The Genius Behind XBRL for Dummies (Part 1)

XBRL is coming, XBRL is coming...

By now you've heard that the SEC will likely require companies to introduce XBRL to their financial reporting process at some point within the next two years. If you haven't, you may want to check out this primer.

To more clearly understand how the pending requirement affects finance executives, I asked Wilson So a few questions, which will appear here in two parts. So is the director of Hitachi America's XBRL business unit and a former General Dynamics executive who helped develop the world's first-ever land mine detection robot. So is also the co-author of a new XBRL for Dummies book, which Hitachi is making available for free (expect for postage and handling): https://store.nationalmailing.com/xbrl.

Eric Krell: What are the three most important things CFOs at publicly listed U.S. companies need to know about XBRL?

Wilson So: XBRL is the equivalence of bar coding for information. XBRL is interactive data. XBRL helps to streamline information exchange.

It's also important to note that in the long-term, companies' use of XBRL won't be limited to financial reporting but will be widely adopted for everyday company activities. Its use will extend beyond the financial function to encompass sales, manufacturing, procurement, and human resource operations. Both the business and IT cases for the implementation of XBRL throughout the organization are compelling.

Thus, the accumulated knowledge and experience from satisfying the SEC mandate can be leveraged longer term for key corporate objectives, like strengthening internal control, facilitating M&A, and increasing ROI.

EK: At a high level, what three or four steps would companies need to do to take to the SEC's new rule should it receive approval as expected?

WS: First, learn XBRL. Second, decide whether to outsource or take it in-house. And third, do it.

Dan Roberts, an independent consultant and the former chairman of the XBRL-US Steering Committee, recently posted an entry on our blog that provides a more detailed road map. Here are some of his key points:

1. Identify a project team to learn more about interactive data and experiment with the creation of XBRL versions of current reports;

2. Ask the primary business reporting software provider to brief appropriate personnel on how they will assist in making a smooth transition;

3. Ask the company's auditor to brief appropriate personnel on how they will be incorporating the provision of assurance over XBRL reports into the audit process; and

4. Brief company executives and the board of directors on the impact, benefits, and timelines for the introduction of XBRL into the business reporting processes.

With regards to the third point, it is not yet clear how much assurance will be necessary. That said, it is still prudent to check with external auditors on their planned response to the requirement.

See "The Genius Behind XBRL for Dummies (Part 2) here.