Editor’s Note: EDGAR Online specializes in software solutions and services for corporate disclosures as part of a larger approach to governance, risk and compliance. One of its tools is an XBRL processing engine. In this interview, Greg Carter, CTO at EDGAR, shares perspectives on the standards-based XBRL (eXtensible Business Reporting Language) format and its impact on exchanging business information between business systems, and how a standards-based technology creates value for organizations. XBRL also may be one of the first embodiments of a semantic Web.
SandHill.com: How does working with standards-based software produce value other than facilitating data sharing and regulatory compliance?
Greg Carter: It facilitates interoperability. For this discussion, I’m going to pretty much stick to XBRL as a good example because it’s a very business-focused standard that allows information to come in a format that is easily digested and used by employees and systems.
With a format such as XBRL, it’s not just about the format – it’s about the content or the semantics. A standard like XBRL creates value because you can easily not just exchange data between organizations but exchange data and the context and organization of the information. The fact that it has the “smarts” built in to help you interpret it is an example of how a standard can be very useful.
SandHill.com: So it saves time and money.
Greg Carter: Absolutely. It also reduces risk because it gives you greater visibility. It allows you to deliver information in a much more timely fashion. XBRL has a very business-driven end goal. Data expressed in XBRL is imminently usable by simple office tools like Excel.
You can take XBRL data from any number of companies, find their primary financial statements, and that data will have not only the required information but also a lot of the context to help you understand it.
We think in the future, as XBRL moves beyond the financial markets, it’s a standard that may be one of the first embodiments of a semantic Web where you can very quickly assemble or use generic applications. It contains so much information about what the data is and how it can be used and whether or not it’s valid or good; so your application can quickly adapt to the data.
SandHill.com: Is this benefit generally recognized by enterprises and SMBs, or do they primarily view XBRL as a format mandated by regulatory agencies such as the Securities and Exchange Commission?
Greg Carter: We’re finding that people see the benefit of having the ability to access data that doesn’t require expensive custom proprietary applications for both the producer and the consumer.
Yes, it’s the mandate right now – which we think is a negative driver, but it certainly is driving adoption. Organizations didn’t use to have to express data in XBRL. They could print out their annual statements and mail them to the regulator. They had that process worked out and knew how much it cost. Now regulators are forcing organizations to move into a more modern way of reporting that, in the long run, will reduce costs on both ends. But right now it’s an additional step that the disclosing organization has to perform.
But we’re observing that organizations are beginning to understand the value of producing data using in an open standard like XBRL. We see that the real payoff with XBRL is when people start to rely on the standard and use the information to make decisions.
SandHill.com: You mentioned searching XBRL data on other companies. That would certainly be of value. Can you share some tips on leveraging XBRL for decision making?
Greg Carter: The decision making comes when you have collections. The SEC and other entities now have large collections of data in XBRL – data about your competitors, companies in your target market and companies in markets that you may want to enter. With XBRL companies have a way to get at that data in a very organized and open fashion.
There are a variety of XBRL-enabled applications on the market that can help companies absorb the information, including our XBRL-enabled EDGAR Pro plugin. As an example, let’s say I’m operating today in Ohio and I want to start to move into Illinois. I could produce a search and find information about the Fortune 1000 companies in Illinois that I may want to target for a sales operation. I could easily find all that data, which is represented in XBRL inside of our EDGAR Online database or in other databases, and I could pull that data into Excel and start to build a model and do analytics around it. I could start to incorporate that vast set of data into my internal analytics, which would help me support my decision. It would help me build a richer, more accurate model about how I might progress on that strategy to expand my market.
SandHill.com: Are companies generally doing this now, or are they just becoming aware that they can do these searches and use this information to help them make decisions?
Greg Carter: The fact that XBRL is the driver and enabler for expanding the amount of information a company might receive is new to most companies. Before, all of this information was usually stored and exchanged in very proprietary ways.
But some companies already see the advantages of XBRL. Beyond external reporting compliance, we’ve seen companies even finding business value from making XBRL their internal data format so that they can access great quantities of information in things like Excel, inside of their databases, inside of end-user tools, etc.
SandHill.com: Can you give me an example of a company that benefited from using the EDGAR XBRL-enabled tools to achieve value through searching data?
Greg Carter: We have a customer that uses our XBRL software to validate submission in XBRL. One of the really great things that they’ve done is improve the quality of information that they’re receiving. They’ve started to capture in our XBRL engine a huge catalog of business rules about how information is being reported. They’re basically encoding in their business rules the type of manual tasks that people might have had to do in the past. For instance, someone might have had to open up a balance sheet and make sure the numbers added up. Or they might have wanted to make sure that if someone says that they did international sales then they also account for some other related facts somewhere else in the disclosure.
This company has used our automated facility to build all those business rules into an automated validation and thereby improved efficiency, reduced costs and improved accuracy.
SandHill.com: Is there a downside to standards?
Greg Carter: The downside of standards is complexity, and XBRL is no different. But our software and other products on the market attempt to shield users from that complexity.
In my opinion, there’s another downside: when standards are purely technology driven. Organizations waste a lot of effort in being ritualistically compliant to certain technical standards. That effort would be much better spent looking at business-driven standards like XBRL.
SandHill.com: But companies have to design products with technology-driven standards, too.
Greg Carter: I wouldn’t say that they always have to comply with other technical standards. If at some point in the future you may want to integrate with Company XYZ’s system, for instance, then Company XYZ would require you to support a list of technical standards. But very often developers spend a lot of effort complying with a particular technical standard to meet interoperability when there is only an undetermined future point and undetermined requirement for the system integration.
Architects and software developers sometimes go on forever about how a relatively obscure technology standard will allow them to integrate with anything in the world – when the fact is often they’re building a system that’s never going to integrate with anything. So at the end of the day they’ve worked on something that might be really cool, but it has almost no business value.
But I’ve seen a lot of organizations that would implement a lot of standards just in case, without a clear vision driver. My recommendation is to avoid that situation and really focus on standards where there is a very clear business value. XBRL is an example of a business-driven standard.
SandHill.com: What is your suggestion for distinguishing between business-driven and technology-driven standards?
Greg Carter: Organizations need to stop and ask questions such as:
- What’s the real business value of investing in this standard?
- What business value will we see if we only make it halfway down our roadmap?
I think that a critical eye will help people recover a lot of wasted cycles of being standards adherent. With XBRL, there’s a clear path to value when you look at how you can use information made available if you implement your applications using XBRL.
SandHill.com: What are the top tips you suggest for getting value from XBRL?
Greg Carter: I think number one would be just to get started. Make sure you understand how you can leverage an open data standard like XBRL beyond just a compliance activity.
The second suggestion is to look at the XBRL-enabled tools in the market and determine how they will allow you to validate and produce information that’s highly organized and structured. Get a clear understanding of how a tool makes the XBRL-formatted information relevant to your organization.
Greg Carter serves as chief technology officer at EDGAR Online bringing more than 20 years of experience in software design, development and implementation. Prior to joining EDGAR Online, Greg operated as the chief technical officer and executive vice president of product development at Metastorm, Inc. where he lead a team of 125 developers and assisted the company in growing to over $80 million in revenue in 2009.
Kathleen Goolsby is managing editor at SandHill.com.