NEW YORK, Aug. 6, 2002 — Investors in publicly traded companies need better information on those companies and more of it. That point is driven home forcefully by recent financial scandals. But even without scandals, the fact remains that less than one-third of the 10,000 Nasdaq-listed companies have Wall Street analyst coverage, because getting and analyzing financial data remains expensive and difficult. And it’s not only the investors who suffer — without the fuller, freer flow of information, the companies themselves cannot maximize their ability to raise capital and the economy overall suffers if capital allocations are based on partial or erroneous data.
Alfred R. Berkeley III, vice chairman, Nasdaq
To address these concerns, the Nasdaq stock market, Microsoft and PricewaterhouseCoopers today announced that they have joined together in an innovative project, based on XBRL — a freely available, XML-based electronic language for financial reporting — and on Microsoft Office, to demonstrate how a new standard language for financial reporting can assist companies and investors by streamlining the flow of information and providing a better way for them to analyze and use that information.
The pilot project is the latest milestone in the growing momentum around XBRL, which stands for Extensible Business Reporting Language. XBRL provides the financial community with a standards-based way to work with financial statements of publicly held companies and the information they contain — including preparing and publishing statements and their data in a variety of formats, reliably extracting that data, and automatically exchanging data and financial statements. XBRL isn’t a new accounting standard — it only uses the digital language of business to enhance the usability of current standards. And it doesn’t require additional disclosure from companies to outside audiences.
To learn more about this unique partnership and its significance, PressPass spoke with two executives largely responsible for it: Microsoft Senior Vice President and Chief Financial Officer John Connors and Nasdaq Vice Chairman, Alfred R. Berkeley III.
Connors is responsible for Microsoft’s information technology organization and manufacturing/licensing operations, in addition to business operations including finance, investor relations, administration and real estate. Berkeley was appointed vice chairman of Nasdaq in 2000, after serving as its president since 1996. His Nasdaq positions cap a 30-year career in the world of finance, mostly at the prestigious firm of Alex, Brown & Sons.
PressPass: You’ve expressed concern about the lack of access to publicly available financial information. It seems like there’s a ton of data out there. What’s the problem?
Berkeley: The abundance of data is part of the problem — there’s too much to be accessed, analyzed and used effectively. Investors have been left to their own devices to analyze corporate results for all but the relatively small share of companies that receive analyst coverage. The translation between the method a company reports information and the method used by investors to analyze corporate results is a hand-tinkered and labor-intensive one. It is the least standardized, least-automated link in the value chain of capital markets.
It’s true that corporate results are now available online, but even when the investor receives corporate results at the speed of light, there’s a time-consuming, intellect-intensive process of converting data in the company report into data in the investor’s spreadsheet. With all that time spent on transposing data from standalone formats to comparative formats, investors — particularly small investors — have little time left for comparative analysis.
Connors: As a company with perhaps the largest and most involved shareholder base in the world, we at Microsoft see the issue both from our perspective and from the perspective of our shareholders. There’s no lack of analysts covering Microsoft, of course — but our analysts and investors still have to review scores of pages in our financial statements and re-enter financial information into whatever system they’re using, adding to the time and expense of analysis, and putting that information and its analysis beyond the reach of many individuals.
We also have to manually re-enter data throughout the process of making corporate and financial information available in both printed and online form to a variety of audiences – government agencies, the financial community, media and the public, and so on – and that adds to the cost as we labor to ensure the integrity and quality of that data. That’s why we’re so interested in XBRL.
PressPass: How will XBRL address the problems you’ve been talking about?
Berkeley: In two key ways: by making it easier for companies to make their financial information available, and by making it easier for everyone — the companies themselves, the government, analysts and investors — to use that information. The pilot project we’re doing with Microsoft and PriceWaterhouseCoopers demonstrates both of these benefits.
In the first instance, information produced once in XBRL can automatically populate the various types of financial statements, media and analytic tools we’ve been talking about. In the second instance, computer programs — again, this can be an analysis tool, a reporting form, or even a Web browser — can easily extract every piece of information in an XBRL statement. Today, a computer program can’t be asked to “get the total revenues for 2001” from a financial statement. It doesn’t know where to look, it doesn’t know if the number is supposed to be in dollars, cents or pounds.
By eliminating these problems, XBRL will promote the democratization of financial data — making it equally available to everyone. Instead of people spending, say, 10 hours to re-key data and one hour to analyze it, they can spend five minutes getting the data ready and spend one, two, three or more hours to analyze it, as they prefer, and get more and better analysis in less time than it took before.
PressPass: Tell us more about this project you’re announcing today to promote XBRL. What, exactly, are your companies and PriceWaterhouseCoopers getting together to do?
Berkeley: We’re announcing a pilot project to demonstrate the value of XBRL, to show the world a vision of how new technology — XML Web Services — can work with existing software — Microsoft Office, for example — to make existing financial data easier to disseminate and to use. The pilot includes the financial statements, including footnotes — specifically the annual 10Ks and quarterly 10Qs — of Microsoft and 20 publicly held semiconductor companies listed on the Nasdaq.
PriceWaterhouseCoopers, an accounting industry leader, is converting the data to XBRL format. We at Nasdaq identified the companies and are hosting the data on a Microsoft SQL Server 2000 database that is accessible through our Web site. Microsoft has created a small application, in the form of a freely downloadable Excel workbook for Microsoft Office, that enables any interested individual or organization to easily access and analyze the data. It’s a great partnership.
PressPass: How can people take advantage of this project and try out XBRL for themselves?
Connors: Anyone can download the Excel workbook from the Nasdaq or Microsoft Web sites. Users can then request any available data on any of the companies in the pilot, which comes in the form of an XML-based Web service that is “consumed” by the Excel workbook. All this is transparent to users, of course. They just request data and see it appear in Excel. Users can select any of the default analyses to run automatically on the data, or they can configure their own analyses. Excel becomes a type of digital sandbox in which they can work with this financial information any way they want. It’s a great example of how Office extends beyond the traditional usage scenarios and — with the introduction of XML Web services — becomes a smart client that transforms the desktop into a gateway for accessing and absorbing real time information.
PressPass: Most people may think of Microsoft Office as a set of applications. This idea that it’s also a smart client for XML- Web services is something new, isn’t it?
Connors: Yes, it’s relatively new, but it’s real and it’s something that people can experience today. As part of showing people how easy it is to work with XBRL data, the pilot shows that virtually everyone already has the existing software — Microsoft Office — that can function as a smart client or front end, quickly and easily linking users to the information they need via the familiar Office interface.
Berkeley: We really want to drive the adoption of XBRL to all Nasdaq companies because we want everyone to enjoy the benefits we’ve been talking about. One of the great selling points of this solution is that here’s a revolutionary idea that functions with the software that people already have and know – and that is the same environment in which people are already making decisions about this data.
Connors: I should add that it’s not just Excel that can take advantage of XBRL. Almost everyone who uses Excel for financial analysis also uses Word for financial reports and PowerPoint for financial presentations. People can also take advantage of XBRL within these other Office applications. Our Office XP Web Services Toolkit makes this possible.
PressPass: Is this Microsoft’s first experience using XBRL?
Connors: Not at all. Because of that large and active shareholder base I mentioned before, we’ve worked to become the corporate leader in XBRL. Microsoft is a charter member of the XBRL Consortium, an international consortium of more than 140 of the world’s largest accounting, technology, government and financial services bodies, devoted to developing and promoting the adoption of XBRL.
We already have 10 statements in XBRL on our Web site, more than any other company. We’ve also included XBRL in our product strategy so that everyone can take advantage of it. We support XBRL in Microsoft Great Plains accounting software, and we’re looking at incorporating it directly into future versions of our other products.
Also, we’re putting more and more of our own financial statements into XBRL. Just last month, we released our quarterly earnings statement in both traditional and XBRL formats — the first time that we’ve made the XBRL version available at the same time as the traditional statement.
PressPass: If someone wants to take advantage of XBRL, what should they do?
Connors: Now is a great time to dive right in, because the XBRL specification is real and available today. They can go to the XBRL web site to get more information about XBRL. They can go to the Microsoft or Nasdaq Web sites to get more information or to download the Excel workbook, and begin working with actual XBRL data in this pilot. They should ask their providers of their financial services and accounting software if those packages support XBRL. They should consider adopting XBRL for their companies’ own financial reporting and management. XBRL could be a real change agent for how companies work with and share their financial data.
Berkeley: XBRL can make the entire process of using and sharing financial information much better – faster, easier, fuller and more democratic — for companies and everyone with whom they communicate. This isn’t just for the largest global companies. This is something we want to see every Nasdaq company adopt, because it’s a way to leverage the Internet as a platform for corporate reporting. But frankly, this isn’t even just for Nasdaq companies — it’s appropriate for virtually every company, including those that hope to join Nasdaq one day.