XBRL: Extensible Business Reporting Language

XBRL: Extensible Business Reporting Language

By Karina E. Barton

Extensible business reporting language (XBRL) is a relatively new programming language used to report aggregated data, especially financial statements, using the Internet.

As with its parent, extensible markup language (XML), XBRL allows tremendous flexibility in the amount and type of data a user can present. It has a generic standard that can interpret user-defined data tags, commands inserted in a document to determine how data should be formatted.

But, unlike XML, XBRL includes established taxonomies, or, in simpler terms, formulas of tags to facilitate classification of data. Taxonomies allow “for the preparation of financial information relative to different accounting and reporting standards,” according to XBRL.org, the home page for XBRL International, the organization of 170 companies driving the development of XBRL.

The computer language has great flexibility, allowing 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 with different accounting standards, currency measures and 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 Germany, Singapore, Ireland, the United Kingdom, Japan and Spain.

Accounting software companies are in the process of creating applications that incorporate XBRL. In fact, according to XBRL.org, two-thirds of such companies have released or are in the process of releasing XBRL-enabled products.

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 large corporations or agencies that are computer- or accounting-oriented, such as the Big Four accounting firms, Microsoft and General Electric—many of which have assisted in the collaborative effort of XBRL’s development.

Although XBRL already has impacted the accounting profession, more profound changes will develop 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 tool with distinct advantages over traditional reporting 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. Timelier presentation of facts will present a more relevant picture of the financial status of an organization.

XBRL may offer a coincidental benefit in addressing investor trust. Investors will easily be able to look at their company’s current statements from the comfort of their home computer without having to wait for year-end statements to arrive in the mail, often months after the reported period has ended. They also will have the ability to “drill down” for more detailed information if they are not satisfied with the summaries provided. In light of the recent financial reporting scandals, some investors will be comforted by the accessibility of more information.

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 light. 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—especially when their business is seasonal or cyclical by nature—that require the entire accounting period to give a fair representation.

Any company, though, may see reason to resist a real-time reporting environment. Real-time reporting isn’t a problem when a company is profitable and experiencing a time of growth. But 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, creating a more serious problem for the corporation. Under traditional reporting, if the second and third months of the quarter were profitable, they would absorb the poor first month, and the quarterly report would not shake confidence in the company.

In the end, XBRL’s advantages will more than likely outweigh its disadvantages. 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 to adoption of XBRL reporting technology.

Karina E. Barton is a student member of the NYSSCPA’s Technology Assurance Committee and an honors student at Canisius College, majoring in Accounting Information Systems. A member of numerous academic honor societies and listed in Who’s Who Among Students in American Junior Colleges, 2001, Barton expects to graduate in May 2004.