Research Publication Date: 23 July 2009 ID Number: G00169733 2009 Gartner FEI Technology Study: XBRL in the U.S. Enterprise John E. Van Decker Extensible Business Reporting Language (XBRL) will be a requirement for financial disclosure by 2011 in the United States, and most firms are proceeding with this assumption. XBRL can provide more capability which can improve external and internal financial reporting and transparency; however, firms are still in the process of learning. Key Findings XBRL can be used to improve external and internal financial reporting, but few firms have an interest to utilize this yet beyond external reporting. Firms not required to submit in XBRL have little to no interest in leveraging the technology. Firms have not been acquiring technology solutions for XBRL and are leaning toward outsourcing to a financial statement publisher. XBRL understanding is lacking: In the study, the respondents view this as a potentially transformational and/or impacting technology. Recommendations Understand how embedding XBRL into your business intelligence (BI) and performance management platforms can improve reporting and transparency in the results process. Firms should take a position on XBRL, and monitor the market closely for developments in technologies that embed XBRL into business applications. Finance departments must develop a game plan as to the appropriate approach to XBRL, including outsourced, bolt-on and embedded approaches. Use care when evaluating this document because it represents responses from the sample in the survey and may not reflect how your organization should or should not plan for XBRL adoption. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.
ANALYSIS The 2009 Gartner Financial Executives International (FEI) Technology Study (see Note 1 Study Overview) surveyed the senior financial executive opinion on the use of XBRL in their organization. In the United States, regulatory requirements for example, the 21st Century Disclosure Initiative continue to intensify, and XBRL will likely be the main vehicle for disclosure of financial and operational metrics to meet these requirements (see Note 2 XBRL Requirement in the United States). While many private firms took part in the survey and are not impacted, many larger organizations are still unaware of the requirement, as 56% of organizations in the $1 billion to $5 billion range believe that XBRL is not applicable, and most of the respondents in this category were publicly traded firms. The respondents' understanding of XBRL and its impact on their organizations is very low. Those that are not affected by the regulatory requirement have no real interest in leveraging the technology for the purpose of improving internal reporting or reporting to investors. Most organizations do not see a benefit from XBRL immediately, and in a recessionary economy in which IT budgets are stretched, many organizations are neither pursuing XBRL projects nor taking advantage of extended XBRL capabilities. Only 7.2% of firms in the study have implemented XBRL or are in the process of implementing technologies focused on it, while those that will be required to adopt it are waiting until it is closer to the deadline. Time Frame That Organizations Are Addressing XBRL Very few organizations have already addressed XBRL requirements, despite the fact that XBRL will be a requirement for all publicly traded firms in the United States for submitting financial statements to the Securities and Exchange Commission (SEC) in 2011. Only 3.6% of those that responded have already implemented a solution, while 3.6% have an implementation in progress (see Figure 1). The study also found that 4.7% will begin their projects in advance of the deadline, while 20.7% will most likely wait until the deadline approaches before they begin to address this requirement. A large percentage of respondents (67.5%) believed that XBRL was not applicable for their organizations. In larger multiunit organizations, there are relatively few individuals involved in the financial disclosure process, so the lack of urgency shown by the respondents is understandable. Typically, a smaller, central group is, or will be responsible for XBRL submissions, but in some cases, a legal or investor relations organization will be responsible not a central finance team which further complicates the understanding of XBRL. Publication Date: 23 July 2009/ID Number: G00169733 Page 2 of 10
Figure 1. In Light of the SEC's Likely Position to Mandate the Use of Interactive Data/XBRL, in What Time Frame Would Your Company Plan to Implement? Have already implemented 3.6 Implementation in progress 3.6 Implement in advance of any specific deadline 4.7 Implement in support of the deadline 20.7 Not applicable for my organization 67.5 0 10 20 30 40 50 60 70 80 Percentage of Respondents Source: Gartner (July 2009) Barriers to Implementing XBRL According to the 2009 Gartner FEI Technology Study, respondents' understanding of XBRL and its impact on their organizations is very low. Those that are not affected by the regulatory requirement have no real interest in leveraging the technology for the purpose of improving internal reporting or reporting to investors. While privately held firms have no interest in leveraging XBRL, publicly traded firms have taken more of a "hands-off" approach (for example, in the United States, these firms are outsourcing their XBRL tagging to their financial statement publishers). Gartner maintains that this is not an advisable long-term strategy, and financial statement publishers are already responding by beginning to resell some of the products that can help in this area, attempting to move the responsibility for XBRL tagging back to the client organization. Still, according to the study, 52% of organizations stated that lack of technology is a barrier to implementing XBRL internally (those that have ranked this as a first and second impediment; see Figure 2). Publication Date: 23 July 2009/ID Number: G00169733 Page 3 of 10
Figure 2. Barriers to XBRL Implementation Lack of technology 4.0 48.0 48.0 Lack of funding 7.5 18.9 73.6 Lack of available resources 10.1 23.2 66.7 Lack of knowledge 13.7 13.7 72.6 Lack of need 43.1 50.0 6.9 Lack of regulatory mandate 59.4 34.3 6.3 Source: Gartner (July 2009) 0 10 20 30 40 50 60 70 80 90 100 Percent First Second Third Most of those that are affected by XBRL plan on using XBRL for external reporting only (13.0%) (see Figure 3), while a small percentage see this as an opportunity for improvements for internal reporting (4.8%). These findings point to a need for more education on XBRL, as well as more financial management platforms that embed XBRL for reporting purposes. Publication Date: 23 July 2009/ID Number: G00169733 Page 4 of 10
Figure 3. How Do You Currently Use or Plan to Use XBRL Information? External reporting only 13.0 External reporting and supplement to existing internal reporting 3.0 External reporting and replacement for certain internal reporting 1.8 No decision at this stage 17.2 Not applicable for my organization 65.1 0 10 20 30 40 50 60 70 Percentage of Respondents Source: Gartner (July 2009) Still, when firms were asked what technologies they viewed as transformational, XBRL was viewed as second, with 29% of respondents identifying it as having a high impact (see Figure 4). While Gartner believes that XBRL can be leveraged strategically (see "XBRL Will Enhance Corporate Disclosure and Corporate Performance Management"), this result is not consistent with those that responded in prior questions that they do not see the advantages, and this finding represents one of the few inconsistencies with the data gathered from this survey. Publication Date: 23 July 2009/ID Number: G00169733 Page 5 of 10
Figure 4. Technologies That Will Have A Major Impact Web-oriented software 37.1 XBRL 29.0 Governance risk and compliance 24.8 Social networking 19.5 None Cloud computing 16.7 18.1 SaaS 15.7 Green IT 14.8 Service-oriented architecture Corporate social responsibility 13.8 13.3 Unified communications 11.9 Carbon accounting Enterprise mashups 6.2 6.2 0 5 10 15 20 25 30 35 40 Percent SaaS = software as a service Source: Gartner (July 2009) Many firms are using outsourcing to comply with SEC disclosure initiatives, in which the publisher appends XBRL to the finance statements and submits XBRL to the SEC at the time of the release of the hard-copy financial statements. Finance organizations are managing this approach, without consideration for how XBRL will impact a company's BI and performance management platforms. As disclosure reporting evolves and becomes more complex, much of the information that is needed from across the organization may be out of the realm and scope of the finance organization. The requirements for XBRL for external reporting may appear to be another unfunded non-valueadded compliance requirement piled onto an already overburdened IT organization. Current requirements are typically treated as an afterthought (after financial consolidation), and XBRL is not operational at lower levels in the BI/performance management framework. XBRL can bring improvements to BI and performance management from closer alignment between financial and managerial reporting. The goal of transparency is to remove the wall that has existed between Publication Date: 23 July 2009/ID Number: G00169733 Page 6 of 10
financial and managerial reporting for decades. Given the potential requirements foreshadowed in the 21st Century Disclosure Initiative for disclosure of operational key performance indicators (KPIs), XBRL will continue to prove to be the vehicle for the transmission of KPI and other disclosure data. XBRL brings potential benefits and will be required more in the future, so embed it more closely in your internal systems. Don't take a hands-off approach for anything other than short-term compliance. Monitor the market closely for developments in technologies that embed XBRL into business applications. XBRL tagging and submission can be outsourced, but ultimately, more data will be required for disclosure, and publishers are pushing back by establishing partnerships for reselling financial statement production solutions that have XBRL tagging embedded (see "Financial Statement Production: The Final Step in the Last Mile of Finance"). Still, organizations can benefit by more fully integrating XBRL into their internal corporate performance management (CPM) and BI (see "The 21st Century Disclosure Initiative Will Reprioritize Your Business Intelligence and Performance Management Strategies"). An understanding of the capabilities of XBRL is essential for those firms that are affected by it, but firms that are still private should consider its capabilities now when future aspirations (e.g., acquisitions and initial public offerings) require that these capabilities are in place. There was a trial group that reported to the SEC under a voluntary program. For this group of 100 firms, approximately 90% are relying on the external printer of their financial reports to handle the XBRL tagging. This can work well for the initial tagging requirements (300 disclosure elements) in the first phase; however, given the ramp-up of XBRL requirements (3,000 disclosure elements) in the future phases, these organizations may find themselves at a disadvantage because they have outsourced their XBRL capabilities and have not built up expertise in the application and use of XBRL (see Note 3 Outsourced, Bolt-On and Embedded Approaches to XBRL). XBRL should be included in the organization's enterprise information management (EIM) strategy and not left as something to be managed in a functional silo by the finance team. EIM specialists should also monitor XBRL adoption and usage in similar organizations to detect if their organization is lagging its peers in adoption and usage of XBRL (as this would lead to underutilization of key information assets). Visionary organizations will push forward with XBRL as part of their EIM strategy without waiting for regulatory pressure. Action Items: The CFO and finance team should understand the XBRL requirement, and IT should understand the technology options and impact. IT organizations in conjunction with the finance team should pursue insourced and outsourced options, understanding that the future requirements for disclosing more data externally will grow. While an outsourced approach may have the benefit of addressing XBRL requirements immediately with the least-disruptive approach on business applications and CPM/BI platforms, it will be limiting over time, as more requirements for disclosure unfold. Firms should understand the capabilities of both bolt-on and embedded XBRL approaches, as well as match these to current and proposed requirements for disclosure. Also, understand the capabilities of XBRL and how this can improve internal and external reporting. This requirement as part of the 21st Century Disclosure Initiative is the creation of a new approach to information access and analysis that will dramatically improve transparency for consumers of financial information. If XBRL tags are available earlier in the process than postconsolidation, it is possible to streamline consolidations and create easier flash reporting by having the summarized details available that mirror the key financial statements, including income statement, balance sheet and funds flow. However, this approach will require a change to BI and potential ERP platforms by providing XBRL tags at this earlier level. As more companies use XBRL to report on operational and additional financial metrics under the new initiatives, they may want to move XBRL tagging into operational and ERP systems; however, vendors have yet to hear the calling and provide solutions with this capability. Applications may in the future include Publication Date: 23 July 2009/ID Number: G00169733 Page 7 of 10
XBRL tagging at the subledger level (for example, accounts payable and accounts receivable). Business applications may play a critical role in establishing XBRL tagging at the transaction level or account levels of detail. XBRL tagging will also be required to manage taxonomies for internal and external reporting requirements. As XBRL capabilities unfold, organizations need to understand their options and how XBRL may enable improvements in reporting. Monitoring future development of XBRL and integration with business applications is critical. RECOMMENDED READING "The 21st Century Disclosure Initiative Will Reprioritize Your Business Intelligence and Performance Management Strategies" "Financial Statement Production: The Final Step in the Last Mile of Finance" "XBRL Will Enhance Corporate Disclosure and Corporate Performance Management" Note 1 Study Overview The 2009 survey provided 267 responses to more than 50 questions that covered senior finance managers' views of technology. Most of the respondents (87%) represented a corporate perspective, while 9% answered based on being a division or wholly owned subsidiary, and 4% from a group or sector perspective. Privately held organizations accounted for 56% of the responses. What distinguishes this study from other Gartner studies to date is that this was targeted at financial executives: More than 73% of the respondents were senior financial executives. Many industries were represented, with about one-quarter coming from the technology sectors hightechnology and professional services. This data provides a consistent picture of the CFO view of technology. However, organizations must take care as they attempt to benchmark individual initiatives and position against the aggregate because this composite view may not take into consideration vertical differences. The survey also encompasses both larger and smaller enterprises, with 9% of the respondents' enterprises with revenue of more than $5 billion, 13% with revenue between $1 billion and $5 billion, 10% with revenue between $500 million and $999 million, 21% with revenue between $100 million and $499 million, and 47% with revenue below $100 million (which comprises a solid percentage of the responding technology firms). Gartner will generate multiple sets of research that will provide a more in-depth view of several areas covered in the study. (We will highlight areas in which company size makes a sizable impact on the results.) Note 2 XBRL Requirement in the United States Regulatory authorities around the world have been pursuing for several years the enhancement of business and financial reporting. Mandates for publicly traded companies to disclose financial information in an interactive data format will ramp up significantly during the next few years. New regulations in the United States will require disclosure through XBRL that is phased in during the next three years. The 21st Century Disclosure Initiative will change the document-based disclosure system (Electronic Data Gathering, Analysis and Retrieval [EDGAR]) into a structured data disclosure system (Interactive Data Electronic Applications [IDEA]). This is not merely an upgrade to the EDGAR system. It is the creation of a new approach to information access and analysis that will dramatically improve transparency for consumers of financial information. Publication Date: 23 July 2009/ID Number: G00169733 Page 8 of 10
Note 3 Outsourced, Bolt-On and Embedded Approaches to XBRL The three approaches that will continue to evolve during the next three to five years to support SEC disclosure requirements are as follows: Outsourced For the 100 firms that reported in XBRL to the SEC under the voluntary program, approximately 90% are relying on the external printer of their financial reports to handle the XBRL tagging. Some boutique service firms also can assist with this tagging process. This can work well for the initial tagging requirements (300 disclosure elements) in the first phase; however, given the ramp-up of XBRL requirements (3,000 disclosure elements) in the future phases, these organizations may find themselves at a disadvantage because they have outsourced their XBRL capabilities and have not built up expertise in the application and use of XBRL. Bolt-on In this approach, organizations will use a bolt-on technology for XBRL tagging, such as Fujitsu's XWand or Rivet Software's Dragon Tag software, to provide XBRL-tagged results to the SEC for financial statements, including an income statement, a balance sheet and a statement of cash flow. Source data includes consolidated financial statements from the general ledger or a financial consolidation solution. After general ledgers are consolidated and financial reports are produced, organizations that have external SEC reporting requirements will append XBRL taxonomy values to each of the required data elements. Current approaches focus on mainly providing an XBRL translation postfinancial consolidation and preparation of the external financial reports. In all cases, this is an incremental and largely manual process that may not be appropriate where there are many data elements to tag. Embedded The embedded approach uses a solution that is integrated with a financial consolidation solution, a separate financial statement report writer, or both. Within the next three to five years, leading financial consolidation solutions likely will have interfaces for XBRL, secured through acquisition and vendor partnerships to provide XBRL tags required for SEC reporting. These XBRL solutions do not provide financial report preparation, and many companies are turning to tools that integrate with their consolidation solutions to manage further reporting coordination "within the last mile." Recently released financial statement report preparation solutions focus on facilitating postconsolidation processes in which there are typically few automated controls and there is heavy use of Microsoft Office for manual assembly and analysis. These solutions, including Clarity Systems' Financial Statement Reporting (FSR) software and Trintech's Unity suite, continue close activities after consolidation, adjusting entries and report creation. Critical processes, such as XBRL tagging and preparation of external reporting to be handed off to a publisher, are executed. During the next three to five years, other CPM and consolidation vendors will also offer these capabilities. Financial statement publishers likely will also provide SaaS and OEM solutions from XBRL providers and other providers in the near future. Bowne & Co. already has an OEM arrangement with Clarity for FSR. This research is part of a set of related research pieces. See "ATV: 2009 Gartner FEI Technology Study Research Collection" for an overview. Publication Date: 23 July 2009/ID Number: G00169733 Page 9 of 10
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