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The United States Securities and Exchange Commission (SEC) recently proposed a rule that starts what we believe will be a phase-in of mandatory use of eXtended Business Reporting Language (XBRL) tags. Following its standard pattern of beginning with the largest companies and gradually expanding the mandate to all companies that must file financial statements with the SEC, the rule would require Large Accelerated Filers (LAFs), both domestic and international, that use U.S. generally accepted accounting principles (GAAP) and have securities outstanding with a combined worldwide “float” (market value) of more than US$5 billion, to file their financial statements, as well as some footnotes and schedules (such as executive compensation and pension plan obligations), using XBRL tags. This requirement would begin with companies whose fiscal years end on or after Dec. 15, 2008. The notice kicks off a comment period during which interested parties may weigh in with objections, support and suggestions for modifications to the proposal. Historically, the Commission has paid close attention to these comments and reflected their input in the final rules. For example, it discarded some provisions for Sarbanes-Oxley Act section 409 when comments showed that these specific rules would be impractical.

Ventana Research expects XBRL to be adopted for use by LAFs this year. Based on our previous investigation (see “Tagging Financial Statements with XBRL Benefits Everyone”), we do not believe the tagging process will prove onerous for these companies. XBRL will make it much easier for investors to analyze and otherwise examine a company’s financial filings, and particularly to compare companies with one another. The data will be easier to access and, because of the XBRL tags, can be viewed and analyzed in whatever format and framework makes the most sense to the individual. Corporations will also be able to make use of the data in assessing their performance and evaluating business trends involving customers and suppliers. The SEC’s mandate is an important step that will increase usage of XBRL by companies in North America. Ventana Research expects that over the next five years use of XBRL will expand beyond government regulatory purposes.

Related Research Notes:
Tagging Financial Statements with XBRL Benefits Everyone
Test shows use of technology is straightforward, inexpensive and quick

XBRL Tracks the Double Bottom Line
Socially responsible example shows standardized format is useful for more than regulatory reporting