From Theory to Reality - XBRL finds its feet
Author:
Barry Smith
Many accountants may already be aware of the existence of XBRL based on attendance at an XBRL Open Day, the occasional Accountancy Ireland article, or a personal interest in information technology. One could be forgiven for thinking that XBRL is just another technology long on promise and short on delivery. It seems to have been around for a while already with scant evidence of the promised impact. Recent developments suggest, however, that XBRL may be about to truly emerge from the realm of theoretical concept to become practical reality.
The publication of an Irish GAAP taxonomy, which expected this month, will coincide with the first anniversary of XBRL Ireland as an established XBRL jurisdiction.
Extensible Business Reporting Language (XBRL) specifies a standard for the electronic communication of business information. The XBRL process requires items of business data (individual items of income or expense for example) to be labelled with tags. A tag attributes meaning to a data item in terms of:
(i) what the data itself represents (e.g. turnover) and
(ii) how it is related to other data (e.g. is it included in the profit calculation?).
The tagging process is not dissimilar to referencing library books - a reference number alone can communicate the subject of a text and also indicate how closely a text may be related to other texts in the library.
The power of XBRL stems from the fact that meaning can be attributed to data (thereby creating information) that is independent of presentation or format. This allows preparers to generate meaningful information without being constrained by data aggregation considerations or report formats. Preparers can therefore meet various demands for information using a single XBRL-tagged file.
Correspondingly, diverse recipients of XBRL-tagged files can aggregate, present and format information as they choose for their own analysis, interpretation and decision-making purposes. The efficient and flexible transmission and receipt of information is underpinned by an agreed standard of communication between sender and recipient, namely XBRL. For a given body of business data, the set of tag definitions used to attach meaning to the data is called a taxonomy.
So that's the theory, but what about the reality?
A significant amount of time prior to December 2003 was dedicated to the development and acceptance of a global XBRL standard. In many ways, the process of setting an XBRL standard of communication is similar to the process of establishing an accounting standard. The current XBRL standard is referred to as Specification 2.1. It was preceded by standards that were repeatedly updated, but there is now widespread agreement that the 2.1 Specification will be the applicable XBRL standard for the foreseeable future. Stabilisation of the Specification is an important development because it has provided users with certainty.
Since the beginning of 2004, software developers and vendors have been able to consider how XBRL may be incorporated into tools and applications without wondering whether the XBRL standard will change. Furthermore, as XBRL is an extension of Extensible Markup Language (XML), software that includes XML features (MS Office 2003 for example) may also be used for XBRL purposes.
Accountants have been primarily concerned with taxonomy development for financial reporting. This process involves the development and definition of hierarchies of tags which, when applied to data, result in information that complies with the principles of accounting standards. During 2004, a 2.1 Specification IFRS taxonomy was released, as were taxonomies for US, UK, New Zealand, and Canadian GAAPs. The development of GAAP taxonomies is a significant progression as the first application of XBRL for many organisations is likely to be for statutory reporting. Internationally, the SEC, UK Inland Revenue and FSA are already well advanced with projects investigating and implementing the benefits of XBRL for filing purposes.
The publication of an Irish GAAP taxonomy, which is expected this month, will coincide with the first anniversary of XBRL Ireland as an established XBRL jurisdiction. Projects to generate further localised XBRL content will be undertaken by XBRL Ireland in 2005 in conjunction with regulatory bodies such as the Revenue Authorities.
XBRL Ireland is also working closely with Fujitsu as the XBRL tools provider, and REACH, an Irish Government agency established to develop a framework for electronic government. The recent launch of an Irish XBRL academic competition will facilitate awareness and provide learning opportunities at third level institutions.
The 10th XBRL International Conference took place in Brussels in November 2004. This, the largest of the XBRL International Conferences to date, was co-hosted by the IASB and XBRL International. During his keynote presentation, Chairman of the IASB, Sir David Tweedie commented positively on the exponential increase in XBRL development during 2004 and noted its increasing importance in terms of meeting demands for efficient and reliable processing of business information. The ability of XBRL to embody both accounting and technological standards provides the IASB and XBRL International with plenty of common ground. This, together with the stabilisation of the XBRL standard, the proliferation of GAAP taxonomies and the uptake of XBRL by international regulatory authorities such as the SEC and FSA, suggests that XBRL has reached critical mass.
Barry Smith is a lecturer in accounting and finance at Dublin City University.
Email: barry.smith@dcu.ie
Conor O'Kelly is Chairman of XBRL Ireland
Email: conor.okelly@hp.com