Businesses are resisting the XBRL mandate

The No. 9 top sleeper tech story of 2010

The big federal push to make publicly traded companies file financial statements using XBRL (Extensible Business Reporting Language) is running into surprisingly stiff resistance.

While almost no one would argue that standardization isn't a good thing, some companies have decided that automating with the data standard is simply too complex and thus aren't complying.

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In a national survey of CFOs and senior comptrollers conducted by Grant Thornton, a consultancy, 64 percent of public companies do not currently report financial results using XBRL, and of those, half have no plans to meet the 2011 deadline to report using interactive data. Many of those companies will likely comply eventually, but that means that IT will be scrambling to implement a new and complex system (unless their companies decide to outsource the work, of course).

Even companies that do move to XBRL will keep its use to the legally required minimum. The number of companies that plan to deploy XBRL for internal reporting (for which there is no mandate) is just 5 percent, according to a poll of CFOs by Gartner.

There are also significant questions about the accuracy of XBRL tagging. Last year, researchers at North Carolina State University studied results [PDF] of a voluntary tagging program and found "a large number of errors and inconsistencies with submissions."

Although there have been modifications and improvements to the XBRL taxonomies and tagging software since that time, the authors warn that their research gives evidence that "the tagging process is difficult and that unacceptable error rates may occur in the future."

XBRL tags provide a common definition for financial terms. While terms like "revenue" and "income" are used broadly, organizations define them differently. But when the definitions are standardized, financial forms will be machine-readable without the current laborious and subjective conversion process. What's more, the data becomes interactive, making it much easier for investors and regulators to analyze it. That's a key reason for the mandate.

But part of the reluctance to move to XBRL is the laborious process of tagging. A typical quarterly financial filing uses 500 to 700 discrete tags, says Patrick Quinlan, CEO of Rivet Software, which provides software and services related to XBRL conversion. An annual report, he adds, could include 4,000 to 5,000 discrete tags.

However, once a series of documents is tagged, subsequent tagging becomes much simpler because the same terms are used over and over again, Quinlan says. If that's true, it's possible that some companies have succeeded in scaring themselves into believing that XBRL is simply too complex to manage.

The top underreported tech stories of 2010:

  1. Apple quietly became a key enterprise provider
  2. Server virtualization has stalled, despite the hype
  3. URL-shortening services gave hackers a new entry point
  4. The health care industry faces its risky ERP moment
  5. Deferred IT maintenance is a ticking time bomb
  6. Energy-efficient Ethernet has arrived, with real savings
  7. A major Internet security hole was finally plugged
  8. Social media messaging is getting around traditional firewalls
  9. Businesses are resisting the XBRL mandate

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