What is it? A financial-reporting vocabulary created in eXtensible Markup Language (XML). XBRL is intended to make it easy for financial and analytical applications to import, manipulate and compare data.
Where did it come from? It was developed by XBRL International, a consortium backed by the American Institute of Certified Public Accountants (AICPA) and more than 200 other groups. On the Web, it’s www.xbrl.org. The specification has gone through one major round of revisions, and although specific usage scenarios are still being refined, backers say the basics are all there.
Why is it needed? To level the playing field, for a start.
Take the controversy over whether executive stock options should be expensed on a company’s income statement or recorded in footnotes. Business professors at the University of Washington and Indiana University conducted a study in which they gave students mock financial statements, one for a company that footnoted options and a second for a company that expensed them. The students comparing the documents described the first company as being healthier than the second—even though the dollars involved were the same. When the researchers presented the same reports in XBRL and provided software that could search for the same variables across documents, however, the test subjects did a better job of making apples-to-apples comparisons.
Who uses it today? A handful of organizations with an interest in promoting the standard, including Microsoft, Morgan Stanley, Edgar Online and Reuters. However, for XBRL to be truly useful to analysts and investors wishing to make comparisons, the financials of many companies would have to be available in XBRL.
Edgar Online, which publishes an enhanced version of the Securities and Exchange Commission’s (SEC) database of company filings, has plans to translate documents in its archives into XBRL automatically.
What does it take to support XBRL? The easiest way is to buy software that supports XBRL. As accounting and financial reporting vendors continue to build XBRL support into their products, “the software insulates the user from having to address the underlying technology,” says Rob Blake, Microsoft group product manager for XBRL. Still, you might expect that finance and technology executives will want to scrutinize and adjust the data model they will be exposing to the outside world before they start publishing their financials in XBRL.
Is this likely to be widely adopted? Filing financials in XBRL might one day be mandated by the SEC, which would clinch the issue. Today, XBRL backers would be happy if they could get the SEC to endorse it as even an optional filing format. The Federal Deposit Insurance Corp., however, is starting to ask banks to submit quarterly financial statements in XBRL. Regulatory agencies outside the United States, such as the Australia Prudential Regulatory Authority, have also started encouraging XBRL filings.
The other thing that might drive adoption is investor and analyst demand, which might be influenced by software support. Microsoft has announced an XBRL “add-in” for Office 11. The add-in probably will be offered as a free download from the company’s Web site (officially, no pricing decision has been made). This software will let companies create XBRL financial statements using Word and Excel. Analysts will be able to import XBRL documents into Excel, eliminating a lot of laborious cut-and-paste work, and use standard Excel functions, combined with functionality from the add-in, to compare the financials of different firms.
