XBRL's Emerging Framework.

It isn't here yet, but XBRL -- yet another acronym in a business world laden with them -- is around the corner, and its eventual impact is expected to be profound.

So, what is XBRL? Short for eXtensible Business Reporting Language, it is a framework based on XML (still one more acronym, for eXtensible Markup Language) that would be freely licensed and facilitate the automatic exchange and reliable extraction of financial information among various software applications anywhere in the world.

"The initial goal of XBRL is to provide an XML-based framework that the global business information supply chain will use to create, exchange, and analyze financial reporting information including, but not limited to, regulatory filings such as annual and quarterly financial statements, general ledger information, and audit schedules," according to XBRL.org, the international group developing the specification.

More than anything, the emergence of XBRL -- which was recently reviewed by major corporations like General Electric and United Technologies -- is a testament to the Internet's insatiable appetite for data. The new specification, says XBRL. org, "leverages the efficiencies of today's Internet as today's primary source of financial information." Moreover, says Tom Vos, president of Edgar Online, "XBRL provides an efficient and reliable means of communicating financial information without changing existing accounting standards or requiring a company to disclose any additional information beyond that in its current financial statements."

"XBRL is an effort to put together what we consider to be the descriptor and rendering language for financial statements. It will allow us to electronically import or output globally standardized statements, eliminating the need for redundant entry and simplifying usability," says Jack Gregory, managing director at Moody's Risk Management Services, South Bend, Ind.

"The XBRL specification is critical to the financial reporting success of companies across all industries because it empowers people to employ the Internet as a highly efficient channel by which to communicate business information," said Chris Scherpenseel, president of FRx Software. "XBRL benefits everyone in the financial information chain, from staff accountants to controllers and CFOs."

The protocol is very cutting-edge, and won't likely be showing up in financial reporting for some time. Mike Willis, partner and deputy chief knowledge officer for the audit practice at PricewaterhouseCoopers, says that current thinking is that XBRL will start showing up in 12 to 18 months, with widespread use probably three to five years away for external reporting. Willis is also chairman of an industry XBRL steering committee.

In July came the release of the first specification for U.S. companies, XBRL for Financial Statements, which allows companies to begin incorporating protocol into financial reporting. The chief benefits, say supporters, are a streamlining of the reporting function, interoperability among systems and reliable extraction of data.

The XBRL Committee has more than 50 companies and organizations around the world, expanding as sectors and foreign jurisdictions are developing specifications. The intent is clear: to build on XBRL.org and to develop specifications on a global scale. The AICPA has been working with major corporations and international accounting organizations for more than a year to develop XBRL. Says Barry Melancon, president of AICPA: "Its purpose would be to develop and launch specifications for other countries based on strong global demand from members of the financial information supply chain."

A key hurdle, says PWC's Willis, is "taxonomy," or classification of terms, which differs according to jurisdiction and economic sector. "Cash and checking, for instance, in the commercial and industrial sector is an asset; in banking, it's a liability," he says. Sorting out these taxonomies "is not complicated, but it's [a] large" issue. Willis believes top companies like Fidelity Investments and Morgan Stanley Dean Witter might take role in setting up taxonomies, adding that the International Accounting Standards Committee (IASC) has a taxonomy program under review.

Corporate users have long recognized the limitations of Hyper Text Mark-up Language, or HTML. "The XBRL team has done a reasonably good job describing the potential of this software technology," says Mitch Danaher, assistant comptroller at General Electric. "They do this by contrasting it with HTML. HTML is a very static way to describe data; it tells you how to position, format and display information -- but nothing about the data itself. Users can't really do much with HTML financial statements other than print them. What XBRL enables you to do is to label the data in specific, meaningful ways -- which opens the door to other potential uses."

"In effect, once resident in XBRL, the data describes itself... What XBRL does is say, 'Here's a piece of data, and here's a dictionary telling you what that data represents.' The challenge is to deliver on that potential, while at the same time managing financial statement users' expectations about the comparability of what they are getting."

Danaher adds, "The principal caveat that needs to be understood about XBRL is that it's impossible to say with any degree of certainty that any particular element in the data dictionary for a given company is 100% comparable with the same element for another company, even for a direct competitor in the same industry. Conceptually, the degree of comparability among companies will be no different under XBRL than it is in paper-based financial statements today."

Willis notes that many large companies are both preparers and users of financial statements. XBRL would offer considerable efficiencies to companies like Fidelity or American Express, he says. "On the user side, they could get efficiencies for processing. On the preparer side, the [results would be] much more useful to stakeholders and constituents."

In the eventual rollout, the integration process will depend on the affected applications, Willis says. For software providers like Sage and Great Plains, the process will be "fairly transparent to the user," he adds. "They will XML their applications, and XBRL will be an update." Today, everyone can import and export XML files, so "the issue is mapping the taxonomy to the specifications of their architecture."

One key advantage of XBRL would be improving financial analysis. Moody's Gregory notes that most banks today are using Moody's FAMAS financial analysis product to analyze data, but are spending up to a couple of days to originate a middle-market loan, in part because of the time needed to re-key data from financial statements. "The effort and activities around spreading financial statements is labor-intensive and costly," Gregory says. With XBRL, however, that spreadsheet-building would be eliminated, and analysts could use the data immediately.

Danaher, who was involved in discussions with an XBRL team during the summer, says one issue has centered on the perceived value of using the protocol during the reporting process instead of simply applying it afterward as an organization and distribution tool. "There's little or no incremental value for a company to put their financial data into XBRL at the end of the reporting process," he says. "The XBRL team needs to show companies how internal financial reporting processes can benefit from the use of this software technology. A key part of any closing process is integrating financial and operating information from business units into consolidated results. If XBRL could be used to facilitate that process, it has the potential to streamline data collection and analysis. The key challenge for them is to develop tools that enable XBRL to be used effectively to add value to those efforts."

Specifically, according to Danaher, "what's lacking with XBRL are two kinds of tools: import/export tools that would enable you to effortlessly get data from legacy systems, like general ledgers, into XBRL; and report writing tools that would allow you to easily shape the data resident in XBRL into pre-defined financial statement formats. The degree to which that can only be done using the services of highly skilled programmer is obviously a limiting factor -- there simply isn't enough of that talent to go around."

Moody's Gregory agrees that a key step will be involving major software developers.

"Our hope is that XBRL will be embraced by Sage, Great Plains and others on the software side, and by the accountants," he says. "The vendors of software need to put it in as a standard feature." Others argue that major database providers also need to develop XBRL applications.

"Right now this is really just raw potential. That's all it is," says Danaher. But given that the development hurdles look like a matter of time rather than interest, the day of real-time sharing of full financial statements may be close at hand.