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This paper was completed in partial satisfaction of course requirements for ACCT 8230 - Accounting Information Systems - at Kennesaw State University during the Spring 2009 semester. The paper explores the new form of submitting financial statements, XBRL (eXtensible Business Reporting Language), a subset of XML (eXtensible Markup Language).
Accounting Information Systems - XBRL Research Paper
1. 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.
2. HALEY
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
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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
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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
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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.
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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:
- <xbrl xmlns="http://www.xbrl.org/2003/instance"
xmlns:link="http://www.xbrl.org/2003/linkbase"
xmlns:xlink="http://www.w3.org/1999/xlink" xmlns:us-
gaap="http://xbrl.us/us-gaap/2008-10-31"
xmlns:iso4217="http://www.xbrl.org/2003/iso4217">
<link:schemaRef xlink:type="simple" xlink:href="us-gaap-ci-stm-all-
2008-10-31.xsd" />
- <!--
Context Section
-->
- <context id="Context1">
- <entity>
<identifier scheme="http://www.sec.gov">macys</identifier>
</entity>
- <period>
<instant>2007-02-03</instant>
</period>
</context>
- <!--
Unit Section
-->
- <unit id="USD">
<measure>iso4217:USD</measure>
</unit>
- <!--
Tuple Section
-->
- <!--
Element Section
-->
<us-gaap:AccountsPayableAndAccruedLiabilities contextRef="Context1"
unitRef="USD" decimals="-6">4604</us-
gaap:AccountsPayableAndAccruedLiabilities>
- <!--
Footnote Section
-->
</xbrl>
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)
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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:
- <xbrl xmlns="http://www.xbrl.org/2003/instance"
xmlns:link="http://www.xbrl.org/2003/linkbase"
xmlns:xlink="http://www.w3.org/1999/xlink" xmlns:us-
gaap="http://xbrl.us/us-gaap/2008-10-31"
xmlns:iso4217="http://www.xbrl.org/2003/iso4217">
<link:schemaRef xlink:type="simple" xlink:href="us-gaap-ci-stm-all-
2008-10-31.xsd" />
- <!--
Context Section
-->
- <context id="Context2">
- <entity>
<identifier
scheme="http://www.sec.gov">macys</identifier>
</entity>
- <period>
<instant>2008-02-02</instant>
</period>
</context>
- <context id="Context1">
- <entity>
<identifier scheme="http://www.sec.gov">macys</identifier>
</entity>
- <period>
<instant>2007-02-03</instant>
</period>
</context>
- <!--
Unit Section
-->
- <unit id="USD">
<measure>iso4217:USD</measure>
</unit>
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- <!--
Tuple Section
-->
- <!--
Element Section
-->
<us-gaap:AccountsPayableAndAccruedLiabilities contextRef="Context1"
unitRef="USD" decimals="-6">4604</us-
gaap:AccountsPayableAndAccruedLiabilities>
<us-gaap:AccountsPayableAndAccruedLiabilities contextRef="Context2"
unitRef="USD" decimals="-6">4127</us-
gaap:AccountsPayableAndAccruedLiabilities>
:TreasuryStockValue>
- <!--
Footnote Section
-->
</xbrl>
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
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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
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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
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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
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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
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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
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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.
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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.
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REFERENCES
AICPA. Retrieved April 1, 2009, from
http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/BRAAS/XBR
L.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.
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