XBRL: A New Wave in Financial Reporting 

Technology

XBRL: A New Wave in Financial Reporting

Extensible Business Reporting Language may be coming to a desktop near you in the not-too-distant future.

FROM: MAR-APR 2004 ISSUE | BY SRINI GIRIDHAR, DAVE POTTER

Financial reporting reforms and changes in business reporting practices continue to be hot topics this year. With numerous developments unfolding in these areas, universal, timely access to financial reports has taken on greater importance among financial professionals and individual investors alike, and has brought Extensible Business Reporting Language (XBRL) clearly into the spotlight. XBRL is a financial data exchange standard that is poised to transform financial reporting. Here's a brief overview of what you need to know.

XBRL is an open, royalty-free standard based on the more general XML publishing standard. It uniquely identifies and categorizes financial data, and provides a powerful platform for interpreting and analyzing financial information. In addition to providing increased transparency in business reporting, XBRL-based financial reporting provides improved data security by strengthening controls on data flows between computer systems.

Other benefits of XBRL-based applications include streamlining the flow and exchange of information to make the process less expensive, faster, and more reliable. With XBRL, financial reports can be published to the Internet, allowing for efficient, timely analysis internationally, while avoiding the costs and delays of re-keying and data verification. XBRL will also enable new capabilities that have been unfeasible or too costly in the past.

The driving force behind XBRL is XBRL International, a non-profit consortium with more than 200 members representing accounting, technology, financial services, and government agencies. XBRL Canada is the Canadian jurisdiction of XBRL International. Its role is to create and maintain XBRL taxonomies for Canadian Accounting Standards, to increase knowledge and understanding of XBRL and its uses in Canada, and to encourage and promote the adoption of XBRL in Canada.

Since its inception in January 2001, XBRL Canada has recorded a significant increase in its membership and in the level of interest in XBRL. Early this year, XBRL Canada released the Canadian primary financial statements taxonomy as per Canadian GAAP. (A taxonomy is an XBRL "dictionary" that defines data elements, their relationships, and any authoritative references for specific reporting requirements.) Work is now underway on the taxonomy for financial statement notes, and management discussion and analysis.

CGA-Canada is one of the members of XBRL Canada, as is Statistics Canada, the country’s national statistical agency. While CGA-Canada's role is mainly an oversight role at this point, Statistics Canada is currently exploring the implementation of an XBRL pilot project to reduce data collection costs and further improve data quality.

XBRL is building momentum in the international market. As of June 2003, about 25 per cent of accounting software vendors had built XBRL interfaces for their products; by December 2003, that figure had increased to 65 per cent. It includes major vendors such as Oracle, Microsoft, Hyperion, SAP, PeopleSoft, ACCPAC, JD Edwards, and Cartesis. Reflecting this activity, the Eighth International XBRL conference held in Seattle in November 2003, was focused on XBRL implementations by software vendors.

At the conference, representatives from a number of businesses in the United States, Japan, and Korea presented details on their companies’ successful implementation of XBRL pilot programs. Financial services companies with XBRL initiatives underway include the Tokyo Stock Exchange, the Sumitomo Mitsui Banking Corporation, the Bank of America, Dresdner Kleinwort Wasserstein, and Moody's Risk Management.

In other countries, many government agencies accept XBRL-based filing of financial data. These include the UK Inland Revenue office, the Australian Prudential Regulation Authority, the National Tax Agency of Japan, the U.S. Federal Deposit Insurance Corporation, the Danish Company Registration Authority, the Australian Tax Office, and the Bank of Japan.

But for most organizations in Canada, 2004 will continue to be an awareness year. Interested parties can monitor the progress of XBRL through www.xbrl.org and www.xbrl.ca, and by attending XBRL conferences and seminars. The next international conference will be held May 10 to 14, 2004, in Auckland, New Zealand.

For now, widespread use of XBRL is still some time away. Experience with other standards suggests that momentum will build gradually until a critical mass is reached, after which general adoption will be quite rapid. Mike Willis, the founding chairman of XBRL International, has estimated that XBRL will reach that point in two to four years. Likely to be affected first are companies that list on U.S. exchanges, organizations that process large volumes of financial reports, and government tax, regulatory, and statistics agencies.

XBRL will bring major changes in financial reporting practices, and it is not too soon for organizations to begin preparing for the opportunities XBRL will present. Finance staff may wish to initiate a discussion on XBRL with their IT departments and external auditors. Businesses planning to change ERP or database software should check for XBRL compliance to avoid the need to upgrade to XBRL-compliant software later.

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Srini Giridhar is a Toronto-based management consultant with Fujitsu Consulting Canada. He is the chair of XBRL Canada's Marketing, Communications, and Adoption group.

Dave Potter is an independent Toronto-based consultant, and is the vice-chair of XBRL Canada's Marketing, Communications, and Adoption group.