Extensible Business Reporting Language is fundamentally transforming how businesses can provide information to investors, markets, and regulators
By Suzanne Hubbard
Corporate reporting is in the spotlight today more than ever before. Until now, most of the attention to date has been focused on what information is (or is not) reported. The other side is how information is going to be delivered in the future. While regulators and the markets deal with the "what," answers to the "how" are also emerging. The development of a new Internet language, Extensible Business Reporting Language (XBRL), is fundamentally transforming how businesses can provide information to investors, markets, and regulators – and how each of these groups are now able to make more informed decisions.
As explained in PricewaterhouseCoopers' Technology Forecast 2003-2005: The Intelligent Real-Time Enterprise, XBRL in its simplest form is a standard way to label data in a format that most software can interpret. It allows the recipients of financial information provided in this format to analyze and categorize information instantly, with no need to re-key or convert data to other formats. XBRL reduces the need for human intervention when moving financial and business reporting information between systems or organizations. It is also platform-neutral, making it functional regardless of the type of computer or software being used.
Why XBRL?
The Internet allows information to move quickly and easily all over the world and makes it accessible at any time – in any place – to people with Internet access. Internet technologies are now widely used within businesses as the basis of internal corporate communication, and open Internet standards are now a key element of any IT platform. As a result, we are seeing an ongoing transformation in the way business is conducted and regulated. While this leads to opportunities, there are also new risks to be managed.
Business is moving at an ever faster pace and the financial market is loudly demanding that business reporting keep up. It is clear that speed is of the essence – unfortunately, this may come at the expense of accuracy. XBRL makes it easier for companies and governments to report and for stakeholders and regulators to quickly access and analyze information without losing accuracy. The greatest benefit to all participants in the business reporting supply chain will flow from collaborative development efforts to leverage the Internet-enabled reporting platform.
As information moves further, faster, it is becoming increasingly apparent that paper has few, if any, advantages over electronic information formats. Digital communication is a faster, cheaper and more efficient way to reach a global audience. When it comes to business reporting data, people now look automatically to the Internet for information, especially for time-sensitive corporate disclosures.
However, the Internet hasn't yet provided a consistent way for users to extract and analyze data, including the information that companies disseminate in corporate reports, press releases, and other communications posted online. One aspect of this is about to change, because XBRL provides a common way for disparate information systems to exchange business reporting data.
Labeling information
With this new tool, organizations that share their financial information internally using Internet technology add agreed XBRL labels to it. Extracts from the XBRL-based electronic information can then be published as conventional readable documents on Internet sites. This will allow both internal and external users to seek out, identify, select, and import this information directly into software on their own computers. This application would allow unprecedented levels of connectivity between companies, between individuals and between regulators, enhancing the effectiveness of these information exchanges. In terms of financial reporting, this new Internet technology will enhance the way companies communicate both internally and externally, benefiting all members in the corporate reporting supply chain.
High-profile corporate failures have outlined the need for transparency and for changes in the way companies report to investors and financial markets. There are regulatory demands for more timely, comprehensive information and new types of information. XBRL is again part of the solution to how this information is collected, consolidated and published. XBRL enables core data to be presented in more than one format or report and is therefore sufficiently flexible to accommodate new reports and additional content.
Equally important as what companies report (content) is how they report it (format and presentation) and early XBRL adopters are advocating the importance of the information format. The evolution of information formats – from clay tablets and printed pages through email, websites, and PDF files to XBRL – is central to any progress in enhancing the transparency of financial markets. XBRL is the latest information format for business reporting. It is a language that can be understood by both computers and humans and it is being developed in collaboration so that there is broad agreement on its content.
XBRL also expresses how the various language building blocks fit together to form an end document such as a set of financial statements. As a result, the standard XBRL blocks within different blocks can be compared at the touch of a button. Consequently, the strongest support for this new technology is likely to come from two areas, the capital markets and financial services sector and government regulators. Both of these groups will benefit from the greater usability of information that facilitates targeted analysis, easier comparison between companies and across industries, and ultimately quicker decisions.
Worldwide momentum
XBRL will enable the transformation to take place in the industries of accounting, financial reporting, tax, assurance, regulatory reporting and more. XBRL is broad and its implications are profound precisely because business reporting touches so many decision- makers inside every company and throughout the supply chain. XBRL has no competitors with support among the accounting standard-setters and professional societies of the world. Its success is a virtual certainty thanks to a remarkably broad consortium of 300-plus members – XBRL International. (PricewaterhouseCoopers was among the 13 founding members in 1999.) The members have committed to incorporate the consortium work into their products and services.
In Canada, XBRL Canada is actively working to promote the acceptance of XBRL and is actively seeking to expand its membership. Currently, it is in the final stages of developing a Canadian taxonomy, i.e., a dictionary of terms to be used to "tag" data to represent a standard set of information. The Canadian taxonomy will represent a standard set of Canadian financial statements prepared using Canadian generally accepted accounting principles (GAAP). A similar taxonomy project has recently been completed for US GAAP and International Accounting Standards. XBRL Canada members currently include CCRA, the CICA, the Royal Bank, Fujitsu, Corel, PricewaterhouseCoopers, Statistics Canada and many others. Those interested in learning more about XBRL Canada and its activities should visit http://www.xbrl.ca/.
Already, a number of prominent organizations and companies use XBRL for publishing business information, including Edgar-Online, Morgan Stanley, Reuters and Microsoft. A number of regulatory organizations around the world, including Inland Revenue (UK), FDIC (US), Danish Commerce & Companies and the National Tax Agency of Japan, are also using or have expressed interest in or endorsement of XBRL.
Interest in XBRL is growing, but additional time and effort will be required to achieve critical mass in major territories. The efforts of XBRL Canada, in tandem with the International XBRL consortium, suggest that it is only a matter of time before XBRL is adopted as a global financial reporting standard.
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Beyond XBRL
Other key technologies discussed in PwC's Technology Forecast include:
• Business intelligence systems. These have expanded their scope to monitor and manage individual transactions and business processes in real time. As a result, they can generate alerts when an important event occurs or there is a departure from expected behaviour. Crucial performance indicators can be monitored continuously and displayed on digital dashboards tailored to meet the needs of different individuals, from logistics managers to chief financial officers.
• Business integration technologies. These have evolved beyond the previous generation of enterprise application integration (EAI) middleware to include process integration servers. The new servers use explicit models of business process logic and add the ability to handle long-running transactions alongside short-running transactions. Long-running processes are highly important for business-to-business integration. It is undesirable for a business process to come to a halt while awaiting a response from a trading partner – which was typically the case with earlier EAI middleware.
• Supply chain event management. It's now possible to provide real-time information about order status and inventory levels as well as other supply chain events such as deliveries, shipments and production. These capabilities will dramatically multiply during the next few years with the growing use of radio frequency identification (RFID) technology. RFID allows pallets, cartons and individual units of inventory to be labelled with tags that are read electronically.
• Expanded use of XML. This will provide the basis for developing specifications and standards for automating business process within and between enterprises. XML also provides the basis for Web services, which will eventually replace the current model of the Web – people looking at Web pages – with automated communication between software programs, allowing information to be accessed and processed with no need for human intervention. For example, Web services will allow company financial reports in XBRL format to be automatically retrieved by a financial analysis program, eliminating the need for an investor to first locate and download the information.
For more information on PricewaterhouseCoopers' Technology Forecast: 2003-2005, The Intelligent Real-Time Enterprise, visit pwc.com/techforecast. |
Suzanne Hubbard (suzanne.j.hubbard@ca.pwc.com) is a partner with PricewaterhouseCoopers LLP in Kitchener, Ontario. She is the Canadian XBRL project leader.
