XBRL

By Karina E. Barton
July 25, 2003

Extensible business reporting language (XBRL) is a computer language based upon extensible markup language (XML). XBRL is a relatively new language that is used to report aggregated data such as financial statements on the internet. As with its parent language, XML, XBRL allows tremendous flexibility in the amount and type of data that is presented. It has a generic standard that can interpret user defined data tags. Unlike XML, XBRL has established taxonomies. Taxonomy (as defined by XBRL.org) is “an XML schema that defines new elements, each corresponding to a concept that can be referenced in XBRL documents. XBRL taxonomies can be regarded as extensions of XML schemas, including XML Link-based information.” In more plain language though, taxonomy is an established formula of tags that facilitates classification of data.

As mentioned, XBRL has established taxonomies. This means that they have predefined tags that allow all users of a common industry or common area to understand its meaning and provide data that is uniform and comparable. It has great flexibility though. The computer language allows different industries and different countries to develop their own taxonomies (or build on existing ones). XBRL has the great advantage of being a dynamic and adaptable system of reporting that can be interpreted in a variety of countries all with different accounting standards, currency measures, and different spoken languages.

This new technology has had a global impact on the accounting profession. XBRL has been adopted not only in the United States, but also in such countries as Germany, Singapore, Ireland, U.K., Japan, and Spain. Several of the major accounting software companies are in the process of creating applications that incorporate XBRL. It is currently still in its early stages though, and many companies have yet to implement an XBRL based reporting system. Those that have are mostly very large corporations or agencies that are computer or accounting oriented (i.e. the “big four” accounting firms, Microsoft, and General Electric) and many have assisted in the collaborative effort of XBRL’s development.

Although XBRL has already impacted the accounting profession, I believe that the most profound changes will be in the years to come after the technology becomes more common and hence more adoptable. The primary benefit of XBRL is real time reporting. When more companies begin to use XBRL to report their financials, it will give accountants, financial analysts, and investors a valuable tool. All of these groups of people will have distinct advantages with XBRL reporting over traditional methods. Accountants will be able to audit their clients on a continual basis and there will be far less field research time required. Financial analysts will have the ability to compare companies and evaluate them with greater ease. This more timely presentation of facts will show a more relevant picture of the financial status of the organization.

I am of the opinion that it will have an incidental benefit as well. XBRL may be instrumental in addressing investor trust issues. Investors will be able to easily look at their company’s current statements from the comfort of their own home computer without having to wait for the year end statements to come in the mail, often months after the reported period has ended. They will also have the ability to “drill-down” for more detailed information if they are not satisfied with the summaries provided. In light of the recent scandals, some investors will be comforted by the accessibility of more information.

For accountants, analysts, and investors alike, this technology will be a tremendous advantage. There may be some reluctance in adoption though, because the advantages for the presenters of the data are less clear.

Under traditional financial reporting, an organization may examine its preliminary statements and make honest adjustments to show the company in the best way. It gives the entity an entire accounting period to figure out changes in accounting treatment and assumptions that can be made to maximize reported profits. Real time reporting may not be advantageous for some companies that do require the entire accounting period to give a fair representation. In particular, I am referring to those whose businesses are seasonal or cyclical in nature. But they need not necessarily be cyclical to see reason to resist a real time reporting environment.

If a company is profitable and experiencing a time of growth, it will give everyone the opportunity to see. No problem. But, for example, if an otherwise healthy company experiences a bad first month of the first quarter, the real time picture will show the loss and frighten stock and stakeholders and thereby may create a more serious problem for the corporation. Under traditional reporting, if the second and third months of the quarter were profitable, it would absorb the bad first month and the quarterly report would not shake confidence in the company.

XBRL has great advantages and these will more than likely outweigh any disadvantages for those that opt for implementation. The key will be to give the presenters of the information the tools that they need to show a fair representation of the entity. The ability to provide honest, conservative, and accurate statements without restricting their dissemination until a considerable amount of time has passed will in all likelihood reduce resistance in adoption of XBRL reporting technology.

About the author

Karina E. Barton is a student members of the NYSSCPA Technology Assurance Committee and an Honors student at Canisius College. She is majoring in Accounting Information Systems and expects to graduate May, 2004. Her strength lies in analysis problem solving, and communication. She also has hands-on experience with a variety of software packages. Her accounting experience includes the custom sheet metal and fabricating industry and OSHA compliance. She is a member of numerous academic honor societies and is listed in Who’s Who Among Students in American Junior Colleges, 2001. Her other activies include Amnesty International as a coordinator 2003-2004.