XBRL – the new buzzword going around the accounting world – stands for eXtensible Business Reporting Language.
So what does it mean and how can it benefit your business? At present, there is no common, generally accepted format for business reporting data.
Information is often re-entered into various IT applications for interpretation and sometimes re-keyed into a third. XBRL can solve this problem.
It is a framework developed by accountants for all users and preparers of financial reports. Essentially it is a programme that assigns barcodes to financial information. Formerly named XFRML, XBRL is a freely available electronic language for financial reporting across all software and technologies, including the internet. It is an XML-based (eXtensible Markup Language) framework that provides the financial community with a standards-based method to exchange, prepare, publish in a variety of formats, reliably extract and automatically exchange financial statements of public companies.
This is certain to lead to better informed investment decisions and enhanced communications.
For those unfamiliar with XML, this is a method used to add structure and context to unstructured information. It was recommended by the World Wide Web consortium (W3C) as an improvement of HTML, or hypertext mark-up language, as it allows more relevant searches to be done on the internet once data has been tagged. HTML, the current language of the internet, determines how a page of information is displayed. The net has allowed information to be provided more freely and quickly, but obtaining it can be time consuming and frustrating even when you know exactly what you are looking for and where it is.
Take, for example, an analyst interested in IBM’s fixed assets. The obvious way to go about getting it is to type in ‘IBM fixed assets’ and hit the search key. But the number of sites listed related to that topic is 4,920.
The only way to find out which is relevant is to filter through each of the sites. This resource-dependent approach only provides information for one company.
Now imagine performing the same task on the FTSE-100 companies. The mind boggles at the time and resources needed to retrieve the required information.
It is a relief to think XBRL can locate the required information, from any number of sites, and automatically transport it into a spreadsheet.
Using XBRL, an electronic dictionary, called taxonomy, labels data tags.
This means every element of a financial statement, including the balance sheet, p&l account and cashflow is coded using an easily readable tag.
This universal coding system now means companies can communicate more efficiently both externally and internally on a global basis.
There are two major benefits of XBRL for a business. Firstly, it facilitates with key stakeholders and internal management. Information can be extracted by analysts, financial institutions and investors and reports can be compared within industry sectors by establishing compatibility in categories of financial information. Secondly, it allows information to be presented in different formats without the costly exercise of re-keying information separately for printing, for the website and for filing, significantly reducing the chance of error.
XBRL provides an efficient and reliable means of communicating a company’s financial information while reducing the cost. The beneficiaries of XBRL include all members of the financial statement supply chain, including preparers, distributors, aggregators and most importantly, end users.
At this early stage, there appear to be two issues causing concern to finance directors and CFOs. One is transparency and the other, the uncertainty as to whether or not XBRL requires additional financial information.
An important characteristic of XBRL is that it does not require companies to publicly disclose additional information, but allows more readily accessible information for those requiring it. This presents opportunities for companies.
XBRL improves investor and analyst access to financial information thereby lowering their uncertainty over perceived risks of investing and providing them with credible and reliable information. Similarly, XBRL does not require the establishment of new accounting standards. It enhances the usability and effectiveness of the standards already in use through the digital language of business.
Nor is it just large listed companies that will feel the benefits. SMEs often find themselves having to report financial information in a number of formats. Resources usually available to these companies are limited so any cost saving methods are valuable.
So who else stands to benefit from XBRL? Looking at the financial information supply chain, XBRL will bring benefits to them all. Companies who prepare financial information will be able to do so more efficiently because the data is entered once only. Analysts, investors and regulators will benefit from enhanced distribution and usability of existing information. Data can be obtained in the format required for analysis. Financial publishers and data aggregators can collect it more efficiently, thereby lowering costs.
The global effort to promote and adopt XBRL is headed by the steering committee XBRL.org. Eighteen months ago there were 13 members. Today, the steering committee consists of over 85 companies and other organisations, including representatives from the financial services sector, software vendors, professional services, technology companies, news media and accounting organisations. Companies such as Microsoft, Sage, JP Morgan, Reuters, IBM, each of the Big Five accounting firms and the ICAEW are all members of the global consortium.
XBRL is not a framework exclusive to the US. Around 200 people from 18 countries took part at its first international meeting in London last month. In the UK, interest in XBRL has escalated over past months. The institute is leading XBRL’s development in the UK and has formed the XBRL UK steering committee with representatives from the accountancy profession and information specialists.
In July 2000, the American Institute of Certified Public Accountants released the first specification for US companies, XBRL for Financial Statements. The release meant companies could incorporate XBRL into their financial reporting process. At the recent international XBRL meeting, the International Accounting Standards Committee announced the release of their draft international taxonomy. The taxonomy XBRL for Financial Statements has been prepared using International Accounting Standards as opposed to the US version, which was prepared under US GAAP.
XBRL UK is in the process of developing an UK-specific taxonomy with reference to the key accounting standards. This sets the UK on course to become the first country outside the US to develop a national taxonomy.
The idea behind the conference and the XBRL UK’s taxonomy development is to promote adoption and implementation of XBRL among UK companies.
Morgan Stanley Dean Witter in the US is the first company to adopt and utilise XBRL in its financial statements.
In summary, all users of accounts stand to benefit from accessing existing financial information in a more flexible fashion.
XBRL has the potential to change the face of financial reporting. XBRL statements are to the 21st century what paper-based annual reports were to the 20th century. Potential cost savings may be considerable for banks, credit agencies and others that regularly analyse accounts.
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