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China's Exchanges Pave Way for Adopting XBRL
February 27, 2006
The Chinese securities industry is not the place to look for hot performance. According to Bloomberg, the Shanghai and Shenzhen composite indexes have been the world's worst-performing stock benchmarks since 2001. But in one area, these two exchanges are breaking new ground: the use of the extensible business reporting language (XBRL) for corporate filings.
XBRL is an open, XML-based standard that takes corporate filings and translates them into a common, universal format. Instead of cutting and pasting numbers from PDF files and Word documents into Excel, analysts can type a keystroke or two and populate spreadsheets or databases.
"You spend less time retrieving the data and more time on analysis," says Elmer Huh, executive director of valuation and accounting research at Morgan Stanley. In addition, XBRL reduces errors.
The more companies file in XBRL, the better, he notes, and momentum is picking up. "I think we're at a tipping point right now," he says.
At the Shanghai Stock Exchange (Securities Industry News, Jan. 30), for example, securities issuers and institutional shareholders originally sent in paper reports. These were later replaced by PDF documents, says Shuo Bai, CTO of the exchange. Now, the PDFs are being replaced by documents formatted in XBRL. "Because of XBRL, things are changing," he adds.
To make it easier for listed firms and funds, financial data can be entered into a user-friendly template, which then generates XBRL documents. These documents, in turn, are stored in a central repository where they can either be disseminated to investors or analyzed by regulators.
In 2003, the exchange had a pilot program, in which 118 annual reports were filed in XBRL. By 2004, more than 800 companies were filing both quarterly and annual reports. Now, all listed Chinese companies--there are about 1,400--have to file in XBRL. International investors will be able to access the data through Edgar Online sometime in the first half of this year.
"China is unique in the world in mandating it," said Jennifer Wu, Edgar Online's director of business development for China. "But a lot of other countries are moving toward XBRL standardization, particularly in the EU space and in Asia as well. It's a global wave."
In the U.S., for example, companies are encouraged to join a voluntary XBRL program in return for expedited reviews. It's a little trickier for U.S. firms, explains Corey Booth, chief information officer and director of the office of information technology at the Securities and Exchange Commission, because they can't simply fill in the blanks in an XBRL form. "Our financial disclosure isn't based on a fill-in-the-blank model," he says. "It's about GAAP [generally accepted accounting principles] accounting, which allows you some flexibility. We want you to present your data in whatever way makes sense to provide the best picture of your company's performance."
The SEC has launched a test program, which will assemble a diverse group of companies to put the XBRL system through its paces.
Other countries are also experimenting with XBRL. Australia, New Zealand, Korea and Japan, for example, are putting together XBRL systems for their public companies. In Europe, there is an XBRL working group in almost every country, and many exchanges are also testing systems. In Germany, for example, the Deutsche Borse has set up a joint venture with other market participants and an XBRL provider to create a system in which listed companies can file quarterly data with an XBRL template. The template is already available for companies to try out, but there is no mandatory use of the tool as in China. Deutsche Borse spokesperson Richard Willis says: "Right now, we're enabling companies to get a feel for the system."