Ernest Capozzoli of the Coles College of Business at Kennesaw State University has offered Oil IT Journal readers an in-depth analysis of the impact on oil and gas companies of the eXtensible Business Reporting Language (XBRL). The US Securities and Exchange Commission’s (SEC) initiative to enhance financial reporting is now extending to financial disclosures. This is expected to be completed by year-end 2007 and will contain over 200 financial statement disclosures, ten of which are specific to oil and gas.
Capozzoli believes that the XBRL standard is now ready for prime time and will be ‘transformational’ over the next couple of years. XBRL comprises a set of standard XML-based taxonomies and presents financial and performance data that is ‘shareable, royalty free, reusable and easily understood.’
Accounting standards provide financial executives direction on how to account for business transactions and how to report financial information. Unfortunately, much of today’s reporting is supplied in unstructured text or PDF documents, making it hard to exploit. XBRL gets around this by presenting financial reports in a structured way that lets consumers access and understand the reported data.
The SEC made its intentions clear in 1996 when chairman Christopher Cox announced that XBRL should have documented ‘every taxonomy that’s necessary to produce financial statements for any industry using US-GAAP CI by no later than mid-year 2007.’ To achieve this, the SEC has sponsored a massive project to incorporate financial statement disclosures in the US-GAAP CI XBRL taxonomy. A $54 million investment is transforming the SEC’s EDGAR database to handle XBRL data. At the same time the US-GAAP CI financial statement taxonomy has been extended with the 200 new disclosures.
Participation in the SEC’s voluntary program from the oil and gas sector so far has been limited to Anadarko and Petrobras. Cappozoli believes that the low participation, along with pending XBRL initiatives will force organizational changes as oils struggle to meet the new reporting requirements.
Oil and gas XBRL
Two XBRL projects will specifically impact the Oil and Gas industry. The first is the development of an oil and gas taxonomy including data tags for all US GAAP financial statements and footnote disclosures. The second involves the development of taxonomy specifications for the Supplemental Information on Oil and Gas Exploration and Production Activities required by FAS 69. Capozzoli concludes by noting that, ‘The question is not whether XBRL will impact the oil and gas industry, but when!’ Read the full paper on www.oilit.com/papers/xbrl.pdf.
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