IR Resource Center

Looking at Business Reports Through XBRL-Tinted Glasses

XBRL is the bridge for communicating financial information easily, quickly, and efficiently.

Successful businesses have learned how to leverage the power of financial information. They have set up intranets, extranets, and corporate websites in an effort to help employees, investors, and financial analysts tap securely into the company's knowledge base of financial reporting. But until now an important ingredient was missing—the ability to describe financial information and data structures efficiently over a network. Once XBRL (eXtensible Business Reporting Language) is adopted, it will enable organizations to create comprehensive, meaningful, and highly customizable financial reports at significantly reduced costs in a format compatible with most accounting applications.

Right now, there's no common, generally accepted format for business reporting data. Data must be either re-entered into computer applications for interpretation or copied and pasted between applications. XBRL will solve this problem by allowing content to be created once and distributed over the Internet or between applications. XBRL is easy to use—anyone, from the CEO to the marketing analyst, will be able to use it to create and distribute his or her own reports. It will be a standard feature in financial software applications, and though it might not be transparent to the end user, it will be easy to access and use.

XBRL is a subset or dialect of XML (eXtensible Markup Language). In order to understand it, you have to first understand XML. Think of XML as a formatting language that arranges information in containers of data (similar to rows and columns in a spreadsheet). In a spreadsheet, the data can be inserted into the rows and columns. Just as the headings for the rows and columns give meanings to the individual cells, XML provides meaning to the data within tags that bracket the data. For example, if the cell of a spreadsheet contained the number $45,000, the user of the spreadsheet might not know if the $45,000 was an asset, liability, net income, or the price of the owner's new car. But if the content of the cell was tagged (as in the XML language) with the description "net income for the first quarter," then the user (and the applications) will interpret the $45,000 to represent the net income for the first quarter. Therefore, XBRL provides both content and structure (context) to the financial data.

XML is platform independent. It works on any operating system, any computer—even cell phones and other wireless, mobile devices. It's also application independent and can be integrated with almost any vendor's database system. Users of XML have found it lets them keep all of their legacy systems and hardware while integrating it with new systems—including their trading partners' systems and the Internet. XML is simple, but it has created a groundswell in the industry—to the point that all of the major software vendors have promised to rework their products to incorporate it. Microsoft has announced that XML and underlying Web technologies (the hypertext transport protocol) may soon completely revise our perception of computers and computer programs. There will be no obstacles between systems. (See Figure 1.)

XBRL inherits from XML the notion that data should belong to its creators and that content providers are best served by an open data format. An open data format won't bind anyone to particular script languages, authoring tools, and delivery engines. Instead it will provide a standardized, vendor-independent level playing field on which different systems may freely communicate.

With XBRL, if you wanted to send a financial report to your analyst or banker, you could send it electronically from your accounting software. The software automatically creates the file in a format that the analyst or banker can easily import into his or her software. Traditionally, you might have sent the information as an Adobe Acrobat document, a Microsoft Word file, or a plain text file. As convenient as these file formats are for human readers, they don't make it easy for a computer to extract information. Another option would be to work with the financial analyst's accounting department or banker to come up with a custom format (such as a comma-delimited file). Of course, if the financial analyst or banker decides later to change the file format to accommodate other clients, then you'd also have to make changes. These changes could be costly.

XBRL solves this problem. Your accounting application could e-mail a copy of the financial report in XBRL to your financial analyst, and the report could then be read into his or her system. Because XBRL will be flexible, minor changes to the format won't affect the system's ability to exchange information. The XBRL language is designed to export information that's self-describing. You can look at a document and see that it's XBRL, and you can also tell what version is used.

Standardize on a common taxonomy (shared vocabulary) and you reap the benefits of interoperability and integration. In the long run, standardization improves access and lowers distribution costs because fewer technologies are involved. By using XBRL, organizations will be able to leverage their IT investments over a variety of applications. In addition, because XBRL will be an open specification, users can be confident they won't be locked into comma-delimited files. XBRL's simplicity and flexibility will make it an ideal foundation on which to build XML-based Business Reporting Markup Language initiatives.

In this sense, XBRL solves two significant problems for anyone preparing financial reports. First, it provides reliable extraction of financial data across all technology formats. With XBRL, financial data have to be entered only one time, thereby reducing the risk of data entry error by eliminating the need to manually key information for various report formats. And XBRL facilitates comparison of financial reports in industry sectors by establishing compatibility in categories of financial data.

XBRL isn't a new accounting standard; it's a technology that uses current standards and that has the flexibility to adapt to changes to existing standards or new standards. Contrary to popular belief, XBRL doesn't require disclosure of any additional financial information beyond that currently required in a company's financial reports. Rather, it enhances the ability to exchange the information across different technology formats (including the Internet).

XBRL, like other emerging open-architecture technologies, increases the overall efficiency of information exchange while reducing the related cost. The beneficiaries of XBRL include all members of the financial statement information supply chain, from preparers and distributors to aggregators and, most important, the end users.

Users will find it similar to the simple "save as HTML" functionality in Microsoft Word that's used to make Web pages. Microsoft, IBM, Oracle, and accounting software vendors are currently developing tools to make XBRL equally easy to use.

There are many other beneficial uses of XBRL. For example, credit analysis can be less costly and more timely when financial information for credit request purposes is provided using XBRL. Because XBRL financial information is created once but can be rendered in various formats, the costs associated with publishing, exchanging, and analyzing financial reports and data can be reduced (see Figure 2). As a shareholder tool, XBRL provides a robust platform for significantly enhanced assessment, extraction, and query tools for shareholders and other users.

It's important to remember that XBRL isn't a detailed universal chart of accounts—it's a GAAP/industry-sector-oriented tagging scheme or language. It isn't a new accounting or auditing standard, nor is it designed specifically for U.S. territory GAAP financial statements. It's for a range of global territories.

The demand for financial statement information in XBRL will come from the investor community because analysts will be able to extract, analyze, and process financial statement information more cheaply and on a more timely basis with software designed for this purpose. In addition, the information will come directly from the company, thereby increasing the speed at which it gets to the analysts' models, and it can be readily exchanged among wide varieties of software applications, which means it can be reused easily.

Early adopters are expected in the emerging companies where analyst coverage is minimal because they don't have the resources needed for this coverage. Analysts will be encouraged to look at these companies because their information will be provided in XBRL. This will place some pressure on late adopters because analysts' tools are developed to incorporate the XBRL information. As a result, in the next 18 to 24 months the market is expected to move toward general acceptance of XBRL-enabled financial statement information.

What about other financial professionals? There are three macro areas (or levels) where financial managers might find uses for XML: (1) at the transaction level, (2) at the intermediate summary (general ledger) level, and (3) at a summary reporting level. There are more than 200 emerging XML specifications in deployment for industry supply chains at the transaction level, and, in most cases, the accounting industry representation on these consortiums is still small. As a result, it's difficult to predict the interoperability of the transaction-level specifications with the summary-level users. But we need to be involved if we want to survive in the emerging digitalization of the business world. We need a clear, articulate view of the language of business, and, in most cases, that language will be structured data tagged in XML.

The development of general ledger data specifications is clearly our domain (financial management) and is considered by many to be a high-value area for development. Although it's part of the longer term XBRL and other industry-specific XML strategy effort, it hasn't matured because of the underdeveloped nature of the transaction-level specifications across all industry sectors and the focus of the limited XBRL resources on the financial reporting level. The XBRL Steering Committee has the general ledger level on its strategic agenda and expects to address it as data specifications on existing financial reporting are published and the implementation has begun. In addition, the interoperability of XBRL with other XML specifications is also part of the overall XBRL effort and is being addressed by the XBRL Specifications Working Group. To keep up with current developments, check www.xbrl.org for news. (See sidebar for other resources.)

Streamlining the financial information supply chain through XBRL gives companies a competitive edge and lets management accountants/financial managers cut reporting costs, positioning them as premier knowledge professionals.

Simplifying the exchange of financial statements through XBRL will improve their flexibility and will positively impact the broad range of attestation services from full-scale audits to smaller-scale reviews of selected information. Costs to incorporate XBRL will be minimal because it will be built into most accounting and financial software tools and operating procedures.

Using XBRL doesn't mean that companies will be producing cookie-cutter financial statements. They can continue to use their regular statement formats because XBRL relies on existing accounting standards.

XBRL improves investor and analyst access to a company's financial information, thereby lowering their uncertainty over perceived risks of investing and providing them with credible, reliable information.

And XBRL lets whole groups of people and organizations reuse the same financial statements through the creation of a single-source document that can be the basis of required electronic filings (such as those for EDGAR), investor relations pages posted on the company's website, and statements required by credit reporting agencies (as well as lenders) to comply with loan covenants.

Investor reactions and buying decisions are often based on rumor, innuendo, and guesswork because official information comes out infrequently and after-the-fact. As management publishes more timely information, it can better control investor reaction.

Because of XBRL's simplicity and improved efficiency, it's no wonder that the accounting/finance industry is excited about this emerging business reporting language. Its growth will impact the way companies report their financial picture. Incredibly powerful and easy to use, XBRL will improve the standard for excellence in financial reporting. High-powered financial reporting will become a necessity.

The following websites will provide additional information regarding XBRL:

• www.xbrl.org
• www.xmlmag.com
• www.computercpa.com/xml2.html
• CFO Magazine article, "How the Web Was Won" about online IR
• Scientific American article, "XML and the Second-Generation Web"
• FASB's Electronic Distribution of Business Reporting Information
• IASC's Business Reporting on the Internet