Views on improving the integrity of global capital markets
30 July 2012

CFA Institute Co-Sponsors XBRL Challenge to Increase Investor Awareness

Posted In: US SEC, XBRL

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

 
High Importance
All companies across a meaningful set of periods

 82% 

All sections of annual reports

75% 

Detailed operational information (non-financial)

58%

Company earnings and press releases

57%

Corporate transactions (e.g. dividends, stock splits)

54%

Assets pools of securitizations

52% 

Executive compensation related information

34% 

 

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.

About the Author(s)
Glenn Doggett, CFA

Glenn Doggett, CFA, was a director of professional standards for CFA Institute. His responsibilities included providing member guidance in applying the ethics and standards of practice policies, supporting related educational and public awareness activities, and working with the Standards of Practice Council of CFA Institute on its initiatives. He was a co-host of the free, live, interactive webinars used by CFA Institute to promote ethical decision making and global best practices. Previously, Mr. Doggett, as a member of the CFA Institute Financial Reporting Policy Group, represented membership interests regarding reporting and disclosures initiatives, including XBRL. Prior to joining CFA Institute, he worked in the financial information sector with SNL Financial, where he focused on the real estate and energy industries, directing the development and maintenance of a financial data storage system. Mr. Doggett holds a BA in economics from the University of Virginia. He was awarded the CFA charter in 2006 and is a member of CFA Society Virginia.

2 thoughts on “CFA Institute Co-Sponsors XBRL Challenge to Increase Investor Awareness”

  1. Jeff Diermeier says:

    Glenn,
    The challenge is a very good initiative to help spur software development, it’s recognition and eventual broader usage by the analytical community. It makes great sense to bring fundamental data into the 21st century if we want markets to have a fundamental basis. Lower cost raises supply all things held equal.

  2. Glenn Doggett, CFA says:

    Thank you for the feedback. The Challenge should continue to advance the products and applications available for conducting investment analysis.

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