XBRL

XBRL, eXtensible Business Reporting Language, is a royalty-free, international information format designed specifically for business information, also referred to as ‘interactive data’ by the SEC. The idea behind XBRL is simple: instead of treating business information as a block of text – as in a printed paper document or a standard Internet page – it provides a unique, electronically readable tag for each individual disclosure item within business reports. For example, ‘Gross Margin’ has its own unique tag. The tags for common disclosure items are contained in taxonomies (dictionaries that define common disclosure items and relate them to other financial concepts) that are being developed by market constituents and are available on the XBRL Web site. The use of XBRL will provide major benefits in the preparation, analysis, and communication of business information through cost savings, greater efficiency, and improved reliability to all those involved in supplying or using financial data.

Background

In 1998, Charlie Hoffman, a single CPA who worked for a small CPA firm in Washington state, had the idea of XBRL as a way of totally transforming business reporting. (Read XBRL: It’s Unstoppable – A Conversation with the Father of the Digital Language of Business.) Charlie enlisted the support of the AICPA to spearhead the development of XBRL with the goal of providing a standard, XML-based language for digitizing business reports in accordance with the rules of accounting in every country around the world. XBRL International is a global consortium with over 250 leading organizations concerned with the exchange and timeliness of financial and business reporting data. Through the efforts of the AICPA and its members, a framework of specifications and taxonomies was produced to support providing a standard, XML-based language for digitizing business reports. XBRL US (the US jurisdiction of XBRL International) operated under the AICPA volunteer committee structure from 1999-2006 until it became a separate, not-for-profit organization in September 2006. As a founder and an active member of XBRL US, the AICPA supports adoption through the development of education and tools to help our members implement and adopt XBRL. AICPA staff and its members are represented on many committees and task forces of XBRL US and XBRL International, including a seat on the XBRL International Steering Committee.

The SEC has awarded XBRL US, Inc. a $5.5 million contract to complete the development of XBRL U.S. GAAP taxonomies so that companies in all industries can voluntarily file their XBRL financial reports to the SEC’s EDGAR (Electronic Data Gathering and Retrieval) system. The first draft of the XBRL-US GAAP Taxonomies and the Preparers Guide (how preparers actually create XBRL-enabled financial statements) is currently available for public review and comment.

What are the Potential Uses of XBRL?

XBRL can be applied to a very wide range of business and financial data. Among other things, it can handle:

company internal and external financial and business reporting;
business reporting and exchange of information within all types of regulators, including tax and financial authorities, central banks, and governments;
filing of loan reports and applications;
credit risk assessments;
authoritative accounting literature, providing a standard way of describing accounting documents provided by authoritative bodies.

What are the Benefits of using XBRL?

By using XBRL, companies and other producers of financial data and business reports can automate the processes of data collection. For example, data from different company divisions with different accounting systems can be assembled quickly, cheaply, and efficiently if the sources of information have been upgraded to using XBRL.
For AICPA members who serve in financial management, auditing, and information technology roles, XBRL will streamline the preparation of business and financial reports for internal and external decision making. XBRL will significantly improve the ability of CPAs in financial management to more precisely direct and publish financial information to investors, regulators, analysts, lenders, and other key stakeholders.
XBRL is not just for reporting to the SEC. The possible future uses for XBRL include reporting to lenders, IRS and other regulating bodies.
XBRL facilitates convergence of accounting standards by the ability to align financial concepts among public taxonomies.
XBRL facilitates principle-based accounting because it reduces the need to worry about where the item is reported, but only that it is.
XBRL drives transparency and improves the efficiency of capital markets by helping analysts and other users of financial and business information find relevant facts.
XBRL improves the efficiency of the capital markets by reducing the cost associated with covering a company and making the market more accessible to small and mid-cap companies.
XBRL better enables the CPA profession to proactively fulfill its primary mission to protect the public interest by improving investor access to the capital markets and increasing analyst coverage of both small and large companies through a reduction in the cost associated with covering a company.

When Will it Become Necessary to Use XBRL?

XBRL is a hot topic of the SEC and is on the agenda of its Advisory Committee for Improvements to Financial Reporting. Members of the Committee have met with representatives of various constituencies of the financial reporting process regarding the use of XBRL and are discussing a possible mandate for the use of XBRL in SEC reporting some time in the near future. We have also seen in other areas of the world where regulators are using XBRL for all aspects of business reporting information in an effort to reduce time and money spent on the business reporting process.

Basics of XBRL and How It Works

XBRL enables preparers to utilize software to tag all financial items in their business reports to the elements within a taxonomy. This is accomplished with an Instance Document which can be electronically exchanged and validated between computers or viewed in a human readable format (this is called rendering).

What is a Taxonomy?

A taxonomy is a grouping of financial concepts (known as “elements”) in which each concept is defined and assigned a relationship to other concepts within the group. Therefore, if we are working with a balance sheet item such as Cash, the taxonomy would include the definition of Cash and would also demonstrate how Cash may relate to other balance sheet items (within the taxonomy) such as rolling up to Current Assets and eventually Total Assets. All three of these items (Cash, Current Assets, and Total Assets) are financial concepts that are defined and presented in the taxonomy. Public taxonomies have been developed by market constituents and are maintained by XBRL.

What is a Taxonomy Extension?

The X in XBRL stands for extensible. Therefore, if a particular concept does not already exist in a public taxonomy there is the ability to add to or change the elements to meet the company’s needs; called extending the taxonomy. This extensibility is one of the most important aspects of XBRL because it allows for wide adaptation and uses of XBRL as demonstrated in potential uses section above.

What is Tagging?

Tagging is the process of mapping the entity’s financial data to a unique element within the taxonomy. The tagging process is performed during the creation of an instance document.

What is an Instance Document?

An instance document is the vehicle to transmit the company specific business reporting information in a structured manner that computers can intelligently recognize and exchange. It is expected that instance documents will be created for individual financial reports (e.g., annual reports, earnings releases, submissions to creditors, etc.). The instance document is an XML file where everything comes together; here the entity specific data links (tags) to the elements in the taxonomies to form the XBRL document that can be validated and transmitted automatically for utilization by numerous consumers.

What is Rendering?

As we stated above, an instance document is an XML file that is computer readable. Rendering is the process in which XBRL software will translate an instance document into a human readable format.

XBRL Tools

In order to work in XBRL, you will need software. There are a number of XBRL tools in the marketplace today. Some tools enable you to work with taxonomies (i.e., creation, extension, and validation), others focus on the instance document (creation and validation). There are also tools that will specialize in rendering, analysis, and reporting. Some tools may offer one or more of these services within the application while others may only focus on one function. You can refer to the XBRL US Web site for details on vendors that support XBRL.

XBRL Q&As

The ASEC has developed a series of questions and answers to educate accounting professionals about XBRL and the SEC’s pending Proposed Rule on XBRL. Click the following links to download the documents.

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