XBRL Basics - How does it work?
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).
XBRL US has published a guide which is available on the XBRL US Web site to help preparers of financial statements get started in creating XBRL financial statements. The XBRL US Preparers Guide, which the AICPA was involved in creating, provides rules and rule of thumb for using XBRL technology for financial statement reporting.
Below is a list of frequently used terms and explanations of how XBRL works:
What is a Taxonomy?
A taxonomy is a grouping of financial concepts (known as “elements”) in which each concept is defined (similar to a dictionary). Additionally, the taxonomy also defines the relationships between the 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 as elements. Public taxonomies have been developed by market constituents and are maintained by XBRL.
The US GAAP Taxonomies contain over 15,000 elements representing commonly reported financial concepts for US GAAP financial statements and are available and maintained by XBRL US.
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.
What is Tagging?
Tagging is the process of applying the entity’s unique financial data to an 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 file that includes 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.
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.