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. XBRLrefers 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, tosee 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.