REDMOND, Wash., Feb. 9, 2007 – In September 2006, the U.S. Securities and Exchange Commission (SEC) announced an award of three separate contracts totaling US$54 million to transform the agency’s 1980s-vintage public-company filing system, known as EDGAR, from a form-based electronic filing cabinet to a dynamic, real-time search tool with interactive-data capabilities, using Extensible Business Reporting Language (XBRL).
Frank Brod, Corporate Vice President, Microsoft Finance & Administration and Chief Accounting Officer
XBRL – an information-reporting standard built on XML – has since its introduction in the late 1990s steadily been adopted by stock exchanges, tax authorities, and banking and securities regulators. Microsoft, an early adopter of the technology, has submitted SEC Forms 10-Q and 10-K (comprehensive summary reports of a company’s performance that must be submitted quarterly and yearly) in XBRL since the beginning of the agency’s Volunteer Filing Program in April 2005. This past December, at the XBRL International conference in Philadelphia, Michael Ohata, a senior director in Microsoft Finance and Administration, was appointed chair of the XBRL International Steering Committee.
PressPass spoke with Frank Brod, Microsoft’s corporate vice president, Finance and Administration, and chief accounting officer, to hear Microsoft’s views on the growing support for the XBRL standard and what the company is doing to champion its adoption.
PressPass: What is “interactive data?”
Frank Brod: Interactive data, a phrase coined by SEC Chairman Christopher Cox, represents an approach to collecting, storing and consuming financial information that is fully based on databases and XML – Extensible Markup Language, an Internet technology. The term specifically refers to XBRL. Our vision is that investors and analysts will in the future be able to search real-time not only SEC forms, but also the information within them by immediately downloading it into applications software, even to one’s desktop.
PressPass: What does Microsoft think about the SEC strides in adopting XBRL?
Brod: Microsoft is supportive of Chairman Cox and his efforts to integrate “interactive data,” or XBRL, into financial reporting. We believe there is a lot of potential through XBRL-enabled software once it becomes the standard, and the development of the XBRL code for U.S. GAAP [Generally Accepted Accounting Principles, common standards and procedures that companies use to compile their financial statements] that will enable broad adoption in the U.S. With the specification in place now, there is a lot of energy in this early stage of deployment, and there are many technology and assurance-related issues that will need to be addressed. Microsoft as a finance and technology leader is active in supporting multiple efforts through its collaborative involvement in trade organizations, advisory councils and standards boards.
PressPass: Why has Microsoft been so active in the Voluntary Filing Program (VFP)?
Brod: We take seriously our commitment to be an early adopter, to demonstrate technology and finance leadership. We view participation in the VFP as an opportunity to provide input on the state of the XBRL U.S. GAAP taxonomies and our learning as an external-reporting preparer of SEC disclosure forms. We are committed to collaborating and sharing experiences to help advance a rational adoption of the standard.
We have focused on XBRL as a foundation to enable rich user interaction with financial information, starting in 2002 with a NASDAQ analysis tool demo and XBRL-tagged quarterly financials. When the SEC began accepting filings in the new format, we joined the pilot program and became the first company to submit its annual Form 10-K report to the SEC in XBRL for the year ending June 30, 2005. In each of our filings in interactive data, we convert the Notes and the Management’s Discussion and Analysis (MD&A), in addition to the Financial Statements.
PressPass: How far to completion is the XBRL taxonomy for U.S. GAAP Financial Statements?
Brod: A core foundation to the taxonomy has been developed and is public domain, available from the XBRL International standards consortium. A total of $48 million in contracts has been awarded by the SEC to modernize its EDGAR database, and $5.5 million to complete XBRL code writing or taxonomies for U.S. GAAP financial statements. The necessary SEC funding to complete the taxonomy addresses the fact that there is more work needed to make XBRL comprehensive and easy to use by all companies.
The XBRL taxonomy development will take time and depend on feedback from a broad range of stakeholders, including accounting firms, accounting standards bodies, companies and analysts. Conceptually, interactive data can drive transparency in reporting; however, stakeholders will need to work out the level of detail and variation in reporting by U.S. public companies. For example, will the taxonomy enable tagging only with numeric items in a footnote, or will the tag encompass the whole footnote to ensure the narrative description is included? These are questions we will need to address and answer in the coming months.
PressPass: What comments do you have for companies that are evaluating XBRL?
Brod: XBRL is still relatively new as a reporting standard. However, it’s clear that the SEC and accounting-standards bodies – such as the Financial Accounting Standards Board (FASB), its parent organization the Financial Accounting Foundation (FAF), and the International Accounting Standards Board (IASB) – are committed to XBRL as the technology standard for publishing financial statements in the future. Joining the SEC VFP will enable companies to provide feedback on XBRL deployment. The cost of joining the VFP is nominal, but with the current set of tools there is a certain amount of technical learning required to support the filings.
PressPass: What is the benefit of filing in interactive data?
Brod: The primary benefit of interactive data is that it makes is easier for consumers of financial information – whether it is the SEC, analysts or investors that cover a company – to discover and identify real-time, pertinent financial data. One additional benefit for tagging Microsoft information is that we control the aggregation or presentation of what is tagged rather than the data aggregators that analysts rely on today. Over time, the implementation of interactive data will make financial analysis more cost effective, especially as the U.S. GAAP XBRL taxonomies continue to evolve, reducing the exception rate of extensions to standard elements, and as companies agree on best practices for extending taxonomies.
In the future, as the standard gains deeper adoption, we see significant benefits of using XBRL in terms of business efficiencies that can be gained through a single mapping of accounting. Everything from acquisitions to control monitoring tools with simple integration and minimal customization – all this can be enabled by interactive XBRL data.
PressPass: What is the outlook of XBRL as a standard?
Brod: The XBRL specification represents a collaborative market effort; the XBRL International standards consortium has over 400 members across 15 countries. And there are a number of regulators and exchanges that have mandated the technology: Her Majesty’s Revenue and Customs in the U.K., the Federal Deposit Insurance Corporation in the U.S., the Spanish securities regulator, the Shanghai Stock Exchange, the Bank of Japan and more. It’s clear that it is becoming the global standard for financial reporting.