The Hindu Business Line : What in hell is XBRL?

EXTENSIBLE business reporting language (XBRL) could well be the greatest innovation in accounting since Italian mathematician Pacioli pioneered double-entry bookkeeping more than 500 years ago. Perhaps more extraordinary than XBRL's development is how this standard for transferring financial information came to exist.

First, it is a product of the technological era, a language developed for the Internet and facilitated by the use of online tools to communicate, collaborate and build consensus globally.

Second, XBRLs self-described evangelists have enlisted more than 200 of the world's major computing, financial and business organisations to collaborate in the language's production.

So what has convinced so many corporations, fierce competitors by day, to work on a standard that will be given away free?

The basics

The Internet's explosive growth is based on the success of HyperText Markup Language (HTML) in `tagging' data, so that any computer with a browser can search for information and display it.

The next generation is Extensible Markup Language (XML), which goes a step further by describing what the data is, not just how it should look onscreen. In order for this to be meaningful in a global sense, however, there needs to be an agreement as to what tags are used for what information — an international standard language, in other words.

It is too huge a task to create an agreed `tag' for everything in the world, so specific industry groups have been gathering to create the agreed tags for their spheres of influence.

XBRL International is the group that is creating the tags for business reporting, and XBRL is the result of this. It is more than a collection of globally agreed-upon tags for elements of business reporting, though. It also contains the technology required to allow correct disclosure, validation and references back to standards and policies that motivate the disclosures.

Applying XBRL

XBRL now exists in two forms — for financial reporting and for general ledger (GL). XBRL for GL standardises the descriptions of what makes up GL transactions (for example, account number, account name, value, journal number, creation date, effective date and so on). Therefore, any GL system can import and export transaction data to any other that supports XBRL — a boon to those whose clients or subsidiaries use disparate accounting packages.

XBRL for financial reporting standardises the descriptions of the concepts disclosed in a business report (for example, cash, inventory, accounts payable, tax expense, EPS (earnings per share), auditor name, and son on). This means that any system supporting XBRL can understand what an item is, how it relates to other items in the report, how much it is and in what currency, the entity reporting it, and the period or `instant-in-time' that it relates to. It can also recognise the accounting standard or internal company policy that motivated the disclosure and/or measurement.

New era

The XBRL consortium is a collaboration of more than 200 organisations, including the world's major accounting professional bodies, accounting firms, software developers, banks, stock exchanges, intermediaries, government regulators and tax agencies (www.xbrl.org has the full list).

These stakeholders have different reasons for cooperating on this project. At its heart is a need for those in the business information supply chain to respond to the crisis in confidence in financial reporting brought on by high profile abuses in the US and here.

Many factors contributed to this crisis and a coordinated response is required. XBRL is one part of that.

XBRL allows better analysis of business reports. Investors, analysts and regulators will be assisted by computers that can read business reports directly, without the time, cost and associated risks of people having to interpret and re-key text-based reports. The truth cannot be hidden in 100-plus page glossy reports, because computers ignore the gloss, do not get tired and do not forget the minute pieces of information they glean throughout the entire report, no matter how long. However, XBRL cannot control the human factor of what is being (or not being) reported.

In fact, Charlie Hoffman, a US CPA and the `father' of XBRL, notes that its development is not a "panacea" for corporate governance. "The reality is if people want to cheat they will ... It's like a gun: you use it for good things, to get food, or use it for bad things, but humans are capable of doing both."

What does it do for me?

What could you do better if it did not matter what accounting system your clients, subsidiaries or divisions used? Imagine if you could make financial reports available on the Internet for you or your clients that any investor or analyst in the world could see and understand, or conversely do the analysis on any company worldwide from your own computer?

What would you save if everyone you report to used the same format? How would audits be conducted if you could analyse every client transaction automatically and compare their results to any other company, anywhere in the world, without leaving your office?

For most accountants, the impact will be felt only when XBRL is widely adopted by banks and regulators and is incorporated in most accounting packages.

Producing an XBRL report should simply be a matter of choosing what output format you want.

(Edited extracts from CA Charter, a journal of The Institute of Chartered Accountants in Australia. www.icaa.org.au/charter)

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