Automating External and Internal Financial Reporting

The increasing interest in using software to automate financial reporting processes is largely the result of the "interactive data" mandate of the U.S. Securities and Exchange Commission, which requires companies to add eXtensible Business Reporting Language (XBRL) tags to their financial filings. Until the tagging mandate, almost all companies assembled their periodic filings manually from text files and spreadsheets stored on servers and/or passed around as e-mail attachments.

The SEC's mandate made it too time-consuming for companies to apply the full gamut of tags manually and still meet filing deadlines. Some companies have continued to assemble their periodic filings in the same way and use a third-party service to apply the appropriate XBRL tags to their financial statements. Others have purchased software that applies tags as part of an automated system for managing their close-to-file-and-report cycle (sometimes called "the extended close" or "the last mile of finance").

First and foremost, such software automates the XBRL tagging process. Equally important, it facilitates the assembly of the text and tables needed for these filings, manages this process more effectively, maintains an audit trail for control and all but eliminates the routine errors that can occur when there are multiple sources of data and data must be manually entered multiple times.

Automation reduces the considerable time and effort a company needs to spend preparing and reviewing these filings. And compared to using a third-party service for tagging, it gives a company greater control of the entire process and a more flexible schedule for preparing the filings (companies have to get the completed document to the tagging service by a deadline that is earlier than the SEC's).