XBRL & FEIXBRL & FEIWhat, Why and HowWhat, Why and How

Colleen Sayther-CunninghamColleen Sayther-CunninghamPresident and CEOPresident and CEOFinancial Executives InternationalFinancial Executives International

Who Is FEI?Who Is FEI?• The The professional associationprofessional association of choice for of choice for

senior-level corporate financial executivessenior-level corporate financial executives Over Over 15,00015,000 members from companies both public and members from companies both public and

private, crossing all industry sectors private, crossing all industry sectors CFOs, VPs of Finance, Controllers, Treasurers and Tax CFOs, VPs of Finance, Controllers, Treasurers and Tax

ExecutivesExecutives

• The The definitive voicedefinitive voice of corporate finance of corporate finance Advocating for the interests of our members before the SEC, Advocating for the interests of our members before the SEC,

FASB, IASB, PCAOB and CongressFASB, IASB, PCAOB and Congress

• A member-service-oriented organizationA member-service-oriented organization Dedicated to the professional development of our membersDedicated to the professional development of our members Peer networking, information, career planning, conferences, Peer networking, information, career planning, conferences,

publications, researchpublications, research

FEI’s MissionFEI’s Mission• To be the preeminent professional association of To be the preeminent professional association of

choice for the corporate financial executive by:choice for the corporate financial executive by:

NETWORKING: Providing forums for peer networking NETWORKING: Providing forums for peer networking

KNOWLEDGE: Alerting members to emerging issues KNOWLEDGE: Alerting members to emerging issues

ADVOCACY: Advocating the views of financial executivesADVOCACY: Advocating the views of financial executives

ETHICAL LEADERSHIP: Promoting ethical conductETHICAL LEADERSHIP: Promoting ethical conduct

Financial Executives Research Financial Executives Research Foundation (FERF)Foundation (FERF)

• Independent non-profit research affiliate of FEI that Independent non-profit research affiliate of FEI that offers in-depth objective research on relevant topicsoffers in-depth objective research on relevant topics

• Research publications and alertsResearch publications and alerts• Ask the ResearcherAsk the Researcher• Interactive Forum from peers (FELIX)Interactive Forum from peers (FELIX)• Distance learning with FERFProsDistance learning with FERFPros• Supported by voluntary, tax-deductible Supported by voluntary, tax-deductible

contributions and subscriptions from corporations, contributions and subscriptions from corporations, FEI chapters and individualsFEI chapters and individuals

FEI MembershipFEI Membership

• FEI’s membership includes some of the FEI’s membership includes some of the leading CFOs in corporate finance.leading CFOs in corporate finance. Kerrii AndersonKerrii Anderson Wendy’s InternationalWendy’s International Susan DeckerSusan Decker Yahoo!Yahoo! Gary FayardGary Fayard Coca-Cola CompanyCoca-Cola Company Robert Lumpkins Robert Lumpkins Cargill, Inc.Cargill, Inc. Pedro Reinhard Pedro Reinhard Dow ChemicalDow Chemical Jim SchneiderJim Schneider Dell ComputerDell Computer Tom SchoeweTom Schoewe Wal-Mart StoresWal-Mart Stores David SidwellDavid Sidwell Morgan StanleyMorgan Stanley

N=9995

F1000F1000

F100F100

NYSENYSE(n=2,742)(n=2,742)

NASDAQNASDAQ(n=3,300)(n=3,300)

At least one At least one membermember

702702 8989 1,0051,005 714714

CFOsCFOs 421421 5757 603603 505505

ControllersControllers 322322 5252 400400 187187

FEI MembershipFEI MembershipPublicly Traded CompaniesPublicly Traded Companies

N=9470

5%

44%

51%

0% 20% 40% 60% 80% 100%

Not-for-profit

Private

Public

FEI MembershipFEI MembershipOwnershipOwnership

FEI NationalFEI National Technical CommitteesTechnical Committees

• Benefits Finance (CBF)Benefits Finance (CBF)

• Corporate Finance (CCF)Corporate Finance (CCF)

• Corporate Reporting (CCR)Corporate Reporting (CCR)

• Finance & Information Technology (CFIT)Finance & Information Technology (CFIT)

• Government Business (CGB)Government Business (CGB)

• Private Companies (CPC)Private Companies (CPC)

• Taxation (COT)Taxation (COT)

Transformation of Financial Transformation of Financial ReportingReporting

• Verge of a fundamental transformation of Verge of a fundamental transformation of financial reporting practicesfinancial reporting practices

• Trend towards transparency driven by Trend towards transparency driven by increased public scrutiny, increased increased public scrutiny, increased regulatory oversight and the emergence of regulatory oversight and the emergence of new technologynew technology

• Driving a need for new standards for Driving a need for new standards for information integrity, reporting transparency information integrity, reporting transparency and system integrationand system integration

What is XBRL?What is XBRL?

• Non-techie’s point of viewNon-techie’s point of view– eXtensible Business Reporting LanguageeXtensible Business Reporting Language– An open global electronic standard for defining An open global electronic standard for defining

financial terms consistently allowing for the financial terms consistently allowing for the exchange and dissemination of corporate reporting exchange and dissemination of corporate reporting informationinformation

– Each piece of data is assigned a unique, Each piece of data is assigned a unique, predefined data tag (like a barcode) identifying the predefined data tag (like a barcode) identifying the information’s content and structureinformation’s content and structure

What is XBRL?What is XBRL?

– Through tagging of data, XBRL will enable Through tagging of data, XBRL will enable • Streamlining of financial reporting processesStreamlining of financial reporting processes• Enhanced analysis of financial reportsEnhanced analysis of financial reports• Can facilitate the acquistion and integration of related Can facilitate the acquistion and integration of related

financial information within a company’s financial reportsfinancial information within a company’s financial reports• Communication of financial performance more effectively Communication of financial performance more effectively

to analysts and investorsto analysts and investors

– Tags give data an identity and context that can be Tags give data an identity and context that can be understood by various software applications that understood by various software applications that allow the data to interface with databases, financial allow the data to interface with databases, financial reporting systems and spreadsheetsreporting systems and spreadsheets

What is XBRL?What is XBRL?

• TaxonomiesTaxonomies– A Standard description and classification system A Standard description and classification system

for business reporting and financial datafor business reporting and financial data– Tags consist of specific financial data (eg, line Tags consist of specific financial data (eg, line

items in financial statements) and words or labels items in financial statements) and words or labels (eg, headers in the notes to financial statements)(eg, headers in the notes to financial statements)

– Taxonomy may, therefore, include a tag for the Taxonomy may, therefore, include a tag for the balance sheet line item “inventory” as well as tags balance sheet line item “inventory” as well as tags for components (“raw materials”, etc.) disclosed in for components (“raw materials”, etc.) disclosed in the notesthe notes

What XBRL is notWhat XBRL is not

• NOT a set of accounting standardsNOT a set of accounting standards

• NOT a detailed chart of accountsNOT a detailed chart of accounts

• NOT a GAAP translatorNOT a GAAP translator

Who is interested in XBRL?Who is interested in XBRL?

• Preparers – Financial ExecutivesPreparers – Financial Executives

• Standard settersStandard setters

• RegulatorsRegulators

• UsersUsers

Financial ExecutivesFinancial Executives

• Have a critical responsibility to communicate Have a critical responsibility to communicate operational results to stakeholdersoperational results to stakeholders

• Growing demand for efficient delivery in an Growing demand for efficient delivery in an interactive mediuminteractive medium

• Better decision makingBetter decision making• Internal control environment enhanced Internal control environment enhanced

through less retyping, more system through less retyping, more system integration, etc.integration, etc.

Standard SettersStandard Setters

FASB established an XBRL fellow position in 2003FASB established an XBRL fellow position in 2003FASB created the XBRL fellowship to investigate FASB created the XBRL fellowship to investigate

ways XBRL and related technologies can be used ways XBRL and related technologies can be used to improve corporate financial reporting and to to improve corporate financial reporting and to develop policy recommendations on XBRL's role in develop policy recommendations on XBRL's role in FASB's standards-setting activities. FASB's standards-setting activities.

IASB also a supporter of XBRL – in fact, it seems to IASB also a supporter of XBRL – in fact, it seems to be getting more traction internationallybe getting more traction internationally

RegulatorsRegulators

• SEC announced in July 2004 an SEC announced in July 2004 an initiative to assess the benefits of initiative to assess the benefits of tagged data and its potential for tagged data and its potential for improving the timeliness, accuracy and improving the timeliness, accuracy and analysisanalysis

UsersUsers

• Reduces research costsReduces research costs

• Enables improved modeling and Enables improved modeling and comparisoncomparison

SEC Voluntary XBRL ProposalSEC Voluntary XBRL Proposal

• 2 documents issued Monday (9/27/04)2 documents issued Monday (9/27/04)

• Proposed Rule that would establish Proposed Rule that would establish Voluntary XBRL reportingVoluntary XBRL reporting

• Concept Release on XBRLConcept Release on XBRL

SEC Proposed Rule – Voluntary SEC Proposed Rule – Voluntary ReportingReporting

• Establish a voluntary program allowing Establish a voluntary program allowing registrants to file supplemental financial registrants to file supplemental financial information using XBRLinformation using XBRL

• Filed via an exhibit to specified SEC filingsFiled via an exhibit to specified SEC filings• Would begin with 2004 calendar year-end Would begin with 2004 calendar year-end

reportingreporting• Comment deadline is 30 days after publication Comment deadline is 30 days after publication

in Federal Registerin Federal Register

SEC Proposed Rule – Voluntary SEC Proposed Rule – Voluntary ReportingReporting

• SEC would like to study:SEC would like to study:– Search capability of EDGAR databaseSearch capability of EDGAR database– Capability to perform financial comparisons Capability to perform financial comparisons

amongst registrantsamongst registrants– Ability to perform financial analysis (ratios, etc.)Ability to perform financial analysis (ratios, etc.)– Impact on staff’s ability to review filings more timely Impact on staff’s ability to review filings more timely

and efficientlyand efficiently– Use of tagged data for risk assessmentUse of tagged data for risk assessment– Compatibility of XBRL with other Commission Compatibility of XBRL with other Commission

requirementsrequirements

SEC Concept Release on XBRLSEC Concept Release on XBRL

• Seeking public comment on:Seeking public comment on:– Benefits of tagging data to improve reporting Benefits of tagging data to improve reporting

quality and efficiencyquality and efficiency– Implications of tagging data for filers, investors, Implications of tagging data for filers, investors,

the Commission and other market participantsthe Commission and other market participants– Adequacy and efficacy of XBRL as a format for Adequacy and efficacy of XBRL as a format for

reporting financial informationreporting financial information– Comment deadline is 45 days after publication in Comment deadline is 45 days after publication in

Federal RegisterFederal Register

SEC Concept Release on XBRLSEC Concept Release on XBRL

• Essential Elements of Data TaggingEssential Elements of Data Tagging– Technology to administer the tagsTechnology to administer the tags– Standard definitions to describe the tagesStandard definitions to describe the tages– A means of presenting and analyzing the A means of presenting and analyzing the

tagged data – software, etc.tagged data – software, etc.

[Release Nos. 33-8496, 34-50453, 35-27894, 39-2498, IC-26622; File Number S7-35-04]

XBRL VOLUNTARY FINANCIAL REPORTING PROGRAM ON THE EDGAR SYSTEM

AGENCY:   Securities and Exchange Commission.

ACTION:   Proposed rule.

SUMMARY:   We are proposing rule amendments to enable registrants to submit voluntarily supplemental tagged financial information using the eXtensible Business Reporting Language (XBRL) format as exhibits to specified EDGAR filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940. Registrants choosing to participate in the voluntary program, expected to begin in early 2005, also would continue to file their financial information in HTML or ASCII format, as currently required. The voluntary program is intended to help us evaluate the usefulness of data tagging in general, and XBRL in particular, to registrants, investors, the Commission and the marketplace generally. A companion concept release also being issued today provides additional information on tagged data and solicits comment on the development of data tagging.

BACKGROUND:  All registrants who file with the Commission are now generally required to file electronically on the Commission's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR")……

As discussed in the accompanying concept release, we are evaluating whether tagged data in Commission filings would provide a better means to provide and obtain necessary information and, if so, whether we should permit or require XBRL tagged data in Commission filings.22 The Division of Corporation Finance, Office of the Chief Accountant, Division of Investment Management, and Office of Information Technology have formed a task force to assess the implications of tagged data for filers, investors, the Commission and other market participants.23 In order to test and evaluate data tagging, we propose to allow registrants to supplement their Commission filings by furnishing financial data on EDGAR as an exhibit using eXtensible Business Reporting Language ("XBRL"), beginning with the 2004 calendar year-end reporting season. We currently expect to permit participation by any registrant without pre-approval merely by submitting the exhibit in the required manner.

… “we are evaluating whether tagged data in Commission filings would provide a better means to provide and obtain necessary information and, if so, whether we should permit or require XBRL tagged data in Commission filings”.…

XBRL: Cheaper, Better, Faster XBRL: Cheaper, Better, Faster

• Reduces the cost of preparing, publishing and Reduces the cost of preparing, publishing and analyzing information (CHEAPER)analyzing information (CHEAPER)

• Increases efficiency of business decisions, real-Increases efficiency of business decisions, real-time reporting, deeper analysis capability, reduces time reporting, deeper analysis capability, reduces margin for human error, more accessible and margin for human error, more accessible and easier to use, enhances comparability (BETTER)easier to use, enhances comparability (BETTER)

• Automates the migration of information from Automates the migration of information from systems to financial statements, increases the systems to financial statements, increases the speed of data use and related decisions, easier to speed of data use and related decisions, easier to transfer data (FASTER)transfer data (FASTER)

Key issues inKey issues in Business & Finance Business & Finance

Current Issues impacting Current Issues impacting financial reportingfinancial reporting

• TransparencyTransparency• Timeliness of reportingTimeliness of reporting• Section 404/Internal controlsSection 404/Internal controls• Fair value accountingFair value accounting• ConvergenceConvergence• Principles-based accounting standard Principles-based accounting standard

settingsetting

How linked to XBRL initiative?How linked to XBRL initiative?

• Move towards transparencyMove towards transparency– If items were tagged and identified more information If items were tagged and identified more information

could be made available for investors and analysts to could be made available for investors and analysts to analyze in the manner that chose to do soanalyze in the manner that chose to do so• Enhances information acquisition, evaluation and Enhances information acquisition, evaluation and

combinationcombination

– Improves transparency without additional Improves transparency without additional disclosuresdisclosures

– Newfound discovery capabilitiesNewfound discovery capabilities– Can benefit nonprofessional users Can benefit nonprofessional users

““The annual report of the 21The annual report of the 21stst century will not be annual and century will not be annual and it will not be a report: it will be it will not be a report: it will be

an up to date, informative an up to date, informative dialogue”dialogue”

- Alan Benjamin in the - Alan Benjamin in the 2121stst Century Annual Report (2000)Century Annual Report (2000)

How linked to XBRL initiative?How linked to XBRL initiative?

• TimelinessTimeliness– Capital markets rely on timely and reliable Capital markets rely on timely and reliable

information for the allocation of capital information for the allocation of capital resourcesresources

– Access information more quicklyAccess information more quickly– Faster processingFaster processing– Accelerated filing deadlines can be easier Accelerated filing deadlines can be easier

to accomplishto accomplish

How linked to XBRL?How linked to XBRL?

• Section 404/internal controlsSection 404/internal controls– A reporting format such as XBRL could enable A reporting format such as XBRL could enable

easier documentation of internal controls – less easier documentation of internal controls – less manual intervention and massagingmanual intervention and massaging

– Can enable the integration of disparate systems to Can enable the integration of disparate systems to optimize the internal control processoptimize the internal control process

– Can be a critical tool for enabling compliance with Can be a critical tool for enabling compliance with 404 – monitoring can occur real time404 – monitoring can occur real time

How linked to XBRL?How linked to XBRL?

• Fair value accountingFair value accounting– A lot of concern regarding the reliability A lot of concern regarding the reliability

(verfiability) of determining appropriate fair (verfiability) of determining appropriate fair value – if assumption disclosures were value – if assumption disclosures were tagged – management’s choices would be tagged – management’s choices would be more transparent to users and easily more transparent to users and easily compared with otherscompared with others

How linked to XBRL?How linked to XBRL?

• ConvergenceConvergence– May be less important in an XBRL May be less important in an XBRL

environment. Could adapt to country environment. Could adapt to country reporting regimes much more easily.reporting regimes much more easily.

– Comparability is enhanced Comparability is enhanced – Complimentary toward objective of a single Complimentary toward objective of a single

set of high quality, understandable and set of high quality, understandable and enforceable global accounting standards enforceable global accounting standards

How linked to XBRL?How linked to XBRL?

• Principles-based accounting standardsPrinciples-based accounting standards– If information is tagged – much easier to determine If information is tagged – much easier to determine

judgments made by management – analysts could judgments made by management – analysts could easily adjust for their own analysiseasily adjust for their own analysis

– Comparability is enhanced across companies – Comparability is enhanced across companies – makes management’s financial reporting choices makes management’s financial reporting choices more transparent – search faciliting technologymore transparent – search faciliting technology

Now is the time for usNow is the time for us to fundamentally enhance to fundamentally enhance

Business Reporting using XBRL Business Reporting using XBRL

XBRL benefits all members of XBRL benefits all members of the financial information the financial information

supply chain.supply chain.

What needs to change?What needs to change?

• Manual processes for moving business information through to Manual processes for moving business information through to reportingreporting

• Need for greater accuracy, efficiency and timelinessNeed for greater accuracy, efficiency and timeliness

• Lack of focus on reusability of external reporting Lack of focus on reusability of external reporting

• Deeper analysis hinderedDeeper analysis hindered

• Transparency is only as good as the content (information) Transparency is only as good as the content (information) providedprovided

• Opacity level remains highOpacity level remains high

• Uninformed decisions are the status quoUninformed decisions are the status quo

We all need to change…for the better of We all need to change…for the better of the capital marketsthe capital markets

ERPERP

Mgmt ReportsMgmt Reports

InvestorsInvestorsBanksBanksSECSECIRSIRS

ERPERPCRMCRM

ReportingReporting

InternalInternalControlControlDocsDocs

External ReportsExternal Reports

SuppliersSuppliersXML &XML &Web ServicesWeb Services

ConsolidationConsolidation

• Common structure• Auditable trail• Keys to financial & business information

• Information service providers• Industry-based supply chain (XML + XBRL)

XBRLXBRL

XBRLXBRL

Back Office Integrated with XBRL

Financial statement consumers

• Internal control system ‘glue’• Accounts• Policies• Issues Mgmt• …• Real-time auditing• Monitoring

Common Common StandardStandard

Achieving standards & regulatory complianceAchieving standards & regulatory compliance

Internal ConsiderationsInternal Considerations Awareness and implementations of XBRL is limited, but Awareness and implementations of XBRL is limited, but

growinggrowing

Confusion over XBRL as an internal and/or external Confusion over XBRL as an internal and/or external reporting solutionreporting solution

Enabled software – many vendors have enabled software, Enabled software – many vendors have enabled software, but others are in developmentbut others are in development

Implementing will impact the internal business rules Implementing will impact the internal business rules governing data and the people who use/process itgoverning data and the people who use/process it

Existing business process will have to be re-examined as Existing business process will have to be re-examined as part of implementation for efficiencies and risk part of implementation for efficiencies and risk considerationsconsiderations

Managing and maintaining XBRL taxonomies for Managing and maintaining XBRL taxonomies for internal/external reporting will require an ongoing effortinternal/external reporting will require an ongoing effort

External ConsiderationsExternal Considerations• Approach to collaboration Approach to collaboration

• Information requirements (vs. Forms approach to date)Information requirements (vs. Forms approach to date)

• Structured filingsStructured filings

• Common vocabularies (taxonomies)Common vocabularies (taxonomies) Development strategy (collaborative)Development strategy (collaborative) Extensions, tools, archivingExtensions, tools, archiving

• Diverse e-filing methods Diverse e-filing methods

• Crisp transitionsCrisp transitions

• CommunicationsCommunications

• Other - Legal record; signatures; security; etc.Other - Legal record; signatures; security; etc.

• Increased disclosure and transparency requirementsIncreased disclosure and transparency requirements

Need for programmable, efficient and reliable processing – Need for programmable, efficient and reliable processing – not manualnot manual

Companies & auditors seek solutions that automate Companies & auditors seek solutions that automate andand reduce the cost of compliance & reportingreduce the cost of compliance & reporting

Industry expects effective throughput that improves Industry expects effective throughput that improves analysis & comprehension of company financial statementsanalysis & comprehension of company financial statements

Regulators need similar efficiencies to better understand Regulators need similar efficiencies to better understand disclosures, compliance and “results”disclosures, compliance and “results”

We are at the turning point!We are at the turning point!

• Key enablers: Standards, technology & connectivityKey enablers: Standards, technology & connectivity XBRL embodies both accounting and technology standard: XBRL embodies both accounting and technology standard:

US Financial Reporting TaxonomyUS Financial Reporting Taxonomy

SEC concept release builds momentum for XBRL adoptionSEC concept release builds momentum for XBRL adoption

Software vendors will soon deliver XBRL-enabled Software vendors will soon deliver XBRL-enabled applicationsapplications

Service providers are converting historical financials into Service providers are converting historical financials into XBRL storesXBRL stores

XML and other technologies are ubiquitousXML and other technologies are ubiquitous

Widely available inexpensive connectivityWidely available inexpensive connectivity

We are at the turning point!We are at the turning point!

A Call to ActionA Call to Action• SEC ProgramSEC Program

Identify participation candidatesIdentify participation candidates Work with FEI CCR & CFIT Committees to determine positions, tagging Work with FEI CCR & CFIT Committees to determine positions, tagging

requirements and filing methodology (create sub bullets w/specific committees)requirements and filing methodology (create sub bullets w/specific committees) Establish a coordinated project plan, identify participant companies, coordinate Establish a coordinated project plan, identify participant companies, coordinate

resources and communicate progressresources and communicate progress

• Market AdoptionMarket Adoption Evolve the business cases for companies to improve their reporting supply Evolve the business cases for companies to improve their reporting supply

chain with XBRLchain with XBRL Establish a technical sub-committee within XBRL to drive market enablement Establish a technical sub-committee within XBRL to drive market enablement Evolve MD&A taxonomy to reflect “Interpretive Guidance” that will address Evolve MD&A taxonomy to reflect “Interpretive Guidance” that will address

SEC issuesSEC issues

• Corporate Reporting StandardsCorporate Reporting Standards Leading the discussion on who is responsible for corporate reporting Leading the discussion on who is responsible for corporate reporting

standardsstandards Create a methodology to update standards & policiesCreate a methodology to update standards & policies

Questions?Questions?