Given these findings, coupled with the fact that XBRL has gained significant momentum since the passage of the Sarbanes-Oxley Act, SmartPros has created an XBRL Primer for accountants. This primer provides a concise overview of eXtensible Business Reporting Language, answering the following questions:
- What is XBRL?
- How does it affect accountants?
- What are some recent XBRL developments that accountants need to know about?
- Where can I go for more information?
Armed with answers to these questions, we hope you will have a clear understanding of how XBRL impacts your job and career.
What is XBRL?
XBRL is a relatively simple technology to understand, even for those who don't consider themselves technology-adept.
XBRL is:
- A technology for preparing, transmitting, and analyzing financial data
- Freely licensed and available to the public
- A subset of eXtensible Markup Language (XML), a sophisticated, tag-based language that resembles HTML coding
- Real-time, dynamic, online reporting
- A reporting strucuture in accordance with GAAP and that can be used for other types of business reporting, such as tax filings and regulatory reporting
- An international, non-profit effort
XBRL makes data "smart." It can determine how information is stored and how software presents, manipulates, and exchanges information by using a set of standards and family of taxonomies -- or dictionaries -- of terms.(1)
In contrast, XBRL is not: a computer language; a GAAP translator; a set of accounting standards.
The official XBRL mission is "to enhance the availability and cost effectiveness of creating the business reports of today and tomorrow." The primary goals of XBRL are to reduce the cost of information, accelerate its flow, increase its usefulness, and globalize its form and content.
How does XBRL affect accountants?
XBRL originated to meet the needs of accountants. In fact, the credited "father" of XBRL is Charles Hoffman, a CPA and current director of Innovative Solutions.
At the 8th XBRL International Conference in Seattle earlier this month, Hoffman asked his audience if real-time reporting is possible. Most raised a hand. He then asked if real-time auditing is possible. Fewer hands went into the air, signifying skepticism that real-time auditing is nothing more than wishful thinking. Armed with this informal survey, Hoffman emphasized that real-time reporting is not possible without real-time auditing.
Hoffman demonstrated the value of XBRL. It is an information supply chain that is powered by accountants and financial officers. Without XBRL, these professionals are destined to be buried by paperwork. XBRL promises to reduce that paperwork. Accountants and financial officers can save time by not having to compare one document to another when transferring and submitting data to various regulators, banks, investors, and boards of directors. And time-savings equates to cost-savings.
Finally, the scope of XBRL has broadened. Due to corporate scandals, shareholders, analysts and reporters are demanding more transparent reporting. They don't want to sort through a 200-pound document to find the most important information in the financial statement. XBRL allows readers to quickly access the information they need.
A major benefit touted by XBRL is that it has the potential to significantly reduce paperwork, saving time and money. Other advantages, according to the XBRL International consortium:
- Permits the automatic and reliable exchange of financial information across all software formats and technologies, including the Internet
- Does not require a change to existing accounting standards of corporate disclosure policies
- Improves access to financial information by providing it in a digital, reusable form
- Eliminates the need to re-enter financial data for different users, reducing risks associated with data entry and lowering the cost to prepare and distribute financial statements
- Improves investor and analyst access to information
Furthermore, XBRL International outlines all of the beneficiares of XBRL:
- Accountants, who can consolidate and scrutinize internal data for use in financial reports
- Auditors, who can more effectively review financial records
- CEOs and CFOs, who can use XBRL as a vehicle for transparency and a vehicle for control because it is a precise way of delivering what they want to say directly into the analytic tools of investors and analysts
- Investors, who can invest with more confidence
- Financial advisors, who can better analyze and understand financial conditions at corporations and across industries
- Regulators, who can quickly retrieve and analyze reported data
Will XBRL increase audit fees? Paul Penlerg, Principal at Ernst & Young, said XBRL will make auditors more efficient at their job -- and tongue-in-cheek added that XBRL will "decrease the speed in which audit fees will go up."(2)
What are some recent XBRL developments that accountants need to know about?
- Accounting software vendors are implementing XBRL into their products. According to an XBRL study, two-thirds of the 21 vendors will have already XBRL-enabled one or more of their software products, or will do so, by December 2004.
- XBRL International has released an updated Candidate Recommendation for its XBRL 2.1 Specification. The last remaining step required to finalize XBRL 2.1 is the confirmation of two vendor implementations that demonstrate compliance with the conformance suite that accompanies the Candidate Recommendation. Finalization is expected in early November 2003.
- KOSDAQ, recognized as the high-tech stock market in Korea and "NASDAQ of Asia," has launched an XBRL pilot project with 15 sample companies. This marks for the first time in the world that all public company data within a financial market will be accessible to subscribers through a single compliant and consistent data repository.
Where can I go for more information?
Check out the following articles and other resources to deepen your understanding of XBRL.
Articles
- Can XBRL Lessen Accounting Scandals?
While XBRL cannot remedy fraudulent accounting, author Neal Hannon argues it will make data crunching faster and easier for organizations such as the Securities and Exchange Commission, so corporate filings stand a greater chance of a thorough review.
- XBRL: Revolutionizing the Corporate Reporting Supply Chain
XBRL can do for business reporting what giant metal boxes -- containerization -- did for the shipping industry.
- XBRL Top Tech Trend, Says PwC Forecast
This year's PricewaterhouseCoopers Technology Forecast details how standards such as eXtensible Business Reporting Language (XBRL) can help corporations by giving them a real-time view of operations and allowing executives to make decisions more quickly and effectively.
- How XBRL Is Transforming Financial Reporting
A recent symposium on the benefits of XBRL brought together a prestigious panel of experts who presented the benefits of the revolutionary financial reporting language. The purpose of the symposium was to create more awareness within the investor relations industry on the development and implementation of XBRL.
- XBRL: Do We Lack Vision Or Is It the Message?
XBRL is an innovative technology that can transform financial reporting -- but it has not yet been fully embraced. Tech guru Chaim Yudkowsky examines the adoption of XBRL.
Web sites
- XBRL Consortium http://www.xbrl.org
The Consortium is supported by over 200 companies, government entities, and non-governmental organizations in more than 20 countries. Here you can download the Jurisdictional Jumpstart kit and learn about upcoming events
- Microsoft http://www.microsoft.com/msft
This Microsoft Web page demonstrates the human-readable format of XBRL financial statements.
Books
Do you have a question about XBRL or a comment you'd like to share? Email editor@smartpros.com
Don't forget to rate your updated knowledge of XBRL!
(1) XBRL-Enabled Accounting Software Solutions: A Study of Leading Vendors. XBRL US Adoption Committee. August 2003.
(2) 8th XBRL International Conference, "XBRL Considerations for CPAs & CAs in Public Practice"
