Extensible Business Reporting Language, or XBRL, is the new Internet language for the corporate reporting supply chain. Because business information is foundational to the markets and touches nearly every area of the entire economy, XBRL touches every business that publishes financial information internally and externally, and that receives financial information from business partners and other third parties.
For accountants, business information is business. XBRL was developed by the accounting industry, and it is the language of our business.
The eXtensible Business Reporting Language or XBRL will be the required reporting language for the 500 largest companies for Securities and Exchange Commission (SEC) filings, and for Federal Deposit Insurance Corporation (FDIC) reports. In addition to required reporting, XBRL is likely to become the business-to-business transactions or simply how financial information is shared among trading partners.
While the XBRL topic has been researched and written about extensively, the researchers sought to fill a gap between industry and the classroom.
A process flowchart was developed to facilitate an understanding of the steps involved to convert traditional financial statements into XBRL rendered financial statements.
Accounting is "the language of business" and, subsequently, this language is predicated on the construction and dissemination of reports. All businesses must prepare reports for a variety of internally and externally stakeholders to convey important financial information. Traditionally, business reports have been a fundamental component. Accounting reports were originally prepared manually and more recently have been computer generated through the use of accounting information systems. In turn, the reporting process is a major element of any accounting curriculum and integrated into every accounting course. The focus placed on understanding and preparing reports is essential to not only students in the accounting discipline, but also students in any college of technology discipline.
The eXtensible Business Reporting Language (XBRL) is an extension of this reporting requirement for many larger publicly traded companies and is set to revolutionize the reporting practices for the majority of firms in the near future. This technology permits public companies to file their financial statements in an electronic format based on a uniformed classification system. Currently, the primary repository of financial statement information for publicly held companies on the Internet is the Security and Exchange Commission's Electronic Data Gathering and Retrieval Database.
The SEC will require all publicly traded companies to file statements via XBRL by the year 2011.
According to a survey by most US public companies that will soon be required to file their financial statements in XBRL format are taking the necessary steps to be prepared for the requirement. Survey also reports that personnel within the organizations have "at least a basic knowledge of the extensible business reporting language". The authors of this paper intend to fill a gap between the accounting industry and the classroom. A process flowchart was developed to facilitate an understanding of the steps involved to convert traditional financial statements into XBRL rendered financial statements. In addition to required reporting, XBRL is likely to become the business-to-business transactions, for example how financial information is shared among trading partners. The ease of availability of financial information affects a variety of organizations and the people within these organizations. The uniformed information, made readily available via the web to interested parties, is more conducive for comparison and analytics by analysts. Lenders and investors of various organizations want to gain as much knowledge as possible about the company's financial standing before issuing loans or investing capital. XBRL provides this vehicle.
2. What XBRL is
XBRL is an interactive computer reporting language. It is based on XML (eXtensible
Markup Language), which is itself a subset of SMGL (Standard General Markup Language). XML uses standard tags to identify the meaning, context and structure of data, much like HTML has standard tags to markup a document so it can be published and viewed in a web browser. While HTML provides a set of pre-defined tags which describe how content appears in a Web-browser (e.g., the font and color of text), XML provides tags that give information on meaning and content in the business and accounting environment.
XBRL has standard sets of definitions, called taxonomies, which enable the automatic extraction and exchange of business data. Reports in XBRL format may be processed by software for viewing and analysis.
3. Taxonomies
An XBRL TAXONOMY is a dictionary of financial reporting terms or concepts. Separate Taxonomies are developed for different reporting purposes such as US GAAP, IFRS, Bank Regulatory reporting etc.
The concepts captured in a taxonomy are referred to as ELEMENTS. These Elements form the core of XBRL.
XBRL taxonomy is a particular way to describe and classify reporting concepts.
XBRL represents each concept as an element with a name. XBRL taxonomies are electronic, machine-readable "dictionaries" consisting of many linked files containing thousands of elements linked to each other. The taxonomy contains human-readable labels such as financial statement line item captions, definitions, and applicable authoritative references for each element.
4. The Demand for Financial Information
Investors, regulators and creditors all have something in common: They want companies to provide more information more frequently. These demands have only taken on more urgency in the wake of recent high-profile corporate collapses. Regulators are listening to investors as never before, and are stepping up their requirements for increased disclosure and tighter reporting deadlines. With reporting requirements already onerous, companies can turn to XBRL to automate their reporting processes and cut down on the time and expense of the entire reporting process - from gathering, to assembling, to disseminating information.
5. What XBRL Can Do for You
The AICPA founded the XBRL consortium in 1998 with only 13 original member companies.
Today, that consortium, XBRL International, has more than 170 members, representing over a dozen international jurisdictions. XBRL is an XML-based, royalty-free, open standard that provides a common platform for business reporting processes, and improves the reliability and ease of communicating financial data among users both internal and external to the reporting enterprise. XBRL membership represents virtually all constituents of the corporate-reporting supply chain, including auditors, management accountants, regulators, analysts, creditors, information aggregators, investors, software vendors and corporations. To get an idea of just how high XBRL's profile is today, take a look at the participants in the consortium promoting XBRL:
6. XBRL effects on accounting field
XBRL provides the accounting profession with a powerful tool to facilitate the advancement of corporate-reporting efficiency and effectiveness by allowing for:
Lower preparation costs, more reporting flexibility, and more timely information for management;
Simplified information access, transparency of reported information, and more timely information for investors, analysts, regulators and creditors; and
More effective exchange of company information between software applications
Obtain more rapid and reliable data on company financial performance.
Greatly reduce effort and costs in gathering and analysing data.
Simplify and automate tasks.
Focus effort on analysis and value-added work.
Make better use of software to improve efficiency and speed.
Automated Data Processing
Extensible Business Reporting Language identification tags reduce and eliminate the need for employees to manually input data into software applications like Excel or Oracle for transfer to electronic tools such as a website or a blog. Because computers can read the identification tags easily there is no need to manually compare entered data. Data entry keying mistakes are quickly analyzed and highlighted automatically using XBRL
Lower operating costs
Due to the more efficient exchange of XBRL data between applications within an accounting firm, and between an accounting firm and its clients, Companies will be able to spend more time analyzing information for a wide variety of purposes and less time obtaining, assembling, transferring and validating information. The XBRL-enabled reporting environment also provides a more efficient reporting process, as data is published just once and can be used again and again to create any type of report. In addition, common XBRL reporting templates, expressed in an XBRL taxonomy, can be used in multiple reporting applications by Companies and their clients alike. Finally, the efficiencies of handling data within a firm for analysis and comparative purposes will both increase efficiency of firm operations, and reduce risks associated with variances that otherwise may go undetected.
Increased revenue opportunities
The capability to more efficiently analyze company results highlights operational and effectiveness improvement opportunities for firms and their clients alike. Additionally, the use of the XBRL General Ledger may also help firms provide their non assurance clients with reporting and management insights that are cost-effective for companies to afford and cost-effective for firms to deliver. This tool will provide cost-effective access and insights into deeper operational activities, should clients so desire.
Enhanced service opportunities
There is a wide range of additional services that firms can extend to clients by leveraging XBRL tools: more efficient analysis of debt pricing and lending relationships; increased analysis and efficiency of client information during interim periods; more efficient assessment of debt covenant compliance; and optimized reporting and risk models embedded within client applications. XBRL's ability to automate many of these services is a key selling point.
In summary, XBRL can speed up, reduce effort and increase reliability in accounting and auditing tasks.
The accounting community can play an important role in explaining and encouraging the adoption of XBRL. Major accounting companies are important members of the XBRL Consortium.
7. Some obvious benefits XBRL offers to companies are as follows
Companies will be able to avoid re-keying of data & other manual tasks. It will thereby lead to cost-savings as data once prepared can be generated in many forms.
Consolidation of results across divisions and subsidiaries can be done efficiently.
With XBRL, more time and effort can be devoted towards data analysis & decision making rather than manual activities like gathering & preparation of data.
Simplify the process and reduce the costs involved in regulatory reporting to tax and financial regulatory bodies.
Improve investor relations through provision of more transparent and user-friendly information.
Companies can get rid of proprietary systems and obsolete software's which are difficult to use and expensive.
Data can be pulled from the root level like the Trial Balance reported in any format or accounting system and IFRS based financial statements can be generated
8. Some Other Benefits:
Corporation and Compliance
1. XBRL increases the efficiency of business decision making.
2. XBRL increases the effectiveness of management decision making.
3. XBRL allows for easier regulatory compliance.
4. XBRL makes it more difficult for management to issue misleading financial statements.
Financial Reporting
5. XBRL increases the efficiency of the financial reporting process.
6. XBRL decreases the occurrence of errors in financial reports.
7. XBRL reduces the cost of generating financial reports.
8. XBRL facilitates continuous reporting.
9. XBRL enhances the availability of financial reports.
10. XBRL eliminates the need for convergence of generally accepted accounting principles.
Users of Financial Reports
11. XBRL provides more accessible financial reports to users.
12. XBRL provides more understandable financial reports for users.
13. XBRL enables more thorough research by analysts because of access to more detailed financial data.
14. XBRL increases the use of un-audited information by investors.
15. XBRL decreases reliance on third-party information providers by users of financial reports.
16. XBRL decreases the ability of financial analysts to perform cross-sectional analysis between industries.
17. XBRL increases the ability of financial analysts to perform cross-sectional analysis within industries.
18. XBRL decreases the cost of financial analysis performed by users of financial reports.
19. XBRL allows more efficient investment decisions by users of financial reports.
Audit
20. XBRL facilitates continuous auditing.
21. XBRL reduces financial statement audit costs.
22. XBRL leads to improvement in internal controls.
9. The key advantages of XBRL include:
* For financial analysts and accountants who need to analyze and interpret the information within a set of financial statements, the benefit will be consistency in the data extracted, and a reduction of time needed to re-key information. Once an item is identified by its XBRL tag, that information can be read directly by numerous other applications, and consequently will not have to be re-keyed into that application, eliminating potential errors and reducing the time that would have otherwise been needed to extract the information from financial statements that are filed before transferring to another application for analysis.
* For issuers, the main advantage will be time and cost savings. Over time, internal reports will be easier to generate. Comparisons to industry averages can be done automatically, and information for accountants and auditors can be stored and produced in a manner such that analytical reviews and analysis can be performed much more easily.
* For investors, several benefits are expected from XBRL. Rather than manually sifting through the volume of financial and non-financial information within an annual report, software can easily extract directly the information that is needed and produce any number of customized summaries of information. Overall, time will be reduced when examining an annual report to get at the information needed.
10. The challenges involved with XBRL include:
* The main challenge within the move to XBRL involves the change itself. Even in today's business world, there is a natural resistance to change by many. The thought of giving up something with which one is already familiar for something new is often met with some level. The approach to implementation must be proactive and uniform, and many more in industry will need to become more comfortable with what XBRL is all about.
* Education is needed within the various affected business communities. Many are still not "XBRL-aware," and the fact that people within the affected groups (investors, filers and analysts) are still uninformed about XBRL at this point remains a problem. Even with the requirements only months away for the largest filers and only about two or so years away for smaller filers, many are still not aware of XBRL, what it means and how it affects them. More resources will need to be placed into education and training - this is especially critical for accounting and finance personnel within the companies themselves who will need to file XBRL reports.
* Cost for some of the smaller public companies will be relatively more significant than for others. Larger companies generally have more resources in the finance and accounting function, and may be able to implement it more efficiently and cost-effectively via internal training and concurrent test runs.
* There also remains a disparity in views and preferences related to a company's ability to create new tags. The XBRL format as we know it allows new data tags to be created by companies when they prepare their financial statements. This begs the question of just how much flexibility should be allowed when allowing companies to create data tags. Some feel none at all, while others say that the ability should be limited, and still others say that companies should be able to create as many new tags for data as they deem appropriate
11. Conclusion
In today's fast-paced, technology driven world, the desire for expediency has prompted business professionals to place a premium on information that can be found quickly and easily. Accordingly, the way information is disseminated will change, thus presenting interested parties with a new method of searching for and utilizing financial information. A technique to meet the need of information in the business and accounting fields is to incorporate XBRL standards into financial reporting requirements. However, anytime there is a change in reporting financial information, a systemic change and understanding of the process must take place in organizations.
Within a few years, XBRL will be commonplace in most if not all of the largest public accounting firms and private industries. Currently, many organizations rely on external providers to format and submit their information in XBRL. Potential employers will be looking for new accounting graduates that have this skill set to replace external providers that format and submit their information in XBRL. Integration of XBRL into the accounting curriculum will be imperative to a quality accounting education.
Graduating accounting majors having the skills necessary to structure accounting information in XBRL will be at an advantage in seeking employment.
