AICPA establishes a language for electronic-based financial reporting.

The AICPA recently laid the foundation for a bridge that will allow CPAs to move more readily from a paper to an electronic economy. Using XFRML (extensible financial reporting markup language), the AICPA high tech task force developed a prototype that will help make electronic publishing of financial information a reality.

The new financial reporting language, XFRML, is derived from XML (extensible markup language). Like its close relative HTML, which is used on the Web, XML is used to code or tag information. The coded information is then accessible to many users across all programs.

The AICPA task force used its prototype and XFRML to create the first full set of XML-based financial statements. XFRML uses the same standards set forth by the World Wide Web Consortium (W3C) in February 1998 for XML.

XFRML, which adheres to the existing rules for financial reporting, will have a significant effect on how financial data is exchanged in the future. IBM, Lotus, Microsoft, Oracle and other major software vendors have thrown their support behind XFRML as the language of business information exchange.

Publication of financial information in XFRML can save enormous amounts of time in researching and exporting information into other "XML-aware" applications.

For instance, before XFRML, if an investor wanted to examine all publicly traded health care providers with at least 500 clinics, a current ratio in excess of 1.75 to 1 and a "clean" opinion from their auditors, it would have been a time-consuming research project. An investor would have had to search the Edgar database (www.sec.gov/edgar hp.htm) and also do a manual search using a particular SIC code.

Using XML-based search tools, an investor will be able to accomplish this research in minutes, if not seconds, with a few simple keystrokes. Moreover, once the information is gathered, it can be imported into another XML application (an Excel spreadsheet, for example) by clicking on a menu item.

The next step in building this electronic/digital bridge will be to expand the application of the pilot project. To that end, several more prototypes will be deployed during the next six months. The next phase of the project will go beyond financial reporting and will involve developing models for XML-based financial transactions in collaboration with other groups.

XFRML is how financial reporting will be done in the digital 21st century. It will allow companies, investors, and industry analysts a way to prepare, publish, exchange and analyze financial reports and the information they contain. It will also allow financial information to be reliably and automatically extracted or exchanged between computer applications.

--Wayne E. Harding, CPA, Great Plains Software, Englewood, Colorado, former chairman of the AICPA high tech task force and member of the information technology practices subcommittee.