XBRL era: as global Extensible Business Reporting Language adoption gathers pace, Tim Cooper examines its benefits, pitfalls and emerging best practice.
According to XBRL International, the consortium that builds XBRL, the language provides major benefits in the preparation, analysis and communication of business information. Experts say that pioneering companies are also now using XBRL to help improve internal reporting, and it has been a catalyst for CFOs to make their finance processes more efficient.
However, management accountants still have reservations about the use of XBRL; it can be complex and smaller companies can find it a hindrance if they are compelled to file reports in XBRL. George Glass, immediate past president of CIMA, says: "I have an ambivalent attitude. XBRL has a lot going for it, as long as people realiseits limitations and don't use it as a fig leaf. Some people are hiding behind it and saying, 'XBRL says I have to do it like this, so that's what I'll do.' What matters to us, as management accountants, is the principle, not the standard."
Tony Fragnito, CEO of XBRL International (XII), agrees it is important for people to remember that XBRL is "how information gets reported, not what gets reported". He says: "XBRL is widely accepted throughout the world. All the adoption projects are validating the fact that it is serving the market."
A wide range of stakeholders can benefit. "Companies reporting in XBRL are able to compare much more efficiently, for example, to see how other companies have reported similar transactions," says Fragnito. "It enhances the regulatory process because if regulators can find a pattern, they can identify it again quickly. More investor relations officers are using XBRL because they can embed financial information into their analysis efficiently. Previously, investment analysts may have had to go through a 1,300-page PDF, now they can get the exact information they want via an RSS feed."
New industry sector taxonomies (dictionaries of the information to be reported) are being created all the time. But development of overall best practice in the use of XBRL is still in the early stages. Fragnito says: "We have a best practices board, but business reporting frameworks are very different [across sectors], so it is unlikely that there will be one specific best practice for XBRL "
Nonetheless, he does predict a convergence of XBRL practices as it becomes more widespread. "For example, XBRL is facilitating the convergence of accounting standards," he says. "There is an XBRL taxonomy for IFRS, and for US GAAP and for Japanese GAAP. XBRL helps find where the similarities and differences are."
Some of this can get lost in translation, however. A common criticism of XBRL has been that it is too complex.
According to Dave Tomlinson, marketing director at software company, Trintech: "Because XBRL was designed to facilitate computer-to-computer interaction, it can often be difficult for mere humans to check the output. XBRL data, while powerful, is weak in terms of capturing the rich presentation semantics surrounding business reporting information."
Tomlinson praises evolutions that have been designed to overcome this, including iXBRL, or "inline XBRL" - the standard required for UK companies to use in tax returns (see box, left). "iXBRL contains additional information about how XBRL data should be presented," says Tomlinson. "It merges the formatting of a document with the XBRL metadata, making it much easier for humans to view financial data."
Glass chaired a panel about XBRL at the World Congress of Accountants in November 2010. He says: "What came out of those conversations was that it might seem easy to say that everyone must use the same XBRL tags, but though you need taxonomies to give consistency, you also have to be able to drill down to get the information you want in all its richness. That's the challenge in the general use of XBRL."
In 2011, the International Federation of Accountants (IFAC) and ISACA, a systems assurance organisation, published a report, "Leveraging XBRL for value in organisations". This looked beyond regulation to the ways that XBRL can enhance value creation.
The report contains a case study showing how Fujitsu used XBRL to transform its internal financial reporting platform. Faced with a complex organisational structure that includes 63 reporting systems, Fujitsu Group needed a sophisticated internal reporting environment. Through implementation of XBRL interfaces, it achieved a wide range of benefits with better data management, improved internal processes and enhanced data integrity.
Mary DriscolL senior research fellow at APQC, says the size of company makes a big difference in the effect of XBRL filing, especially if, as in countries such as the US, it has become mandatory. "Smaller companies have found it a hindrance," she says. "They have to get stuff over to the financial printer, put it into ataxonomy and tag it ready for filing with the SEC. It's a struggle because, if they are outsourcing to a publisher, there is more pressure for speed, triggering a risk of error.
"But in larger, pioneering companies, XBRL has been a wake-up call for CFOs to do something about the last mile of finance. They are realising that XBRL can do a lot more than just meet the SEC requirements. They are in-sourcing their XBRL function and looking at software that eliminates the manual intervention of spreadsheets to improve internal reporting - packages that will integrate automatically with their enterprise resource planning systems and free people up to do better analysis."
Driscoll adds that the increased speed and availability provided by XBRL is leading to a race for transparency as companies seek access to the best capital and investment deals.
James Fisher, vice president marketing for finance solutions at SAP, says: "Organisations that have in-sourced and built their own capability around XBRL have seen a benefit from new technology, such as the disclosure management solutions, to streamline that last mile process. That gives finance professionals more time for analysis."
Glass responds to these ideas: "The ideal world of fully integrated, end-to-end XBRL would mean you'd be generating continuous performance information. By 12 o'clock each day, the analysts could be looking at how you did yesterday. I'm not sure that's a good thing. Excessive transparency - being in a tearing hurry to provide more and more information - means that you are getting into the political sound bite area. It's so short term and quicker information isn't necessarily better information."
He agrees that outsourcing could create problems. "If you outsource it, there tends to be more human intervention and errors. The converse is that it would be difficult to totally automate the process between the system you need to run your daily business and the system you use to produce statutory accounts and tax - they are very different. As management accountants, we say that having information that you can run the business with is more important."
Regarding improvement of internal processes, Glass adds: "Dashboards are a great way of bringing diffuse bits of information together. As the use of dashboards improves, people who have been used to doing everything with a spreadsheet will find that XBRL is the glue that holds everything together. In that respect the concept is an excellent one."
As for the future, another major benefit of XBRL could be in the area of sustainability. For example, tagging carbon disclosures - projects are already under way in this area.
Glass and Fragnito agree that this is an exciting area for management accountants. "It's not just financial anymore - it's social responsibility and sustainability/' says Fragnito, "The Holy Grail is for us to build this information into analytics. Once that occurs, it will be easy to evaluate a company holistically. People who can add value to that will drive investment and capital to the company. We hope management accountants will understand that XBRL is not just a regulatory requirement or an IT issue. We think the benefit to them is huge and we encourage them to embrace it"
"The Holy Grail is for us to build this information into analytics. Once that occurs, it will be easy to evaluate a company holistically'
RELATED ARTICLE: XBRL-TOP FIVE PROJECTS AROUND THE WORLD
1 In the US, the Securities and Exchange Commission now requires all companies to submit financial statements as XBRL filings. The requirement was phased in over three years, so that by the end of 2011 all public companies were filing in XBRL.
2 In Chma, Lhe Shenzhen Stock Exchange launched a new XBRL service platform for listed companies in 2009 and the China Securities Regulator required mandatory filing for all listed companies from 2009. XBRL International approved full membership for XBRL China in May 2010.
3 The European Banking Authority has recommended the use of XBRL since 2005 and has a continuing project to create taxonomies and promote uptake of the language. Asa result, XBRL adoption is well established in European banking.
4 Holland, Australia and New Zealand have adopted the Standard Business Reporting project at various dates. While the current scope is to reduce the burden of business-to-government financial reporting using XBRL, developers say there is potential to ease regulatory burdens in other areas, such as the public sector.
5 Her Majesty's Revenue and Customs in the UK required mandatory filing of tax returns online from April 2011 using the inline XBRL format.
TIM Cooper is regular contributor to Financial Management