The Importance of Structured Data

The annual conference of XBRL US is winding up today in Austin, Texas. Many of the attendees at this conference are representatives of the public companies who must report their financial statements in XBRL (eXtensible Business Reporting Language) format to the Securities and Exchange Commission (SEC). XBRL is a form of structured data, which means it contains tags that provide information about the data, such as the standards followed in preparing it.

In the modern world of stock trading, structured data is important because it can be consumed by machines, or perhaps more accurately, by software. That means the data can be processed more quickly and in many ways speed has become incredibly important.

Traditionally, data aggregators and other intermediaries in the financial reporting process have taken the company data and re-formatted it in a form for their own purposes and passed it along to their clients – in effect structuring it themselves. But this is done in many different ways, and the process of structuring the data takes time and its usage is limited because only they know what they did to the data. XBRL is based on globally accepted standards, which means that once structured, it is more readily consumable – and therefore faster to process.

At present, the SEC requirements for structured data are mostly related to the financial statements. There are early indications, however, that they may be interested in looking at expanding the requirements to include other financial data, such as the MD&A, Proxy Information and Earnings Releases. There is a demand for this information. Eventually the structured data will be available for non-financial information as well.

In a study recently carried out by Columbia University, not yet published, in which they surveyed a large number of analysts and other users of data, it was found that 87% of them make use of non-financial data. That would be data pertaining to, for example, government productivity reports or sustainability information.

Because it is well known that such information is widely used in making investment decisions, an emerging trend in financial reporting is towards the idea of Integrated Reporting, in which companies actually integrate their financial information, such as financials and the MD&A, with their non-financial information, such as sustainability information, in a single “integrated” report. Ultimately, structured data will be available for integrated reports, which will mean faster, better and more comprehensive information for investors. Since it will be processed by computers, inequities that currently exist in the distribution of information to investors will be substantially reduced, making a more level playing field for everyone.