When the executives at Old Mutual Capital, a mutual fund based in Denver, decided to test the interactive-data waters this year, they didn’t know what to expect.
They did know the Securities and Exchange Commission had been pushing companies to start filing their periodic reports in XBRL, the eXtensible Business Reporting Language that supposedly will make financial data much easier for companies to file and investors to browse and analyze. And earlier this year, the SEC approached Old Mutual about participating in a pilot program, where the fund would agree to file its reports “tagged” in the XBRL language for a year and share feedback on its experience to the SEC, in exchange for expedited review of its reports.
So, despite well-known skepticism from some corners of the financial reporting world that XBRL is not yet mature enough to use, Old Mutual decided to give it a try.
“We thought it would be a good opportunity,” says Julian Sluythers, the fund’s president and chief operating officer. “We know the SEC is very interested in using this technology as a tool to standardize financial reporting to the investing world.”
A crucial partner for Old Mutual was Rivet Software, also based in Denver. Rivet has tried to carve out a niche for itself in XBRL, with a specially designated “SEC XBRL Package” that includes its Dragon Tag and Dragon View software, plus consulting and support services from Rivet staff.
“From our perspective it wasn’t very laborious to do this,” Sluythers says. “The costs were nominal and it didn’t take much time. Rivet really hand-held us through the entire process. We probably spent more time when we were getting started talking to Rivet and the SEC than we did actually getting the work done,” he says.
Exactly how much Old Mutual spent on its first filing (it must submit four XBRL-tagged filings to the SEC in fiscal 2007), Sluythers declines to say. He did say the total was “not far off the mark” from the $5,000 PepsiCo, another participant in the SEC pilot program, says it spent to complete its first filing.
Getting Started
Brunger
Installing the Rivet software itself did not take long, according to Jay Brunger, head of Old Mutual’s IT department. Dragon Tag functions as an add-in to Microsoft Office and installed in several minutes like any routine software application. “Everything integrated seamlessly,” Brunger says. “It was click; install; it’s done.”
The more complicated challenge was deciding just what financial data would be marked up with XBRL tags. Brunger and his staff worked closely with Old Mutual’s fund-service department and with Rivet’s support staff. “We sat down with Rivet and said, ‘What’s it going to take to do this?’” Brunger says. “All we really needed was their software and some time put into it.”
After discussing their options with Rivet, Old Mutual executives decided to file the financial highlights for nine funds in its Old Mutual Advisor Fund family. Rivet would do the actual tagging of fund information, explains Robert Blake, vice president of marketing at Rivet; Old Mutual would review the tagged data and approve the final XBRL-marked copy for filing with the SEC.
The process took about three calendar weeks, with the work spread out so that everyone could continue “doing their day jobs,” Blake says.
SNAPSHOT
An excerpt from the SEC’s Web site explaning what interactive data is and listing the companies involved in the XBRL pilot program follows.
What is Interactive Data?
Put simply, interactive data relates to the "tagging" of financial data, so that, for example, every number in a financial report can be extracted more easily. The result is a data asset that is more valuable to financial statement users, as it could facilitate easier company-to-company comparisons of specific metrics.
Currently, most financial statement data is just keyword searchable, so that financial statement users, for example, need to search and scan large documents—like a company's 10-K—to find specific data.
XBRL-faciliated "interactive data" could theoretically pinpoints all of the facts and figures trapped in these dense documents. Sophisticated tools to analyze financial data could subsequently be developed that, for example, automatically include updated information in analysts' financial models when new filings are made with the SEC.
How does it work?
Instead of reading a dense document and manually identifying relevant data, interactive data allows the creation of documents that are machine-readable, so that computers can quickly extract the desired data. Think of every fact in an annual report, every number in a company's financial statements, as having a unique barcode that tells standard software what the item represents and how it relates to other items in the report. Interactive data "tags" all of the key facts in these large documents, so that software can instantaneously recognize them and serve them up to the investor.
Who’s using it now?
Two dozen companies, representing more than $1 trillion of market value, have joined the SEC's test group and have agreed to voluntarily submit their annual, quarterly and other reports with interactive data for a period of one year. These companies are helping the markets and the SEC determine the best ways to make interactive data serve America's investors. In return, the SEC provides test group companies with expedited reviews of their various SEC filings.
How do I get involved?
If you'd like to consider volunteering to join the SEC's test group, please contact Jeffrey Naumann in the SEC's Office of the Chief Accountant,
or Brigitte Lippmann in the Division of Corporation Finance. Current test group companies include:
3M Company
Automatic Data Processing, Inc.
Altria Group, Inc.
Banco Itaú Holding Financeira S.A.
Brazilian Petroleum Corporation
Bristol-Myers Squibb Company
Crystal International Travel Group, Inc.
The Dow Chemical Company
Ford Motor Company
Ford Motor Credit Company
General Electric Company
Gol Intelligent Airlines, Inc.
Infosys Technologies Limited
Microsoft Corporation
Net Servicos De Comunicacao SA
Old Mutual Capital, Inc.
PepsiCo, Inc.
Pfizer, Inc.
R.R. Donnelley & Sons Company
Radyne Corporation
South Financial Group, Inc.
United Technologies Corporation
Xerox Corporation
XM Satellite Radio Holdings, Inc.
Source
Interactive Data: Putting Technology to Work for American Investors (Securities And Exchange Commission; Aug. 30. 2006)
“We mark up the company’s data,” says Blake. “The company reviews everything and signs off on the final mark up.” In the first week, Rivet did the initial tagging of Old Mutual’s financial data using its Dragon Tag tool. Since Old Mutual already had the financial highlights for the fund family in Excel spreadsheets, no new data was required; the company sent simply Rivet the data in the Excel file for tagging.
Blake
Blake says the submission for all nine funds, which was comprised a total of about 1,000 XBRL data points, took Rivet about 16 hours to do the “first pass” tagging. He estimates that for Old Mutual to mark up and review the financial highlights for the nine funds themselves, it would have taken anywhere from 20 to 50 hours.
In the second week, Rivet and Old Mutual reviewed the marked up data and made any necessary revisions. In the last week, Old Mutual did a final review of the XBRL-tagged documents and prepared them for submission. (At this stage, Blake adds, that the CFO and the company’s legal department create the legal wording that gets including on the XBRL filing, which is an addendum to the regular periodic reports submitted to the SEC.)
Along the way, employees from Old Mutual’s fund accounting group, IT department, marketing team, and legal department were involved at various stages. “It was kind of a potpourri of three or four different people working on different pieces,” Brunger says. “It was whoever had time in their day to pull aside from their standard duties to help up out with this.”
Making XBRL Sustainable
Blake says the XBRL-filing process can take anywhere from two to 10 people; one to do the tagging work and another (or more) to review and approve the final filing. And while tagging data with XBRL can be a chore the first time, Blake stresses that XBRL software used in conjunction with Excel spreadsheets or Word documents can function as a template for future filings, considerably reducing the labor of tagging individual financial-data points.
Old Mutual filed the semi-annual financial highlights for its Old Mutual Advisor Funds in XBRL in October. While Rivet did the tagging, Old Mutual had to validate all of the data after it was tagged, which meant its fund-accounting team had to verify that the numbers they had submitted to the SEC on paper matched what showed up in the XBRL filing.
Brunger says the process “took a little longer the first time” while his staff grew familiar with the XBRL taxonomies, what needed to be tagged, and validating processes. Now, however, he expects future filings “should become significantly easier, because we already know what the taxonomies are and where they need to be applied.”
Brunger also stresses that Old Mutual’s financial-reporting process itself remained unchanged. “We still have to file as we normally do; that process never changed,” he says. “All we had to do was take the filing we had created, code it in XBRL, and submit it as addendum for the SEC to analyze.”
While one frequent complaint about XBRL is that the taxonomies aren’t yet complete, requiring companies to create customized extensions to tag some specific points of data, Sluythers says that wasn’t much of an issue for Old Mutual. Rivet did create “a couple” of custom extensions, he says, but “for most part everything was there.”
Blake says the taxonomies “at the core financial level are pretty robust.” The taxonomy for the investment-management industry (which applies to Old Mutual) includes about 1,500 reporting concepts, he says.
Still, he cautions, “There will be something on the financial statement that will be unique to a company. Every filer has come across something they had to create a company extension taxonomy for, but it’s a minority of new things.”
Moving Forward With XBRL
With the first of its four required XRBL filings under their belt, Sluythers and Brunger say they expect preparing the next three—two quarterly statements and an annual financial statement filed earlier this year—to be a relatively easy task.
“We didn’t encounter any issues,” Sluythers says. “There’s a learning curve, as with any new systems or technology. But now that we’ve gotten the hang of doing a filing, it should be even less of a big deal.”
What about worries sometimes raised that XBRL might lock the company into an accounting structure it might not want? Brunger says that’s not a concern.
“It’s not an accounting structure; it’s a reporting format. So it really doesn’t lock you into anything,” he says. “That’s why they built in the flexibility of the taxonomies, so nobody’s locked into one set. It’s a kind of a uniform understanding.”
Still, Sluythers says it’s too early to judge the benefits of filing in XBRL.
“I think the proof will be in the pudding to the extent that the SEC can effectively consider this pilot program a success, and then move forward to mandating the rest of the financial community to use the technology,” he says. “That’s when you’re going to start seeing the benefits.”
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