying of data done today.
On a positive note, the survey results confirm a continuing upward trend in XBRL awareness levels over previous iterations (45 percent in 2009 and 41 percent in 2007). However, despite regulator mandates requiring public companies to file using XBRL, the continued low level of awareness likely means that XBRL-tagged information is not adequately utilized by the end users of financial reports.
One possible reason for the lack of use is limitations on the information currently available. Indeed, the structure of XBRL-tagging programs allows firms to determine the appropriate fields to include in reports or whether a new company-specific tag is required. These decisions may negatively affect the comparability of the tagged data. However, 45 percent of survey respondents indicated that individually tagging all reported information allows the user to determine the importance of each item to its valuation process. Another 34 percent stated that such tagging would improve the data they could access through third-party aggregators.
Other areas where respondents felt there was room from improvement that would lead to better analytical value focused on the availability of additional sets of data. While more time is necessary to fulfill some of those expectations, companies and regulators could take action now to meet those needs.
Prioritizing Tagged Information
|All companies across a meaningful set of periods||
|All sections of annual reports||
|Detailed operational information (non-financial)||
|Company earnings and press releases||
|Corporate transactions (e.g. dividends, stock splits)||
|Assets pools of securitizations||
|Executive compensation related information||
Gearing up for the XBRL Challenge
XBRL US continues to promote XBRL’s potential to firms mandated by the SEC to provide XBRL-tagged information and to investors. Building on the success of its inaugural competition, XBRL US recently announced the 2nd Annual XBRL Challenge. The contest seeks “to discover the top open source analytical tools that can mine XBRL-formatted corporate financial data from the SEC’s EDGAR database.” CFA Institute is co-sponsoring the event for a second year.
Contest submissions must meet a new requirement: “to perform certain analytical functions such as year-to-year, multi-company comparisons and ratio analysis.” Last year’s winner, Calcbench, established a high benchmark for those competing in the current competition. In a recent interview with CFA Magazine, the company’s co-founders discussed their winning product and future prospects for XBRL internationally.
Are You XBRL Certified?
Because XBRL represents an open-source technology adopted across many different countries, the international standards organization, XBRL International, has developed the XBRL Foundation Certificate program. This e-learning course prepares individuals with a broad understanding of XBRL; candidates that pass the final examination are awarded the certificate.
According to the XBRL International website, candidates who successfully complete the foundations training will:
- Recognize the importance and challenges of electronic reporting
- Comprehend the basic role and principles of XBRL as the electronic business reporting standard
- Know key facts about XBRL’s history and current usage
- Understand the architecture of the XBRL standard and its key
- Grasp the key benefits of XBRL adoption (impact on processes of data collection, validation, storage, analysis, publication)
- Be able to communicate the merits of adopting XBRL to meet their business objectives and identify necessary steps to begin the process
The XBRL community continues to develop resources and learning programs to help investors take advantage of XBRL-tagged information. As the volume of tagged information increases, so should the levels of awareness within the investment community. After all, technology changes ultimately lead to modifications and improvements in the efficient allocation of capital.