Today, there is a need to create a single financial reporting standard in digital format. Extensible Business Reporting Language (XBRL) is an open technology standard that provides the ability to store data in a format accessible for reading by a computer. XBRL does not change the accounting standards or methods used for financial and business reporting. However, it is assumed that it will have significant implications for various stakeholders. XBRL is the universal XML-based standard for the publication, exchange, analysis, and comparison of financial data and business information. The purpose of the XBRL is the development of an optimal scheme of exchange of financial information between participants of the international market and the methods of creating, sharing, and comparing the business reporting. XBRL is the modern language used for the electronic exchange of the financial and business data. It is a real revolution in the preparation of the business reports. It is the best tool for the preparation, analysis, and transmission of the business information. It reduces costs and improves the efficiency and quality of the data. The interest in XBRL is definitely growing, and the important role that it can play in improving the accuracy and reliability of financial reporting and audit is increasingly being recognized.
Many organizations expect that the Internet will make the process of organizational decision-making better, faster, and cheaper. Bergeron states, “As one of the major disruptive technologies of the 20th century, the web changed everything”. It applies particularly to the issues of financial and business reporting. The latest standard XBRL – will allow companies and users to prepare and analyze the financial statements on the Internet. XBRL is a variant of the Extensible Markup Language XML for financial and operational business reporting, which is a freely licensed open technology standard (or dictionary), used for the electronic exchange of the business information. XML is a common language for describing the data used for storing and processing, as well as sharing via the Internet. At the heart of XML, there is a process of the document markup using labels, when a unique set of labels can be assigned for each quantity, unit, or descriptor information exchanged. By means of labels, computer programs can read the data without interference of a person. XML labels are commonly used for exchanging data such as personal information, for example, the name, phone number, or account balance of an individual. XML uses groups of labels in the form of the classification system or taxonomy to describe the data for a specific audience. Many industry groups have their XML vocabulary for describing their activities. In fact, XML is a language for the development of other languages such as XBRL.
XBRL is used as a language (dictionary) of financial and business reporting. With it, a person can designate as if by means of the barcode business information contained in the general ledger, profit and loss statements, cash flow statements, balance sheet, as well as textual information in the notes and other instruments of business reporting. XBRL is
- An open technical standard for reporting and analysis of business and financial information;
- Unrelated to any particular software;
- Neutral with regard to the concepts of accounting;
According to Bergeron, the essence of XBRL is very simple. Instead of considering the financial information as static text, for example, placed on a standard web page or in a printed document, XBRL assigns each data item, regardless of whether it is numeric or text, its identifying label. This label can be read by the computer and allows a person to use information interactively.
Christopher Cox, chairman of the Securities and Exchange Commission in the U.S., has launched the development of XBRL. The XBRL specifications are developed and published by an independent international organization XBRL International, Inc. Since the code is open all interested specialists from around the world submit their recommendations and suggestions for the improvements in the XBRL International, Inc., which provides general support for the current version of XBRL. XBRL International, Inc. began its activity in 1998. It is a consortium that, at the beginning of 2010, had 550 members including different international organizations and companies in various industries and orientation. Nowadays, the most advanced users of XBRL are the United States and the European Union. Since 2009, in the U.S., XBRL has been a mandatory standard of the financial statements presentation in accordance with the requirements of the Securities and Exchange Commission (SEC).
For the first time, the U.S. began to demand from their public companies reporting in electronic form in 1993, when the system EDGAR (Electronic Data Gathering, Analysis and Retrieval System) was introduced. It allowed everybody to find easily all the information about the issuer on the Commission’s website in the form of the PDF-files and greatly facilitated the realization of the analysis. In 2005, the Commission invited the companies–volunteers on their own initiative to present financial statements in an interactive format on the basis of the use of XBRL. According to the Commission, within four years of the voluntary program existence, 125 companies submitted 540 different financial reports in XBRL. The first public company in the world that has completely switched to the preparation of the financial statements using XBRL has become a major international investment bank Morgan Stanley Dean Witter. It has used XBRL since 2000.
Financial information is not considered a text block by XBRL. Instead of this, XBRL appropriates an understandable label to each data element. The document of the business reporting contains intelligent data that allows exchanging data of this business reporting through the semantic encoding information. Computer applications can use the XBRL-data for recognizing information in the XBRL document, its selection, analysis, storage and sharing with other computers, as well as presenting it to the users in different ways. The XBRL labels are maintained and defined in the taxonomies containing metadata (data about data). Taxonomies are in the basis of the identification of financial and business information using the labels in XBRL. This electronic system of labels classification defines numerous concepts in business reporting and thousands of links between them. Taxonomy provides the company with the detailed data for each concept such as definitions, carrying position (credit or debit), and labels, as well as information on the summation and presentation. The final document is the final result of the data creation in XBRL.
Labels relieve users from the time-consuming and costly manual data entry by automating the process. As a result, the computer recognizes the XBRL data. It selects, analyzes, maintains, and communicates with the other machines. The users can receive data from different sections in real time. XBRL speeds up the collection of financial data, reduces the risk of error, and permits automatic checking of data. XBRL can be used to represent data in different languages and different accounting standards. Currently, there are various language taxonomies corresponding to IFRS, US GAAP, and other national and industry standards.
XBRL has many advantages. It saves time, money, and efforts and gives unlimited possibilities of the financial statement analysis. The XBRL standard is completely open and free. Furthermore, at the moment, there is a great number of tools for the transformation of data in this format. One of the advantages of XBRL is that it allows automatically leading a style and fonts of reports of the company in the required format. It saves much time that, earlier, was spent on driving a report to the appropriate type. As XBRL marks data, only the required data can be retrieved from reports. In addition, XBRL carries not only data but also formulas. There is no need to recalculate the computed data manually. A computer provides the automatic verification of the statements presented in the format of XBRL.
The XBRL data include an automated audit trail. As a rule, when data are moved from one application to another, they lose their characteristics and properties. Auditors need to open the source data separately to determine their accuracy. Through XBRL, not only data are passed but also their properties and characteristics are contained in the metadata. Therefore, the verifying party has complete information in a single file. Everyone knows that raw numbers cannot tell a person the whole story. Therefore, XBRL supports writing commentaries and notes. Consequently, the auditors can see a complete picture of the data. It helps effortlessly understand the situation. At the same time, auditors are saved from watching heaps of documents and papers. Thereby, the cooperation between the companies is facilitated.
XBRL allows extracting exactly the data needed for the analysis from all reports without losing time searching for information. It saves time especially if a person wants to analyze highly specialized data from different companies. XBRL allows linking data from different systems. It helps avoid common problems associated with the interaction of different formats and platforms. The flexibility of the language helps save time and makes a qualitative analysis. Except the benefits for external users such as stock market regulators, analysts, and investors, XBRL is also useful for efficient and quality financial information exchange inside the reporting company, for example, between different departments, reporting services, planning, and treasury within a large company or a multi-branch holding company with an extensive product line and geographic network presence.
There are several versions of XBRL. All of them are still available. The version 1.0 was based on DTDs. The version 2.0 introduced the usage of XML. The version 2.1 allows the introduction of a conformance suite. The main aim of the SBR version is the reduction of the efforts and time spent on the preparation of the reports by businesses. In 2008, a new version of XBRLS was issued. It makes working with XBRL easier for the business users.
It can be concluded that whatever the primary costs for implementing XBRL are, they will be repaid by the benefits that the shareholders and potential investors will find in a short time: high investment attractiveness of the company due to the increased visibility and control and timely reporting to various regulatory authorities. Although, the XBRL format is still in the early stages of the application (in terms of the situation in the world and market position of the company), its popularity is growing with each passing day. XBRL is widespread in many countries of the world. Some of them already have some experience while other countries only consider this possibility. However, regarding the tendency, XBRL is becoming more popular in preparing and analyzing financial statements with each year.
About the Author
Nancy Bauman is a financial analyst and accounting expert. She is also an expert on business ethics and is constantly participating in university conferences as a member of the Educated Youth Movement. She regularly contributes articles related to business and loans at advanced-writer.com