REDMOND, Wash., Oct. 10, 2005 – Less than a decade ago, many businesses and organizations faced a growing challenge: How to share information created in different data formats among disparate IT systems. Since its introduction in the late 1990s, Extensible Markup Language (XML) has gone a long way to solving these challenges, providing a standardized, yet flexible way to create common information and share both the format and the data online.
Now, Extensible Business Reporting Language (XBRL), an information-reporting standard built on XML, is helping reduce the time and other resources that companies must invest to create and submit financial reports. One of the earliest backers of XBRL, Microsoft extended its support for the standard last month when it became the first company to submit its annual 10-K report to the U.S. Securities and Exchange Commission (SEC) in XBRL.
PressPass spoke with Scott Di Valerio, Microsoft’s corporate vice president, Finance and Administration and Chief Accounting Officer, to learn more about XBRL and how Microsoft is helping to support the standard.
PressPass: Why is XBRL needed?
Scott Di Valerio, Microsoft Corporate Vice President, Finance and Administration and Chief Accounting Officer
Di Valerio: Large companies invest endless staff hours and other resources analyzing and reporting their financial statements. In fact, preparing for quarterly statements commonly consumes a majority of the finance staff’s time at publicly traded companies in the weeks prior to quarterly statements. Equity analysts also spend up to one-third of their time entering data into spreadsheet models and verifying that data for accuracy.
Reporting takes so much time because the data needed to produce these statements is locked in different documents that have been created and stored in different ways and on different IT systems. To reuse this information, companies have had to manually re-enter, copy and, sometimes, even recalculate it.
XBRL works much like a system of standardized barcodes for financial and business reporting. It allows computers to automatically track and roll up information used to manage and communicate a company’s performance. XBRL builds on accounting standards, such as U.S. GAAP or International Financial Reporting Standard (IFRS) using XML to create the barcode catalog – the comprehensive list of items – found in financial statements and reports.
PressPass: How does Microsoft contribute to the standard?
Di Valerio:Microsoft is one of more than 350 member organizations from the accounting profession, advisory firms, industry and IT that have worked together to develop this standard. In addition to being a charter member of the XBRL International standards consortium, we now sit on the consortium’s executive and international steering committees, and serve as chair of the Solutions Working Group focused on market collaboration and enablement.
The consortium is focused on XBRL being adopted as a global standard, and ensuring the taxonomies available to customize XBRL reporting meet the needs of different industries.
PressPass: How committed is Microsoft to XBRL?
Di Valerio: Very committed. Microsoft began submitting its quarterly Form 10-Q reports in XBRL when the SEC began accepting filings in the new format earlier this year. Last month, we became the first company to submit its annual Form 10-K report to the SEC in XBRL for the year ending June 30, 2005.
Microsoft is one of only a handful of companies – nine to be exact – enrolled in the SEC Voluntary Filing Program. We are investing our time to communicate the experience of the preparer and the technology learning curve to software companies and the consortium. The XBRL-conversion process is still relatively new.
The industry is learning how to make it easier to prepare reports in XBRL, as well as how to integrate it more deeply into the business processes of companies. Microsoft is committed to collaborating and sharing our experiences to help advance this standard.
PressPass: What kind of information is in these reports?
Di Valerio: Our recent annual report was based on version 2.1 of the XBRL specification and the U.S. GAAP Commercial and Industrial taxonomy, the standard catalog of accounting concepts. In addition to financial statements, the report contains the notes and the management discussion and analysis (MD&A) that provide valuable context for investors and others who study financial reports.
PressPass: Why does Microsoft convert its Forms 10-Q and 10-K into XBRL?
Di Valerio: The current business environment demands all companies – public and private – to operate with strong internal controls, integrity and financial transparency. The Sarbanes-Oxley legislation has forever changed how we think and act as managers; requirements around compliance are a priority for all companies. AMR Research estimates that companies will spend US$15.5 billion in 2005 and total $80 billion over the next five years on compliance activities. We believe that XBRL is a key component in this ongoing effort by companies to become more transparent.
We have taken these first steps to work in close collaboration with the XBRL consortium and industry to make sure that the standard is a great solution for all companies. We also want to demonstrate transparency because investors need better access to our financial results. Like the barcode system in stores, XBRL makes it much easier and less time consuming to analyze information. The easier it gets for companies to automatically manage and report finance and accounting information, the better their disclosures will be.
We also support the Enhanced Business Reporting Consortium, an independent, market-driven initiative that will improve the quality, integrity and transparency of information used in decision-making.
PressPass: Why is this standard important to Microsoft?
Di Valerio: When I meet with finance leadership of our customers and other companies, I’m struck by the similarity of the business challenges we face. We are all trying to improve our financial reporting processes – everything from closing the books to getting information back to management in a timely manner – so that we can make better decisions. We are also trying to gain efficiencies and strengthen controls by eliminating the manual processes that can lead to costly errors. How costly? A large lending institution disclosed a $1.2 billion restatement error based on manual computation of data.
XBRL is another way that technology can enable automation and efficiency, and strengthen internal controls. We are an active supporter of XBRL because we recognize its potential to help solve common business issues.
PressPass: How flexible is XBRL to the reporting needs of different industries? Do companies need to customize XBRL taxonomies?
Di Valerio: Different companies and industries have different ways of managing and communicating performance. We are strongly encouraging early adopters of the standard to help expand the list of concepts and terms included in the XBRL taxonomy. As this taxonomy grows, there will be less need for extensions and customization. For this same reason, we encourage other public companies to join us in the SEC Voluntary Filing Program.
We believe the Enhanced Business Reporting Consortium will help evolve the concepts in the MD&A. XBRL International collaborates with the EBRC so that the technology standard enables the improvements in business reporting content.
PressPass: What else is Microsoft doing to encourage participation in the SEC program?
Di Valerio: In addition to sharing our learning with XBRL International and the industry, we regularly meet one-on-one with other companies to talk about our experiences. We also provide feedback to vendors, and we work with other organizations to raise awareness. Recently, we spoke with the customers of a financial publishing firm to talk about XBRL. We are currently working closely with Finance Executives International, an organization for finance leaders, and their Committee for Finance and Information Technology (CFIT) to create awareness through a seminar series. We hope to share more about this soon.