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XBRL adds universal access to corporate reporting

Finance Blogger: Anthony Harrington Anthony Harrington

One of the annoying things about printed documents in this electronic age is that you have to do quite a lot of work to turn them back into machine-useable form. This is particularly true of complex documents like a company’s report and accounts.

Analysts and users of accounting information would love to get these reports in a form which makes it really easy for them to strip out the numbers that they want to examine and have these numbers dumped straight into the relevant portions of their spreadsheets. Unfortunately, until now this has involved either doing it by hand, by re-keying all the information, or, if you were senior enough, delegating it to someone else to do (with plenty of opportunity in the process for copy and transposition errors to creep in).

Enter XBRL, or Extensible Business Reporting Language. In a Policy Statement issued in December 2009, the Federation of European Accountants (FEE)—the second “E” comes from the French for accountants, “Experts comptables”—points out that whereas PDF documents in Adobe PDF format or HTML web documents are static in nature (you can cut and paste them, but that’s it), XBRL opens up dynamic possibilities.

By its nature, XBRL is about making financial data portable between computers. Each item of data is “tagged” and the tag includes information as to the rules for processing that information. As the FEE notes,

“Computers can treat the data ‘intelligently’: they can recognise the information, select it, analyse it, store it, exchange it with other computers and present it automatically in a variety of ways for users. In this way, XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits automatic checking of information.”

These same virtues make it ideal for regulatory authorities, from tax authorities to customs, to receive XBRL documents filed electronically. Moreover, this is not just a “big corporate” development. The International Accounting Standards Board (IASB) is busy developing an International Financial Reporting Standard on an XBRL “taxonomy” (a collection of tags) for small- to medium-sized companies, which it is scheduled to release in April 2010.

Since the whole aim of XBRL is interchangeability and for comparable bits of data from different organizations to be easily stripped out into, say, a table and compared, the XBRL initiative tends to stand or fall by the consistency with which preparers of financial information use the XBRL tags. This is why the “taxonomy” efforts of the standard setting body, the IASB, are so important. If you use a tag one way and I use it a different way, an analyst trying to compare the resulting accounts is going to end up cursing both of us when he/she ends up with two bits of information that purport to be comparable but actually are not. All XBRL will have achieved in that instance, is to add a fresh challenge to what has always been a difficult exercise, namely comparing company A with company B.

One of the big positives that flow from using XBRL for companies who get it right, according to FEE, will be enhanced communication with investors via the internet. All the signs are that the XBRL train is rolling and is now unstoppable. What remains is for accountants and auditors to sharpen up their engagement with it.

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Tags: accounting standards , data analysis , Federation of European Accountants , financial reporting , XBRL
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