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A New Way to Spell IT and Business Alignment – XBRL

Where business made easy

The Opportunity
I believe that one of the reasons that it is so hard for a CIO to get the IT department to align with the rest of the business is that finding the correct opportunities where alignment is possible can be a big challenge. Well I've got some good news for you: it looks like such an opportunity is getting ready to show up and it's called XBRL.

The Security and Exchanges Commission (SEC) passed a ruling last year that made adding the XBRL reporting tags to a company's 10-Q and 10-F financial filings mandatory last year. The door of opportunity has opened for CIOs because the reporting company XBRL Cloud reports that 70% of the companies that made their filings using the XBRL tags had some sort of error.

Currently this is no big deal - however, by the time that you become CIO it could well be be a very big deal. The SEC has agreed to limited liability for the next three years. After that, everyone had better be getting it right.

What Is The XBRL?
The extendable business reporting language (XBRL) is a series of custom XML tags that firms need to start to insert into their financial records that they file with the SEC. The goal is to make it easier for the SEC and financial analysts to pull out the information that they are looking for (and to compare it to other firms).

The SEC's rules stated that large companies had to start filing using it in July, 2009. Over the next three years all pubic companies will have to start using it. Clearly this is important and this type of work lends itself to exactly what the IT department does best.

XBRL consists of interactive data tags that will allow financial analysts to better process a company's financial numbers. Currently these tags only need to be placed at certain places in the body of the filing. However, next year detailed tags have to added to a company's footnotes and MD&A parts of the annual report

How Are Companies Solving This Problem Now?
In order to meet the SEC's requirements, there are two ways that companies are working to update their filings. The first way is to purchase software that allows the company to insert the tags into the filing themselves. The second way is to outsource the whole process and have their financial printer do it.

Outsourcing the work seems to be the most popular way to solve this problem right now. RR Donnelley reported that 100% of its 141 customers who were required to report using XBRL outsourced it to them to take care of.

The downside to outsourcing is that it doesn't come cheap. One financial printer charged $24,995 per year to cover XBRL filings. To make things even worse, outsourcing is expected to become more expensive when detailed footnote tagging becomes part of the package. On the other hand, software to do this task in-house costs roughly $5,000.

Where Is The IT Department's Opportunity?
Clearly the arrival of the XBRL requirement provides a great opportunity for a company's IT department to better align itself with the rest of the business. The key question that you will have to ask yourself once you become CIO is how to do this?

The #1 rule for IT here will be to make sure that you get the IT department involved in the process as far in advance of the due date as possible. The reason for this is because the SEC continues to issue constant revisions to the XBRL taxonomy and this can require additional effort by the IT department right up until the last minute.

The good news for the IT department is that the software that will allow you do perform this tagging in-house is constantly getting better. However, no matter how good it becomes, IT will always have to work with the rest of the company in order to validate the data once its been tagged using XBRL notation.

The overall goal here is to make sure that the XBRL tagged data matches the company's 10-Q or 10-K filing. If for some reason it doesn't, then the SEC may reject the filing and this will mean bad publicity for the company and a black eye for the IT department.

What All Of This Means For You
The new SEC XBRL rules are a much bigger deal than just a new financial reporting structure. Once the XBRL tags are in place, then the SEC is going to be able to use XBRL to quickly discover non-XBRL problems.

This is going to be the real opportunity for the CIO to have the IT department align with the rest of the business. IT needs to step in and help solve the XBRL reporting issue and then stay engaged in order to help validate the tagged document and detect the issues that the SEC will find long before they do.

We've been talking about the challenges associated with aligning IT with the rest of the business. The arrival of the XBRL requirement show how IT / Business alignment is truly going to happen and it's going to take strong leadership from the CIO to make it happen.

Dr. Jim Anderson
www.TheAccidentalSuccessfulCIO.com

Dr. Jim Anderson has spent over 20 years consulting with a wide variety of IT firms from the very big to the very small. He provides you with his insights into the leadership needed to combine the separate worlds of business and IT strategy. His guidance offers hope to firms everywhere who are struggling with this challenge.

Oh, and if you want to follow Dr. Anderson on Twitter, he can be found at: http://twitter.com/drjimanderson.

Author: Dr. Jim Anderson
Article Source: EzineArticles.com
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