What Are the Five Things Needed To Maximize Investors’ Benefits from XBRL?

While at a recent XBRL US Data Quality Committee meeting, I had a conversation with a colleague who said what firms and regulators need is a framework that offers best practices for implementing XBRL (short for eXtensible Business Reporting Language, a computer language for the electronic submission of standardized financial data). Hearing this, I shared that one already exists.

CFA Institute, a longtime supporter of structured data use, developed the XBRL Framework in 2007. It outlines five key principles we believe are necessary to maximize investors’ benefits from XBRL, which include increased efficiency, transparency, comparability, and timeliness in the delivery of financial information to all parties.

1. The core taxonomy — essentially the dictionary of elements that represent the fields of reporting that regulators require in financial statement filings — should be predefined by current financial reporting standards, including generally accepted accounting principles (GAAP) and other regulatory disclosure and reporting requirements.That is to say, the elements in the core published taxonomy should follow the current approved accounting and or regulatory requirements.
2. Taxonomy extensibility should maintain the level of data comparability as defined by GAAP and other regulatory requirements. Managers of filing companies can extend the core dictionary of fields. We believe that company-specific extensions should be allowed for information for which there is no applicable tag in the taxonomy. Individual company extensions should, however, be limited to those rare situations in which an item unique to that firm exists and the information about it does not fit into any of the concepts within the standard taxonomy. If a tag does not exist, an extension should be allowed but within a well-defined framework so that no extension corrupts other financial statement relationships.
   Simply put, the automated relationships required by the computer remain. When a custom tag is inserted, the relationships remain intact and the numbers continue to sum up correctly.
3. Ultimately, companies should deliver required financial reports to regulators using the established XBRL framework.The goal should be that regulators mandate all reports required by GAAP and other regulations be delivered exclusively through an XBRL framework.
4. The general public should have equal access to the XBRL-tagged information. Regulators that establish an XBRL reporting framework need to provide, at a minimum, a base-level application, that transforms the XBRL-tagged report from a computer-readable format to a human-readable/useable format. CFA Institute supports the implementation of iXBRL (in-line XBRL) as it provides a means of viewing the XBRL filing itself in a human-readable, understandable, and familiar format. iXBRL allows for the inclusion of XBRL tags within ordinary, human-readable XHTML documents. This avoids the need for a separate means of converting XBRL data into human-readable form.
5. Regulators should develop the necessary infrastructure and protocol to ensure the timely updating of the established XBRL framework as outlined in the preceding four key principles.The core taxonomy should be modified as needed to keep current with any changes made to the accounting or regulatory standards. It is also necessary that regulators make regularly scheduled reviews of the custom extensions to determine the need to add new common items to the core taxonomy.

Globally, regulations requiring public companies to provide information in an XBRL format has steadily increased. But XBRL implementation has faced some challenges. In the US, the quality of the information provided in the reports is the biggest challenge. One of the reasons for this is the lack of adherence to these five principles — especially regarding the use of extensions. We urge companies and regulators to take heed of these principles to address the challenges in the implementation of XBRL.

Watch What Analysts Can Do with Structured Data

While these key principles may not have been fully implemented in the various regulatory reporting initiatives, the data being tagged is useful to the investment industry. In March, CFA Institute partnered with XBRL US to sponsor the webinar: “Financial Fundamentals Analysis — What Analysts Can Do with Structured Data.” During the webinar Emil Efthimides, global regulatory monitor for Bloomberg, shared insights into how that firm is using XBRL-tagged information from several different countries.

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