How XBRL Is Transforming Financial Reporting

A recent symposium on the benefits of XBRL, eXtensible Business Reporting Language, brought together a prestigious panel of experts who presented the benefits of the revolutionary financial reporting language. The purpose of the symposium was to create more awareness within the investor relations industry on the development and implementation of XBRL.

Currently there are over 200 entities leading the XBRL efforts worldwide. Approximately 25 percent are from the U.S., which includes banking institution Bank of America, software giant Microsoft Corp., and stock market exchange NASDAQ. However, despite the endorsement of XBRL, many companies have yet to embrace the new technology.

XBRL has a significant market need and demand, said Ernst & Young's Paul Penler, XBRL adoption chair, U.S., who explained the accounting industry's role in auditing corporate financial disclosures. He said there are four components to XBRL's implementation: the technology standard in which information would be transmitted, the taxonomy or data dictionary, the software that reads and consumes the taxonomy, and the know-how in order to use it.

According to Penler, the “first entities that are really moving forward and taking a look at putting XBRL into real use and practice” are those with huge amounts of data operating on a custom-made computer system and looking to reduce costs and improve effectiveness.

Whereas the external implementation of XBRL includes financial statements, earnings releases, tax filings, and regulatory reports, Penler said there are a lot of benefits expected from the internal processing applications of XBRL.

“This is an area that a lot of people probably feel has the most promise specifically related to getting internal efficiences related to consolidation, as well as rolling up across different businesses,” he noted. However, this application won't start for a couple of years because “a lot of existing software has to have the ability to both read and be exported on XBRL,” he added.

Representing the technological side of XBRL, Microsoft's Rob Blake, a self-proclaimed “software guy,” said it is important to know that XBRL is not a “rip and replace” application. “Instead, what XBRL allows you to do is re-use. In a sense it complements or it's an add-on to what you're already doing,” he explained.

Blake said accountants are able to use XBRL for a variety of purposes, from in-house accounting to general ledger transactions to chart of accounts. He encouraged accountants to not feel threatened by the rules and taxonomy of XBRL that will make it easier to understand and implement.

To investment industry authorities, Blake noted they want their accountants to be able to read XBRL, not create it.

The vice chairman of the NASDAQ stock market, Alfred R. Berkeley, said “XBRL comes along just at the right time to offer a technological solution for democratizing access to data.”

For instance, he noted that just over 100 companies out of 18,000 public companies account for half the trading volume in the American markets. And over 1,400 companies on the NASDAQ and NYSE, both non-U.S. and U.S., have no research coverage at all. XBRL would give investors and analysts a better tool for reviewing those companies that are currently overlooked.

Mark Schnitzer, executive director for Morgan Stanley, explained how XBRL enables analysts to work with corporate data more easily, and the resulting benefits to shareholders and other corporate stakeholders. Schnitzer said XBRL will make the markets more efficient, better inform investors, and provide better access to the global markets and companies to “leverage XBRL to tell their stories.”

The worldwide adoption of XBRL is well underway, according to XBRL International chairman Walter Hamscher. “There's some places where XBRL in adoption is actually way ahead of us and literally only a matter of time before it's universal,” he said. “In fact, you could almost argue that in Germany it's universal already [be]cause it's already in a package that sits on 80 percent of the desktops of accountants in the country.”

For those questioning the cost-effectiveness of XBRL, panel discussion moderator and Edgar Online's XBRL leader Liv Dawson noted a study by Forrester Research that figured $402 billion a year is spent on re-keying information.

“If we could just re-use data and put this data bar coded into XBRL we can do wonders, not just in the analyst community but also internally to our organizations,” said Dawson. “Think about fax machines. How valuable is one fax machine? You can fax yourself. It's really your time to put your data into XBRL so that it can be benefited into the marketplace.”

The author is the editor at SmartPros.com.

© 2003 SmartPros Ltd. All rights reserved.

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