Wall Street Gets Set for XBRL

Financial sector CIOs, barely through with the hassles of Sarbanes Oxley and the Federal Rules of Civil Procedure (FRCP), are steeling themselves for yet another government-driven technology challenge. (See Top Tips for Compliance and FRCP Tip Sheet.)

The Securities and Exchange Commission (SEC) is pushing firms to use the Extensible Business Reporting Language (XBRL) format for their regulatory filings, recently targeting mutual funds as part of this effort. (See SEC Expands Data Program.)

XBRL, a version of XML, builds electronic tags into documents such as spreadsheets, enabling the information to be shared between different organizations. This allows the SEC to transfer firms' data straight into to their own systems, removing the need to reformat important documents.

Cue collective groans from IT managers laboring under a slew of compliance pressures.

"I think that there will be big costs to the enterprise," warned Jim Northey, principal of consulting firm The LaSalle Technology Group during a Web services conference in New York today. "Think of all the pressure there is with Sarbanes Oxley. XBRL is going to distract your IT resources that are already stretched thin."The exec added that converting legacy data into the XBRL format will be easier said than done. "Getting access to the right expertise could be very costly," he explained, adding that firms will need a mix of both accounting and IT skills as they shift documents from formats such as Excel and Word over to XBRL.

IT managers at today's event were only too aware of this challenge, citing the cost of additional software and services, particularly to convert data on back-end systems. "It's a pretty big investment that a company has to make -- it's a big process change," said a vice president of technology at a New York-based financial research firm, who asked not to be named.

At this stage, many execs are only just getting their heads around XBRL. "We're starting to look at it, but that's as far as we have gotten at this point," said Jim Steinmark, director of architecture and engineering at Fidelity Investments, in an interview with Byte & Switch earlier this week. "We haven't really dug into it enough to grasp the full scope and magnitude of it."

Although XBRL has not yet been mandated a la Sarbanes Oxley, the feds are already putting their weight behind what it describes as "interactive data" standards such as XBRL and XML. SEC Chairman Christopher Cox, for example, credits technologies such as XML for helping recent inquiries into options backdating. (See Backdating Backlash and Vendor Options Draw SEC Scrutiny.)

It is not only the U.S. that is wrestling with the demands of XBRL. Firms are also coming under pressure in the U.K., where the technology will be mandatory for all company tax filings by 2010.Despite the hassles, most attendees at today's Web services event acknowledged that XBRL is a necessary evil. "There are good reasons behind it, I understand why the SEC wants it," said Northey.

Despite the initial costs involved, firms will also see much cheaper financial reporting once XBRL is deployed across their entire infrastructure, according to the analyst.

These savings will materialize when firms can quickly share their data with regulators, customers, and partners, and perhaps even use it for internal research. "Right now, everything is in a proprietary [document] format -- what we're talking about is an interoperable format," says analyst Ron Schmelzer of ZapThink.

Microsoft, which was the first U.S. company to submit its annual report in the XBRL format, is championing the standard, along with the likes of IBM and Oracle. Tom Carracino, industry lead for IBM's financial markets division and a keynoter at today's conference, told Byte and Switch that XBRL is making its presence felt. "It has gotten a fair amount of take-up," he said, adding that Merrill Lynch has already deployed the standard.

James Rogers, Senior Editor Byte and Switch