EXTENSIBLE BUSINESS REPORTING LANGUAGE (XBRL) Submitted in Partial Fulfillment of Course Requirements in Accounting 8320 Spring 2009
Kesha Haley
By submission of this paper I certify that this paper is entirely my own work. Further this paper has not been submitted for credit in another course.
HALEY
- 1 -
EXTENSIBLE BUSINESS REPORTING LANGUAGE (XBRL) ABSTRACT The purpose of this paper is to define XBRL, explore the implications of XBRL on auditing, and discuss the advantages and disadvantages of this form of financial reporting. The SEC is now requiring companies to submit financial statements in the XBRL format. A subset of XML (eXtensible Markup Langage), XBRL (eXtensible Business Reporting Language) standardizes the electronic communication of financial data around the world. XBRL will provide benefits, cost savings, increased efficiency, improved accuracy and reliability in the analysis and communication of business information. It may be thought of as the SEC.s answer to the desire of many to have a continuous audit. This paper will first discuss the definition and origins of XBRL, implications on auditing, advantages and finally disadvantages of XBRL. HISTORY AND OVERVIEW
Introduced in the 1990.s by Charles Hoffman, eXtensible Business Reporting Language (known as XBRL) is revolutionizing business reporting across the globe (http://en.wikipedia.org/wiki/XBRL). An extension of eXtensible Markup Language (known as XML), XBRL is being used for reporting financial data around the world, and the Securities and Exchange Commission is jumping on the bandwagon and requiring XBRL to be phased in for U.S. financial reporting over the next few years. So what exactly is XBRL? XBRL is ¡°an open standard which supports information modeling and the expression of semantic meaning commonly required in business reporting¡± (http://en.wikipedia.org/wiki/XBRL). Simply put, XBRL is a standardized and simplified way to electronically communicate business and financial data. XBRL is a ¡°more powerful and flexible form of XML¡± that has been developed exclusively for the processing of financial information (www.xbrl.org). XBRL provides numerous benefits for financial reporting, such as eliminating the need to re-key financial information in order to display it across different electronic mediums. Standardizing financial reporting also provides the
HALEY
- 2 - benefit of comparability across companies, as well as accessibility to the vastly diverse users of financial information such as shareholder, government, banks, investors, etc. The uses for XBRL are numerous. It can be used for but not at all limited to internal and external financial reporting, reporting to regulators including tax and financial authorities, credit risk assessments and loan reports, exchanging information between institutions, and storing, exchanging and analyzing other types of financial data (www.xbrl.org). The adoption of XBRL by business entities is becoming easier as more and more XBRL-aware software products are becoming available. These products can ¡°support the exporting of data in XBRL form and will allow users to map charts of accounts and other structures to XBRL tags¡± (www.xbrl.org). The development of XBRL is being overseen by XBRL International, a large non-profit organization comprised of over 500 major business, governmental, and academic entities. The group began working together in 1998 in order to help promote the adoption of XBRL into the business world. In the 10 years since its commencement, XBRL International has produced ¡°a variety of specifications and taxonomies to support the goal of providing a standard, XML-based language for digitizing business reports in accordance with the rules of accounting in each country or with other reporting regimes such as banking regulation or performance benchmarking¡± (www.xbrl.org). The members of the organization come from across the globe and also include professional organizations such as the American Institute of Certified Public Accountants as well as regulatory organizations such as the International Accounting Standards Board. XBRL International is made up of several different committees, with the Steering Committee being its governing body. HOW XBRL WORKS
HALEY
- 3 -
XBRL software, such as Rivet Dragon Tag, is being developed in order to facilitate the implementation of XBRL. Rivet Dragon Tag is easy-to-use tool and is used ¡°to create and validate XBRL instance documents from Excel spreadsheets¡± (Mahoney & White, 2007). In the coming years, accountants will need to become more familiar with the software, as well as how to use the taxonomies, tags, instance documents, and validation. Financial data can be tagged by hand but must be validated by XBRL software applications, such as Dragon Tag, which ¡°performs the validation from the convenience of an Excel spreadsheet¡± (Mahoney & White, 2007). Creating an XBRL instance document in Excel using software such as Rivet Dragon Tag is not difficult. There are a few steps that need to be taken in order to successfully tag financial data. After the Dragon Tag software is downloaded and installed, and the financial data is input into an Excel spreadsheet, an entity profile must be created. The entity profile contains the company name, ID, and website. When creating an entity profile, a taxonomy is also selected. After the entity profile has been created, the data must be tagged. Reporting elements are grouped in categories that correspond to the financial statement being tagged. For example, all Income Statement items are grouped together and separate from all Balance Sheet items. Elements are further grouped into different account types. For example, Balance Sheet items are grouped into Assets, and further into Current Assets and Non-Current Assets, etc. Data are marked by dragging the reporting elements onto the data to be tagged. This dragging and tagging effect is where the software gets its name Dragon Tag (¡°drag and tag¡±).
After the dragging and tagging of the data, the next step is to define the calendar or the date for the period the data is being reported and then to apply the calendars or dates to the data
HALEY
- 4 - in the spreadsheet. Next, the markups have to be validated and the final step is to export the XBRL instance document. XBRL is a ¡°connective technology¡± (Mueller, 2009). Documents that are prepared with XBRL software stay connected ¡°not just to the sources of the content but to additional resources that enable the reviewers to make informed decisions¡± (Mueller, 2009). Under XBRL, identifying tags are applied to financial data, such as ¡°net profit¡± or ¡°accounts payable¡±, so that they can be efficiently processed by computer software. Then, any software that can read and understand the tag can use the data to create reports or perform calculations. For example, an accountant can mark ¡°Net Income¡± with an XBRL tag on an Excel spreadsheet. After marking the dollar figure, the tag will be able to provide other information about the data such as element name, whether it has a credit or debit balance, whether it is an instant (balance sheet) or duration (income statement) element, the definition of the element, etc. After the accountant tags ¡°Net Income¡± once, other XBRL-aware software can use that tag in other applications that need the tagged data without having to re-key it, such as to create tax form or financial statements or to be uploaded onto the company website. Since XBRL is designed to comply with all governmental and industry accepted regulations, the end user of the tagged data can be confident that the information is in conformance with up to date standards. XBRL is made up of specifications, an instance document, and a collection of taxonomies. Each are described below: I. Specifications describe the technical operations of XBRL. XBRL specifications have been revised a few times to arrive at the current version, XBRL 2.1. Currently all voluntary XBRL filings with the SEC are required to be in XBRL 2.1.
HALEY
- 5 -
II. An instance document is an XML report in XBRL format prepared per XBRL specifications that contain information such as: the taxonomy used, a unique ID, the entity identifier, a URL address, etc. An example of an instance document follows:
- -
-
- macys
- 2007-02-03 -
- iso4217:USD - - 4604 -
In the above example, the person tagging this balance sheet used the US GAAP-CI taxonomy. The balance sheet is for Macy.s, is for an instant (February 3, 2007)
HALEY
- 6 - and the information is being reported to the SEC. The unit of measure for this particular data is USD and the element name is ¡°Accounts Payable and Accrued Liabilities¡± with a dollar value of $4,604. In the event that multiple years will be presented the person tagging this balance sheet could include the other year.s information in this instance document as opposed to creating an entirely different instance document. In an instance document including more than one year, the context ID will change depending on what year the information is for, as shown below:
- -
-
- macys
- 2008-02-02
-
- macys
- 2007-02-03 -
- iso4217:USD
HALEY
- 7 -
- - 4604 4127 :TreasuryStockValue> - iii. Taxonomies are essentially dictionaries full of different element labels and definitions for those labels. Industry experts have collaborated in the effort to produce these taxonomies.
As indicated by the name ¡°Extensible Business Reporting Language¡±, a user of XBRL can create additional modules to fit their needs. This extensibility allows companies to create company-specific tags and creates even more benefits as a company does not have to be confined to what has already been defined in the taxonomies (http://en.wikipedia.org/wiki/XBRL). ADOPTION OF XBRL
XBRL is already being used around the world as a form of business reporting. Entities across the globe from The National Bank of Belgium to the Tokyo Stock Exchange have made use of XBRL in their operations. XBRL has taken off in different parts of the world and is mandatory or voluntary depending on the area. Various groups around Europe had various reasons for pushing for the development and adoption of XBRL. For example, ¡°tax regulators drove development in Ireland, municipalities in Germany, the banking sector in Spain, the Water Board in the Netherlands, and the Companies House in Denmark¡± (Kernan, 2008). The one
HALEY
- 8 - common thing behind each of these organizations is the fact that while the U.S. is developing XBRL for capital market reasons, XBRL in Europe is being developed for governmental benefit. Recently, an organization was created called XBRL Europe in order to promote consistency in the implementation of XBRL in Europe (Kernan, 2008). Like the U.S., Asia is developing XBRL for use in capital markets. XBRL in Asia is being mandated by the stock exchanges in countries such as China and Japan. Japan has required all public companies to file financial statements in XBRL format starting this year. China became the first country to formally adopt XBRL for equity markets in 2004 (Kernan, 2008). In the United States, although some companies voluntarily started using XBRL, there was no requirement to provide XBRL financial statements for companies filing with the Securities and Exchange Commission. On December 17, 2008, the SEC approved a May 30 proposal that would require these companies to now file using XBRL to supplement their standard financial statements. However, this requirement will be phased in over the next few years. The three year phase-in plan will begin with companies whose fiscal year end is June 15, 2009 or later. The scheduled phase-in is as follows:
i. 2009 . ¡°Large accelerated filers¡±: (1) Use U.S. Generally Accepted Accounting Principles and (2) have a market capitalization of $5 billion as of the end of the most recent second fiscal quarter. (Estimated to cover approximately 500 companies.) ii. 2010 . ¡°All other large accelerated filers¡±: (1) Market capitalization above $700 million and (2) using U.S. GAAP¡±. iii. 2011 . ¡°All remaining filers¡±: (1) Using U.S. GAAP, including smaller reporting companies, AND ¡°All foreign private issuers¡±: (1) Prepare their
HALEY
- 9 - financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board¡±.
The XBRL financial statements will provide information about the company including the primary financial statements, disclosures, and financial statement schedules. (http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/BRAAS/XBRL.html). ADVANTAGES XBRL offers a wide variety of benefits to anyone who adopts it. Some of the benefits of XBRL include:
I. Elimination of the costly and time-consuming task of reentering information: Tagging data with an XBRL marker enables that data to be used with other XBRL-aware software without it having to be reentered. Not only does this mean that data can be processed into different mediums faster, it also means that labor costs can be cut. XBRL tagged data can be uploaded into tax forms, financial statements, company websites, and can be used to generate reports and perform calculations for institutions such as banks or investors.
II. Conformance of XBRL to industry-accepted standards and government-mandated regulations: XBRL International has created specifications that conform to US Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), as well as governmental regulations. Users of XBRL prepared financial statements will not have to question whether or not the
HALEY
- 10 - information complies with industry standards or the laws set forth in the entity.s country.
III. Increased usability: Once financial data are uploaded onto the Edgar website, they are immediately accessible to anyone who has a use for them. Because of that, users will be able to quickly pull information they need in order to make investment or credit decisions, as well as compare one company to another. The process to find the information needed can take seconds.
Unfortunately, as discussed later, the benefits of using this approach to financial reporting may be a long time coming. The disadvantage of high costs to implement the system and the level of complexity that makes it tough to learn may have contributed to the fact that less than a handful of companies have voluntarily filed in XBRL formatted forms since 2005. DISADVANTAGES The new filing requirements are supposed to make things easier and more transparent for investors and creditors, however ¡°there are concerns that high error rates and relaxed auditing requirements will lead to unreliable information¡± (Steinert-Threlkeld, 2009). According to Jeff Mahoney, general counsel for the Council of Institutional Investors, the SEC chose not to address the issue of the interactive financial data being audited by independent auditors. The Commission has also failed to require that the data be certified by the company.s Chief Executive Officer or Chief Financial Officer (Steinert-Threlkeld, 2009).
The voluntary filings that have been submitted since 2005 have been plagued with errors ¡°as filers have tried to get used to tagging numbers, footnotes and comments¡± (Steinert-Threlkeld, 2009). As people are trying to .figure out. XBRL and tag data correctly, there is
HALEY
- 11 - plenty of room for mistakes. According to accounting professors Won Gyun No (Iowa State University) and J. Efrim Boritz (University of Waterloo), sixty-eight percent of XBRL submitted forms were not consistent with the standard financial statement filings (Steinert-Threlkeld, 2009). With the deadline coming up for the first phase of XBRL-mandated statements, that number is bound to get higher. For the companies that did not participate in the voluntary filings (only less than a handful of them did), adopting XBRL can prove to be a very daunting task. The system that is supposed to make filing easier, faster and cheaper can possibly end up costing companies more than just a little time and money to implement. For the first few years of required XBRL filing, investors, shareholders, creditors, and other users of financial data may have to dig deeper than normal in order to know what exactly is being reported. Another drawback to mandating the adoption of XBRL is the lack (and cost) of training. Some accountants have only heard of XBRL, but have never had the chance to experience it, whether in a classroom or an on-the-job setting. Others may have never heard of it. This puts the responsibility of training an individual on the interactive reporting in the hands of the company. Having inexperienced workers can add to the errors being created, and errors may lead to a decrease in investor confidence. For this reason, many CFOs may choose to outsource the preparation of XBRL statements to another company, according to Diane Mueller in an article written for www.oreilly.com. This will again lead to more costs for preparation and no benefit of learning how to prepare these statements which really defeats the cost-cutting purpose of implementing XBRL.
Cutting costs in one area does not necessarily mean a decrease in the overall costs of a company. Sure with XBRL, a company can cut the costs associated with reentering the same information into tax forms, financial statements, websites, etc. Instead of that money going back
HALEY
- 12 - into the company.s pocket, however, it may be used for costs associated with manually tagging all of the financial data that is inside of the company. For companies that have a lot of financial data, such as companies with many subsidiaries, this can be a huge labor cost until the company decides to automate the tagging process. No major change goes without hiccups in the road. Setting a date doesn.t guarantee that the SEC has every diminutive detail of the transition worked out. That said, although XBRL will provide benefits to companies and users, many of the benefits will show up in the long run. In the meantime, companies and users have to deal with the inconsistencies, the high costs, and the Commission as they (hopefully) are working to make the transition to using XBRL a smooth and efficient one. One more disadvantage of XBRL is on the company-side. The development of Extensible Business Reporting Language comes out of the great need of ensuring that companies are transparent in financial reporting. According to a Kurt Cagle report on www.oreilly.com, transparency is an issue among big businesses. Although companies have given ¡°a lot of lip service¡± towards being transparent, it can be a ¡°difficult thing for most companies to achieve¡± and also ¡°can be seen as running counter to the goal of the corporation, which is to maximize profits while at the same time minimizing the ability of competitors to do the same¡±. Cagle reported that one reason that transparency can actually be a hindrance to companies is because it can uncover some ¡°accounting tricks¡± that the company uses in order to make itself seem more profitable than it actually is. Investors becoming aware of these tricks can possibly decrease stock values. Maybe even worse, competitors becoming aware of these tools may hamper the company.s competitive advantage.
IMPLICATIONS
HALEY
- 13 -
XBRL is being adopted around the world. Not only is it going to be used by financial regulators, it will be used by investors and creditors in order to make investing or credit decisions. It is safe to say that the need for XBRL documents to be audited will increase in the future. Not only will companies have to figure out how to begin submitting their financial data in XBRL, but CPAs now should figure out how to audit these financials. CPAs ¡°have the opportunity to provide assurance on XBRL instance documents. compliance with XBRL technical specifications, and on their appropriate use of publicly available and custom taxonomies, as well as the mapping of specific data elements to the published traditional financial statements¡± (Farewell & Pinsker, 2005). The Auditing Standards Board.s Interpretation 5 of Statements on Standards for Attestation Engagements 10 deals with providing assurance services on XBRL documents. The market for providing assurance on XBRL statements has no limits. From public companies to financial institutions, the potential demand for assurance is increasing as more and more entities adopt XBRL. In the US, every company will be reporting in XBRL within three years and, internationally, many other companies are using XBRL to report their financial data. This opens the possibility for CPAs to offer XBRL assurance services to many new clients as well as potentially clients that they already have, provided that any independence rules are not compromised. Most companies that are already providing XBRL statements are doing so without the assurance that the information is in compliance with the current specifications (Farewell & Pinsker, 2005). The American Institute of Certified Public Accountants has released guidelines on how to provide assurance services on XBRL documents as well as sample assurance reports.
HALEY
- 14 -
FUTURE OF XBRL XBRL will eventually become the standard for reporting and transmitting financial data to end users. It can be used worldwide for many different reasons. Eventually, when companies get used to correctly tagging data, it will generate major cost savings and will free up plenty of time that had been spent reformatting data to upload into different mediums. Currently XBRL is just supplementing traditional financial statements, but in the future XBRL and financial reporting will be synonymous. XBRL will evolve and there will be even more uses and benefits for companies and their investors. For example, Rebecca Sausner (2009) reported to readers of Bank Technology News that IBM is working to create an XBRL taxonomy ¡°that would act as a tool to allow standardized loss reporting from financials to regulators, and the creation of a mammoth repository of loss data from thousands of institutions that after a few years would be used to give financial regulators a .risk pulse. on the system¡¦ and also allow institutions to compare their own experience to that of peers¡±. XBRL will be in no way, shape, or form a cure-all. Although the goal of XBRL is transparency, it cannot and will not force company CEO.s to show hand. It can only encourage.
HALEY
- 15 -
REFERENCES AICPA. Retrieved April 1, 2009, from http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/BRAAS/XBRL.html Bryant University. Retrieved April 6, 2009 from www.xbrleducation.com. Cagle, K. (October 15, 2009). Regulatory Transparency and XBRL. O¡¯Reilly Broadcast. Retrieved April 13, 2009, from http://broadcast.oreilly.com/2008/10/xbrl-and-the-need-for-regulato.html Farewell, S. & Pinsker, R. (May 2005). XBRL and Financial Information Assurance Services. The CPA Journal. Retrieved April 13, 2009, from http://www.nysscpa.org/cpajournal/2005/505/essentials/p68.htm IOMA (March 2009). Now GAAP-Compatible, XBRL Enhances Financial Analysis. Managing Credit, Receivables & Collections. Retrieved April 6, 2009, from GALILEO database. Kernan, K. (October 2008). XBRL Around the World. Journal of Accountancy, (206:4). Retrieved April 13, 2009, from GALILEO database. Mahoney, L. & White, C. (July 2007). Creating XBRL Instance Documents in Excel. The CPA Journal. Retrieved April 13, 2009, from http://www.nysscpa.org/cpajournal/2007/707/essentials/p66.htm Mueller, D. (February 26, 2009). XBRL and Document Management: The Perfect Storm. O¡¯Reilly Broadcast. Retrieved April 13, 2009, from http://broadcast.oreilly.com/2009/02/xbrl-and-document-management-t.html Sausner, R. (March 2009). The Language of Risk. Bank Technology News, 22(3). Retrieved April 13, 2009, from GALILEO database. Stienert-Threlkeld, T. (March 2, 2009). Will XBRL Filings Produce Reliable Data? Security Industry News, 21(5). Retrieved April 13, 2000 from GALILEO database. Wikipedia. Retrieved April 6, 2009, from www.en.wikipedia.org/XBRL. XBRL. Retrieved April 1, 2009, from www.xbrl.org.