Where? Companies Improve Transparency In Their Interactive Financial Reports
Social media technologies have permeated organization’s business practices far beyond networking intranets and CEO blogs or podcasts. My previous posts on XBRL, How? Part 1: Operating XBRL and How? Part 2: The Benefits Of XBRL, continued to intrigue me, and so I have since explored the topic of interactive financial reports.
Interactive financial reports refers to reports of financial data that are “interactive” for the user, written with a computer markup language, for example now almost exclusively XBRL, so that those accessing such reports can more quickly and easily find and use the financial information they need. XBRL
refers to eXtensible Business Reporting Language, specifically developed for business and financial reporting, and is in use throughout the world. Before the development of XBRL and interactive financial reports, investors and others interested in learning more about various aspects of a company’s or mutual fund’s finances had to manually search through lengthy annual reports or similar mutual fund documents. Even if those documents were available online, they were in a format that made searching for specific information difficult. Moreover, such reports would often have been almost indecipherable by unsophisticated investors, and a goal of social media is to facilitate the dissemination of information to all, necessitating straightforward and accessible language.
However, if financial data is in an interactive format, the reader can immediately and easily pull out the information he or she needs, even from the most lengthy financial disclosure documents. This, too, is a significant point: the action of the user “pulling” information out. The Internet, along with Web 2.0 technologies, has transformed the way information is gathered, and financial reporting should not be an exception. Among other things, interactive reports make it possible to compare one company’s information to similar data from other companies, to
see how that compares with past years, or to see how it compares to industry averages. Overall, according to the United States Securities and Exchange Commission (SEC), information can be accessed more quickly and easily by investors through interactive tools, in an easily used form that can help the preparation of reports and presentations with more accuracy. The availability of mechanisms for interactive financial reporting has also made the job of the corporation’s investor relations personnel easier, both because they can now gather and put the financial information together more easily, and because they can more easily proved that information to the investor (and probably have fewer questions from them).
It is for these reasons that the SEC, according to their Office of Interactive Disclosure, starting with fiscal periods ending on or after June 15, 2009, has required some publicly traded companies (where the corporation’s stock is sold to the public, and unlike a private company that does not sell shares to the public), such as Ford Motor Company, to submit their financial statements in XBRL format. It is foreseen that those SEC requirements will eventually be applied to all public companies that file periodic reports with the SEC. The SEC will also require mutual funds and financial ratings organizations to do the same. The United States is not alone in taking this action, as agencies in many other countries around the world already require that financial reports of companies be in an interactive data format, including Australia, China, Japan, the U.K., and Sweden.
In sum, requiring companies to make their financial reports “interactive” has many benefits both for the investor and also for the company, as it can help improve reporting processes, from gathering to writing reports of data more quickly and reliably. The SEC makes it possible for you to experiment with interactive reporting through their Interactive Financial Report Viewer, a great tool that may very well convince you to alter the way your company reports.
Hmm this is interesting. So there was actually a law saying that all companies had to change over to XBRL. What are the many benefits that this will have for investors? Out of all the aspects of corporate communications I don’t see investor relations being interactive online for some reason. Will these mean all documents will be online? Is this a pro for consumers and stockholders as well?
Interactivity is ultimately the best benefit that will come from such reports, as well as transparency. Investors and investor relations practitioners will have greater transparency when communicating with each other, and in doing so, there will be more understanding of knowledge, rather than misunderstanding.
I love the notion of an 10-K, 10-Q, 8-K, etc. being interactive, at least as much as it can be. After all, PDFs are unwieldy for the most part. Some improvements have been made, such as hyperlinks. However, for years these documents have been favorite place for companies to hide material events, like SEC investigations. How great would it be if I could open a document, type in a keyword such as SEC, and relevant material populate automatically? It would save the press, investors, and companies time and money. One company moving this transition in the right direction is Edgar Online. They’ve espoused the XBRL format that was discussed in earlier blog posts.
It is very startling, in a good way, that companies are required by law to change over to XBRL. This just shows that every aspect of America, through the government, through businesses, or through personal use has basically shifted over to a more digital version of itself. As much as making these investor relations documents available online is helpful for many different groups, putting everything in online formatting can benefit any number of groups and provide a digital world that is easily maneuverable.
I think it is a great step forward for forms and other government official documents to make their way online. It provides easier access for the interested public and the officials that need the information.