Get documents about "TopTenEffectsofXBRL-2001-zcoffin1
W
Description
Research accounting
Document Sample
THE TOP TEN EFFECTS OF XBRL:
THE FUTURE OF INTERNET REPORTING*
By Zachary Coffin
XBRL (“Extensible Business Reporting Language”) is an enabling, and disruptive, technology: enabling in
that Internet reporting will cut through inefficiencies and create new opportunities; disruptive in that business
models based on inefficiencies are threatened. The following is not intended to be an introduction to XBRL,
as the development, status and benefits of XBRL—enabling better, cheaper, faster reporting—have been
described elsewhere.† Rather, based on research, implementations and experience during the past two years,
as well as current developments in policy, global markets and technology, this article is an attempt to
synthesize the most significant, large-scale effects of XBRL in the coming years. The Top Ten “Killer
Applications” with XBRL are listed in the Appendix for context.
1 0 . C O M PA N I E S A D O P T E - R E P O RT I N G .
V I R T UA L C L O S E , C O N T I N U O U S A U D I T I N G , A N D C R E D I T- B A S E D C O N T I N U O U S S U P P LY C H A I N S
E-business is not e-commerce; it is much more. E-business is the Internet-enabling of all aspects of the
organization, a major portion of which is reporting and analysis (XBRL). Thus, not until e-reporting is fully
adopted in an enterprise will strides be taken in becoming an e-business and reaping the full benefits of the
web technology.
In recent years, the best example of e-reporting is Cisco’s “Virtual Close”—an ability to close its books in one
day. John Chambers, Cisco’s CEO, says it enables his managers to "spot problems and opportunities at any
time,” and that it has “just as much impact on a company’s future success or lack thereof as the well-
published e-commerce area.”109 By comparison, other major companies in the U.S. today take on average
five to eight days to close their books110 (down from eleven to fourteen days just two years ago). With the
adoption of XBRL, the days will drop one by one. Financial systems work together seamlessly over the
Internet. Every company becomes a Cisco: real-time transactions feed real-time reporting. Auditors are
pressured to move at the speed of their clients, and continuous monitoring systems are implemented to track
* Excerpted from the book Introducing XBRL: Decision Making in a Digital Economy, by Neal Hannon and Zachary Coffin
(Prentice Hall, August 2001; ISBN 0-13-060902-1). This article is of a general nature and is not intended to address the specific
circumstances of any individual or entity; in specific circumstances, the services of a professional should be sought. The views and
opinions are those of the author and may not necessarily represent the views and opinions of the XBRL consortium or of KPMG
International. Special thanks to Prof. Enrique Bonsón (University of Huelva), Lars Dyrner (KPMG), Bob Elliott (KPMG), Stuart
Feder (BIS), Prof. Glen Gray (CSU, Northridge), Charlie Hoffman (XBRL Solutions), Bob Litan (Brookings Institution), Paul
Sanford (FDIC), Steve Tolkin (Fidelity), Peter Wallison (AEI), Mike Willis (PricewaterhouseCoopers), Prof. Miklos Vasarhelyi
(Rutgers University) and David vun Kannon (KPMG), and especially Neal Hannon (Bryant College) and Susan Pink (Prentice Hall),
for their review of this article and/or conversations on the subject.
† See the white paper “Introducing XBRL: Reducing Time, Cutting Costs and Enabling Better Analysis for Financial Managers” by
the author at http://www.xbrl.org
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.2
transactions and XBRL entries.111 Lenders and credit insurers monitor the performance of borrowers with
XBRL. Every company gets a real-time credit rating, itself standardized in XBRL. Every company evaluates
the performance of its trading partners. Supply chains go from “just-in-time” (General Motors) and “on-
demand” (Dell) to the “continuous feed system,” where product moves on unrestricted basis, continuously
like electricity; and only the volumes, rates and transactions fluctuate, according to market conditions. No
one company curtails the production and distribution process, because to do so would be less efficient than
simply keeping the physical supply chain humming and renegotiating one’s value in it, akin to foreign
currency exchange rates.
Internet reporting with XBRL ultimately is about globally connected, real-time reporting organisms. It’s
about companies that both get lines of credit and extend lines of credit, instantly. It’s about trade
organizations, auditors and e-marketplaces that host continuous benchmarking information about the
companies in their community. It’s about organisms, in short, that both publish performance and consume it.
With XBRL, the reporting and analysis component of business finally gets its “e.”
Timeline: 2003-2005.
9 . T H E U S G A A P V S . I A S C H O I C E B E C O M E S M O OT.
Ultimately, with XBRL the fundamental assertion that a company or regulator must choose one accounting
standard will disappear. That is, the issue of comparability between two standards only arises when a user is
faced with receiving different reports from companies. But if a company can produce a report in either
standard, on demand, where’s the debate? SEC wants US GAAP (US Generally Accepted Accounting
Principles), EU wants IAS (International Accounting Standards)—a company will do these both. XBRL
today will make it easier for companies to generate reports, and as XBRL is applied at the general ledger and
journal entry, easier to report under different accounting standards. Instead of a massive, multi-million dollar
conversion project to keep two sets of books, companies will tag every event that occurs, then pull the
information together according to different conceptual models—US GAAP, IAS, US SGL and even other,
non-financial standards soon to emerge.
“We see high demand emerging for numerous management data ‘views’ (e.g., triage, technologist, management,
executive, partner). Most current toolsets target one of these constituencies, and multiple-view construction
often requires extensive custom work…. …[W]e expect XML (Extensible Markup Language) data
structures (2001-03) to feed management viewing portals to support mass customization for interested
parties.”
- MetaGroup112
There are, to be sure, important differences to be reconciled between accounting standards. But the universal
applicability of XBRL will shine a brighter light on the antiquated notion of having multiple accounting
standards, and thus encourage the accounting standards to converge; just as global patent and trademark
treaties have been created to address patent infringement across jurisdictions with different policies and
processes. An outside analyst or investor will never be able to translate a financial statement from US GAAP
to IAS, but they won’t need to. Financial preparers and auditors with access to the base-level business
transactions—the enormous event logs—will be able to generate and/or reconcile to most any kind of report.
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.3
Timeline: 2004-2005.
8 . A S S U R A N C E O F N O N - F I NA N C I A L I N F O R M A T I O N B E C O M E S A S I M P O R TA N T — A N D
P R E VA L E N T — A S A S S U R A N C E O F F I N A N C I A L I N F O R M A T I O N.
“There are three things that every business must measure – Cash, the Customer, and the Employee. Putting
all of your emphasis behind accounting and financial statements is to ignore the real sources of higher value
within your organization.”
– Jack Welch, CEO of General Electric
Reports focused only on financial information decrease in value, and the reliability of underlying systems,
policies and controls becomes more important. With XBRL, we move from WebTrust113 and SysTrust114, to
providing assurance on the integrity of information: viz., that XBRL tags have been correctly applied, that
they’ve not since been manipulated and that the digital package itself (the total of all XBRL documents,
taxonomies and style sheets creating the business report) is reliable.
And, of course, as paper-based reports become digital, the content of the reports also changes. Accounting
firms move from the attestation of financial performance of a company to assurance about its financial
projections and non-financial information (e.g. customer satisfaction, employee retention, or, as is done
already in Europe, environmental reporting). As financial reporting itself becomes a commodity, financial
professionals increasingly become less mechanical, more human, by trying to discover, interpret and assess
non-quantitative measures in organizations.
Figure 1 - The need to assure new criteria for decisions 115
From the Basel Committee’s “operational risk” and pharmaceutical industry’s intellectual property to XML
languages of human resources and customer relationship management, XBRL will provide a mechanism for
the standardized reporting and analysis of non-financial metrics.116 As Cor Herkströter, Professor of
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.4
International Management at the University of Amsterdam, and former Chairman of Royal Dutch/Shell, has
said:
I certainly believe that we will find ways to measure things we now say are totally impossible to measure. …
For example, how can you put a value on social acceptability? … [E]conomists will have to borrow ideas
from other disciplines. Mathematics, for example, or sociology or sciences such as biology, where they have
learned to measure things not historically measured with numbers. Once you understand it and can quantify
it, you’ll come very close to being able to put a value on it as well.117
Financial professionals develop new skills (the “XYZ Certification” concept118) in order to identify and define
these metrics. The accounting profession moves quickly into this role; as Bob Elliott, Past Chairman of the
AICPA has noted, “When you think about auditors and CFOs, they alone among business professionals see
the entire enterprise.”119 New ways of understanding a company’s performance are developed—concepts like
sustainability120 and emotional capital121—and organizations themselves become “more human” by
recognizing, rewarding and demonstrating value in non-financial ways.
Timeline: 2003.
7 . C O M PA N I E S T R E A T BU S I N E S S R E P O RT I N G L I K E D I G I TA L M E D I A .
I N T E R A C T I V I T Y, P E R S O N A L I Z A T I O N , R I G H T S M A N A G E M E N T , A U D I T T R A I L S
For as long as companies have produced financial reports, the process has been non-interactive. Annual
reports, quarterly filings are sent out, with no formal mechanism to even know if the users have read them.
For this reason, in part, financial reporting has gotten out of touch with user requirements and practices. In
short, the process has no feedback loop to become more intelligent. Some government agencies have begun
the process, albeit in a rudimentary way: tax authorities that are providing a return receipt for filings,
regulators that are considering a “simplified view” of regulatory filings to accommodate less sophisticated
users. These are the most basic kinds of feedback, harbingers of much more to come.
XBRL transforms paper reports into digital documents—into digital bits as versatile as any digital media.
Companies will record how these virtual documents are used, and by whom. New businesses and services
emerge around issues such as integrity (has this information been manipulated, are the tags correct), rights
management (how am I allowed to use this information), streaming media (automatic recital in any language
over an Internet radio), personalization (customized presentations of reports for individual users),
interactivity (executing formulas in the document), audit trails (tracking usage of documents, or specific
elements separated from the report, as it passes through the supply chain), super-distribution (consumers
become your means of distributing to other consumers), Napsterization (peer-to-peer exchange of
information), dynamic linking (right clicking for related information), micro-payments (paying the auditor a
dime to view a trusted version of the report), etc.
The single greatest impact of XBRL as digital media will be that companies realize external reporting over the
Internet is much more than simply a process which results in an output document that is filed and archived
and forgotten. A financial report is financial content is intellectual property, and thus financial reporting over
the Internet is a form of digital media. Like any other Internet media, it represents an untapped means of
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.5
reaching users, of understanding their habits, requirements and priorities, of receiving feedback, and of
becoming more intelligent about one’s operations—before the next financial report.
Timeline: 2002-2003.
6. INTERMEDIARIES REDEFINE THEIR ROLES, OR LOSE THEM.
The Internet causes every intermediary to re-evaluate their role. Peer-to-peer communication means it may
not be necessary or even efficient to work with a distributor, aggregator or intermediary.
A newspaper that lands on my doormat, is a package of content, much of which I may never even read; on
the web, I read just the sections or articles I want to. This gives rise to componentization. Similarly, the idea
of receiving a packaged annual report flies in the face of Internet age communication, where an investor
wants to grab the information in components to analyze. We return to Frederick Winslow Taylor’s system
management and his optimization of the value of the components. Like the early 20th-century development
of assembly line production, the information supply chain will produces its product in parts; but unlike car
manufacturing, the parts themselves become the product. The information supply chain thus eliminates the
traditional roles of aggregators and intermediaries. What value does a CPA provide, if an aggregator has
more timely and better non-financial metrics? What value does an aggregator provide, that an analyst can’t
get from a web bot or intelligent agent pulling together XBRL information instantly? What value does an
analyst have, if investors have all the information and tools available themselves?
Each player will attempt to add new value (e.g. ensuring the quality of the information), and yet a host of
businesses will be viewed as unnecessary. Inefficiencies will be squeezed out of the XBRL-enabled
information supply chain, at the same time that it will take larger resources to provide new forms of value.
Consolidation will result, as it has already in the content distribution industry, where local newspapers have
been swallowed by chains or where producers and distributors align to form megalithic end-to-end
conglomerates like AOL Time Warner. Thus, local and mid-market accounting firms will merge for
efficiencies and to hold off advances from the larger firms; larger firms will merge with each other or with the
insurance companies in order to achieve the efficiencies of scale needed on the truly global level; ratings
agencies will connect to financial services organizations; and financial printers, striving to provide added
value, will become units of financial media organizations. The current reporting and analysis environment
cannot sustain itself in the face of the changes brought on by XBRL.
Timeline: 2003-2004.
5 . G OV E R N M E N T S B E C O M E M O R E A C C O U N TA B L E F O R T H E I R P E R F O R M A N C E .
“In the new environment, increased scrutiny of governmental actions, heightened accountability and the ability
to exercise financial controls are not only domestic requirements but are also important factors in determining
international creditworthiness by multinational agencies and the international investment community in
general in the context of global investment choices.”
- Ali Hashim and Bill Allan, The World Bank122
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.6
Every government is determining how it can become an e-government. Since much of what a government
administration does is process reports, XBRL will have a dramatic impact on government effectiveness:
regulators will reduce the burden on companies, tax authorities will make it easier to file, etc. But far more
profound is that governments themselves will become more manageable. Today, in the U.S. federal
government, finance staff spends 600% more of their time on mechanically processing transactions than on
control and risk management (79% vs. 13%); many government agencies fail their audits every year; it takes
agencies as long as six months to close their books—a far cry from the virtual close.123 The point is universal:
in any country, when public sector reporting becomes more transparent and efficient, bureaucracy,
mismanagement and fraud will decrease.
Increasingly, organizations like the World Bank and the International Monetary Fund will require developing
countries to adopt systems and controls that meet today’s Internet capabilities. XBRL-enabled systems are
likely to become prominent, perhaps even required in an effort toward greater transparency: systems for
macro-economic forecasting, budget preparation, cash management, budget execution accounting, fiscal
reporting, debt management, revenue administration, personnel management and auditing. The trillions of
dollars of spent each year in government programs—affecting every person in the world—will become more
effectively managed.
More than any other aspect of XBRL, increasing public sector accountability will require a global community
of supporters, precisely because governments today are still defined by their cultural and geographic borders.
But just as e-commerce and the increasing facility of trade prompted cross-boundary treaties and
organizations (GATT, WTO, WCO, etc.), so also the globalization of both private sector and public sector
reporting with XBRL will herald an even more important and powerful role for global monitoring
organizations such as the IMF, BIS, OECD, World Bank and the UN.
Peer pressure will grow among governments, and countries that do not comply with an effective Internet-
enabled reporting system—with secured XBRL reporting—will be penalized by a lack of financial support, in
the same way that a small business gets higher rates or is denied bank loans if it does not provide proper and
timely documentation. Likewise, as we are beginning to see in the United States, federal agencies, and state
and local governments have been required to change they way they report information to comport more with
financial statements of the private sector.124 As Tom Allen, Chairman of the Government Accounting
Standards Board (GASB) which oversees accounting standards at the state and municipal level in the U.S.,
has said: “GASB 34 is the most significant change in the history of governmental accounting…a dramatic
shift in the way state and local governments present financial information to the public.” But more than the
public at large, it will be other governments, analysts and decision-makers who examine this information
acutely. Governments are beginning to benchmark their performance against others; but increasingly they
will be using their financial performance to reach out to businesses. Bond rating analysts will be able to
quickly compare government assets and investments, and investors and developers will base decisions on this
detailed, comparable information in XBRL. In short, governments become more accountable for their
performance.
It is difficult to ascertain whether XBRL will increase the digital divide between industrial countries and the
truly poor, or will help to bridge this area, but for developing countries the path forward seems clear: If an
emerging economy is establishing a telecommunications infrastructure today, they should not lay down
copper wire, but rather broadband cable or wireless networks; likewise, these same governments are actually
in the position of being more nimble—and will find it easier to adopt XBRL-enabled government
operations—than juggernaut agencies in Washington, Tokyo and London.
Of course, as XBRL-enabled Internet reporting gains support among the global government community, it
will further the adoption of XBRL by private sector organizations in their respective domains and make
global industry definition and reporting across national borders increasingly more important. But, private
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.7
sector notwithstanding, it is important to remember that without e-government it would be premature to say
we live in an information economy.
Timeline: 2005.
4 . AU T H O R I T I E S W R I T E P O L I C Y I N D I G I TA L C O D E .
Figure 2 - "Tom believes Mary wants to marry a Sailor"125
Any prose can be expressed in digital code. XBRL marks the first major initiative to translate complex policy
into such code. Accounting committees write accounting standards, regulators regulations, legislators laws—
but these are recorded in the written word, language which people comply with manually. XBRL transforms
a reporting standard into an Internet standard, enabling software to process data automatically using business
logic and literally codified policy.
At the simplest level we will no longer need to stop at a red traffic light; that policy will be translated into
code that your car can comply with automatically. But, even more complex propositions can be codified, and
it is possible that the next generation of legislators, regulators and standards setters will write their policies in
code; a programmer will update their website with a taxonomy in the afternoon; and by next morning every
organization will have downloaded the policies and be in compliance—or perhaps they won’t even need to
download, as compliance could be made continuous. XBRL is the proof of concept for a digital society, the
first in what will be a world of societal standards which have been unambiguously translated into digital code.
This is not to say that all policy is or will be inflexible, but rather, that policymakers will be pressured to
define their standards unambiguously.
Timeline: 2005-2007.
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.8
3 . G L O BA L C A P I TA L M A R K E T S B E C O M E D E M O C R A T I Z E D.
“Although PCs were developed as early as 1977, the ultimate size of the market and the computers’ great
potential for word processing and spreadsheet analysis did not become clear until about 1984. The evolution
of this market—ultimately one of the world’s largest bonanzas—defied the skills of the world’s best corporate
planners and market forecasters. … [P]ersonal computing represented a much smaller market than
minicomputers did during the formative early years. Developing the PC, a classic disruptive technology,
simply made no sense for minicomputer makers.”126
XBRL levels the playing field of the global capital markets, so that every company in every industry around
the world can get the investor attention it merits. It does this in several ways.
First, it lessens the effect of big-budget marketing and investor relations. In the past, the more capital an
organization had, the lower its cost of getting new capital. Going forward with XBRL, cost of capital will be
determined by performance. Increasingly analysts will be able to search the “Semantic Web”127 and find
hidden gems in undervalued companies.
Second, when information on the internet becomes structured, the internet in effect becomes a database. And
it won’t be a database of just financial information, or even of performance information, but of any kind of
information. That is, when all information is communicated in standardized XML, users will compare aspects
about a company that the investor relations department may not have considered material, e.g. store
locations, product configurations, etc.128 Thus, analysts and investors pulling together publicly available
details from obscure sources, e.g. product catalogs, will form a mosaic that may rival if not surpass the utility
of what we think of as "performance information."129 The net result? Investors increasingly make decisions
based on real data, real performance, more than rumors.
Third, countries that today don’t have major capital market infrastructure in place, have been at a
disadvantage by having to rely on foreign direct investment (FDI). With XBRL, emerging markets will
implement sophisticated securities filings systems that, in conjunction with other efforts130, will provide
competitive advantage In their region and to some extent even against the established but aging legacy
systems of the major markets (again, wireless vs. copper). The issue is not that the New York Stock
Exchange will go away, at least not overnight; but to make the observation that Napster—and its exchange of
digital content—could have been physically located nearly in anywhere in the world and still would have
attracted thirty million users to its site.
The great move forward is democratization. Like the disruptive technologies of the past (the telephone, the
camcorder, the PC), the Internet lowers the margins for existing products and processes, but more than
makes up for this by opening up vast, new markets of consumers, audiences, stakeholders, targets.
This democratization means small and medium enterprises (SMEs)—companies ignored by today’s
exchanges—will get visibility and new ways to access capital. New kinds of exchanges may develop, as we
have begun to see for example with OFEX in the UK. What to say of SMEs, even individuals as free-agents
will be viewed as being worthy of investment, when XBRL links with the work of the credit insurance
industry (Hermes, etc.) and the credit rating business (Visa, Moody’s, etc.). Today’s artificial distinctions
between the performance of a self-owned business, an SME and a multinational corporation, will go away.
Performance of businesses at whatever size of operation will need to be certified and analyzed, and will have
an opportunity for getting new capital, with XBRL as the common thread for reporting.
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.9
It means analysts will be able to cover many times more companies—tens of thousands of companies—with
the same level of attention. Perhaps, one day in the 21st-century, exponentially more—literally millions of
companies—as sophisticated analytic engines are applied to XBRL. Or, simply, today’s amount much better.
And democratization applies not just to getting capital, but of course also to investing capital. As an
indication of how fast the tide is turning, in February of 1999, 80% of public companies in the U.S. had a
policy to exclude individual investors from their analyst and investor conference calls; today, just two years
later, the trend has completely reversed.131 Combined with movements such as Regulation Fair Disclosure
(Reg FD) in the U.S., XBRL is the greatest practical empowerment for individual investors since the birth of
the Internet.
Timeline: 2004.
2 . E - R E P O RT I N G B E C O M E S A S I M P O RTA N T A S E - C O M M E RC E .
“As part of the wired revolution, the markets will demand unrestricted access to key performance measures on
a continuous basis, and the SEC should encourage this move to a real-time reporting system. Investors ‘will
get a pure look at the pulse of the business pretty soon,’ says Phil Ameen, comptroller of General Electric
Co.”132
Today, stock market tickers run across the bottom of our television screens at near real-time speed. But these
are reporting the transactions of the market, not the actual performance of the companies. It is our modern
day version of Plato’s “Allegory of the Cave”:
“Behold! human beings living in an underground den, … here they have been from their childhood, and have
their legs and necks chained so that they cannot move, … they see only their own shadows, or the shadows of
one another, which the fire throws on the opposite wall of the cave… And if they were able to converse with
one another, would they not suppose that they were naming what was actually before them?”
“Very true.”
“To them, I said, the truth would be literally nothing but the shadows of the images.”
“That is certain.”133
Investors, chained to the television, can see only flickering transactions of the stock markets on the screen,
come to believe transactions about companies are the only reality, base their entire lives and entire industries
on tracking the transactions; while out of sight, hidden from view, the true performance of these companies
burns bright. Only occasionally, with the annual report, the quarterly filing, the pre-announced earnings, do
investors get a glimpse of the truth, of the flame, of a company’s actual performance. The other 99% of the
time they are speculating, at shadows.
The final step in Internet reporting is transparency: the ability to drill down to the facts. XBRL today is about
financial statements and other kinds of business reports, but the future of Internet reporting is that real-time
commerce links into XBRL for real-time reporting. RosettaNet, ebXML, ACORD, and other e-commerce
standards will enable real-time commerce and that will feed into XBRL for real-time reporting. This
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.10
combination of real-time commerce and real-time reporting, will enable real-time operations, real-time
pricing, real-time management.
Thus, XBRL is as big as e-commerce, because every transaction has a reporting complement and therefore
every e-commerce transaction will have an e-reporting complement. For instance, XBRL will make possible
tax reporting of e-commerce transactions in a standardized way across boundaries. But increasingly,
transactions and reporting will no longer be artificially separated. There will be a single vast pool of journal
entries, with agents monitoring for key indicators and ready for aggregation on the spot, or “spontaneous
computing”134 as Gartner Group has called it. In this view, financial statements are frozen databases, and will
be replaced by more fluid-like, virtual documents, created instantly off the web of transactions.
The full effects of this combination are difficult to envision or appreciate. For example, in the future, it will
be technologically possible for the tickers that scroll across the screens of CNBC, CNNfn and MSNBC to
display not just the fluctuating transactions about a company (its stock price), but the fluctuating, aggregated
transactions of the company itself (its revenue, etc.). As politically untenable as this may sound, what would
be the result? Simply put, fully transparent 24/7 accounting would bring about less volatility in the markets,
and less volatility directly lessens the cost of capital.135
Just as XBRL will enable reporting from journal entry and general ledger up to regulatory reporting, so also
technology will enable authorized regulators to drill down within companies to the transaction level. The
result of remote access regulation? Fewer on-site visits from the enforcement divisions certainly, but , from
the control and risk management perspective, also more accurate and efficient oversight.
When stakeholders are able to measure and report at the micro-level continuously—to do “performance
calculus”136—a number of unimagined societal and business transformations will result. As Futurist Marshall
McLuhan observed:
“Just before an airplane breaks the sound barrier, sound waves become visible on the wings of the plane. The
sudden visibility of sound just as sound ends is an apt instance of that great pattern of being that reveals new
and opposite forms just as the earlier forms reach their peak performance.”137
The issue with transparency, of course, is that those with information wish to reveal it in as favorable a light
as possible—“earnings management” to say the least. And the fact is that to date, a grand total of just one
company, Progress Auto Insurance in the U.S., has announced that it will report performance to investors
more frequently than required—on a monthly basis.138 But fundamentally, as with any cultural change, the
resistance gives way as what’s gotten in return provides greater value: viz., information about the industry and
the market will lessen everyone’s risks—for investing, for mergers and acquisitions (M&A), for benchmarking
and competitive intelligence, for market conditions, for strategic planning, for e-business. As Staple’s CFO John
Mahoney said about financial reporting, "Ten years ago [1990], we spent all our energy gathering the
information. Now you wind up as the person who is most familiar with major trends. There is greater value
in making the news, not just reporting the news.”139
Timeline: In stages, 2003-2008.
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.11
1 . W E K N O W H O W E C O N O M I E S A R E P E R F O R M I N G I N T I M E TO A C T.
“[T]he experience of the last 40 years underscores a fundamental dilemma of business economics. Should we
endeavor to continue to refine our techniques of deriving maximum information from an existing body of
data? Or should we find ways to augment our data library to gain better insight into how our economy is
functioning? Obviously, we should do both, but I suspect greater payoffs will come from more data than from
more technique. … The information revolution, itself, will also surely play an important role. For example,
high-tech information systems might someday allow statistical agencies to tap into a great many economic
transactions on a basis close to real time.”
- Alan Greenspan, Chairman of the U.S. Federal Reserve. 140
In medieval times, weather forecasting was of limited utility. Seasonal shifts could be anticipated but ships
were at nature’s mercy as to when exactly a storm might come. Today, meteorology is far more advanced,
able often to see a storm coming hours and sometimes even days in advance. By contrast, economic
reporting and analysis is far more difficult—we cannot even say what state the economy is in today. One can
cite trends from history, but not until months and sometimes years have passed, can economists agree that a
recession occurred, much less that it began at a certain time.
But this will change. Just as the virtual close enables management within a company to know the exact
performance of operations and to “spot problems and opportunities at any time,” so virtual close at the
economic level means policy makers will be able to effect proper changes in the economy in time to make a
difference. Thus, it has been said that Cisco knows what’s happening in the economy better than the Fed.
As reported in the Financial Times, “One ‘big problem’, [Cisco CEO John Chambers] said, is that ‘business
leaders are making decisions based on real time data, while governments are making decisions based on data
that often lags by one to three months….’”141
Today, we are in the medieval age of econometrics. XBRL and Internet reporting will bring economics into
its renaissance. Like today’s weather posts to measure real-time weather performance (temperature, humidity,
wind, etc.), each organization will be a beacon for reporting its business performance, contributing to the
overall picture. Not weather maps, but EconoMaps. Instead of the various perspectives of the weather
(infrared view, satellite view, etc.), EconoMaps will portray the flows of economic performance by industry,
by kinds of productivity, by new metrics, by intellectual capital. The breakthrough step, as Greenspan noted,
is the ability to collect more and better structured information.
Big accounting firms will enter the business of attesting to the performance not just of large, multinational
clients, but of whole commerce chains, industry sectors and economies. At first, this assurance will be about
current conditions, but as the practice matures, increasingly will include forecasting components as well. In
countries where governments are not able to keep up with these practices, the data gathering and statistics
function will be outsourced to commercial entities that can serve as trusted third parties. Indeed, large-scale
accounting firms and financial services companies increasingly will pressure governments for the privatization
of gathering macro-economic statistics, and the scalability required will force the firms to place their bets,
choosing which industries to serve, but serving them much more effectively.
Though we may feel subject to the whims of the mysterious processes of both weather and economic
conditions, chaos theory has shown that the flap of the butterfly’s wing in China has an impact on the
temperature in New York. Similarly, real-time economic indicators may be affected by individual
organizations. Thus, digital reporting at the economic level is not so much about identifying a fixed pattern
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.12
as it is about creating a global, organic, business performance feedback system—a pulsating monitor that
provides policymakers with the ability to make more informed decisions.
One of the studies of meteorology is the cyclical aspect of weather. Thus water rushes from the mountains
through the rivers and into the plains and oceans; it then evaporates and rises into the skies; then, forming
clouds and storms, it pours back down upon the land in the form of snow and rain, where it then will rush
into the rivers and continue the succession. This organic cycle is applicable to economics, where commercial
transactions are the rushing rivers, where business reporting is the rising mist, and where policy is the shower
or rain or storm to tame or stimulate the economy. Instead of physical transformation and movements, the
common element is the flow of information, which is to say that large-scale adoption of XBRL and Internet
reporting will have a significant impact in determining how economies are performing.
Timeline: 2004-2007.
S U M M A RY
We return to the virtual close, to the ability to "spot problems and opportunities at any time,” to know what’s
going on in the enterprise—and the economy—as though it were an organic whole, and to know this in time
to make a difference. For XBRL is fundamentally about decision-making, human decision-making. Its core
value proposition is to automate what can be automated, and let the human mind be fully engaged in what
remains—the issues, the strategies, the possibilities. If it succeeds in achieving this, from the micro-
transaction to the macro-economic, then the effects of XBRL-enabled Internet reporting will be profound,
and many times more numerous than described here.
A P P E N D I X : T H E TO P T E N “ K I L L E R A P P L I C A T I O N S ” W I T H X B R L
The following tools are, in the opinion of the author, the Top Ten “Killer Applications” that will most drive
significant benefits to users and further the adoption of XBRL in the next five years.
Tie-10. XBRL-enabled Single-Click Regulatory Compliance Tools.
Will help organizations report to regulators.
Timeline: 2001 in some countries; 2002 more generally.
Global Market: US$10-100M/yr.
Tie-10. XBRL-enabled Consolidation Engines, including Application Service Providers (ASPs)
Will help finance professionals manage and consolidate reporting of multiple units.
Timeline: 2001.
Global Market: US$100-500M/yr.
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.13
9. XBRL-enabled Conversion and Intelligent Agent Web Tools.
Will help users grab public information from multiple sources and pull it into a single, XBRL-structured repository.
Timeline: 2002.
Global Market: US$10-100M/yr.
8. XBRL-enabled Loan Application and Maintenance Systems
Will help banks lend to more small and medium enterprises, and more accurately monitor their own positions.
Timeline: 2001 in some countries; 2002 more generally.
Global Market: US$500M+/yr.
7. XBRL-enabled E-Commerce Taxation Add-ins.
Will help companies comply with tax laws coming from OECD and other authorities for cross-boundary e-commerce.
Timeline: 2004.
Global Market: US$500M+/yr.
6. XBRL-enabled Due Diligence Tools.
Will help M&A teams assess the performance of potential candidates in a fraction of the time.
Timeline: 2002.
Global Market: US$100-500M/yr.
5. XBRL-enabled US GAAP-to-IAS Reconciliation Tools.
Will help finance and accounting professionals reduce the time it takes to do a reconciliation.
Timeline: 2002.
Global Market: US$500M+/yr., as long as it is needed.
4. XBRL-enabled Continuous Monitoring Systems.
Will help finance and accounting professionals monitor company transactions continuously for real-time business
intelligence and auditing.
Timeline: 2003.
Global Market: US$1B+/yr.
3. Audit Trail Systems for XBRL-ized information.
Will enable finance and investor relations professionals and auditors to secure, track and control how business
information is prepared, reported, manipulated and distributed by users.
Timeline: 2003.
Global Market: US$1B+/yr.
2. XBRL-enabled E-Marketplaces
Will enable new, dynamic transactions of portfolios based on XBRL information.
Timeline: 2003-2004.
Global Market: US$1B/yr.
1. XBRL-enabled Economic Knowledgebases
Will enable timely macro-economic and industry benchmarking.
Timeline: In stages, 2003-2006.
Global Market: US$1B+/yr.
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.14
A B O U T T H E AU T H O R
As Liaison Chair for the XBRL Consortium, Zachary Coffin is focused on the strategic
alignment of XBRL—how it fits into the global landscape, across industries, with other
Internet standards, and along the entire chain of business reporting from companies and
service providers to intermediaries and aggregators to end-users, analysts and investors.
A founding member of XBRL.org, he's worked with officials, executives and
stakeholders ranging from start-ups to the Fortune 10 and from the White House
Conference Center to over twenty-five countries around the world.
Mr. Coffin also serves as KPMG’s Global XBRL Leader, and is responsible for
integrating XBRL into KPMG’s assurance, tax, corporate finance, consulting and advisory services for clients
of every industry worldwide. He graduated with an M.F.A. from the University of Southern California and
with a B.A., magna cum laude, from Columbia University, and can be reached at either zcoffin@kpmg.com
or ZacharyCoffin@email.com.
109 John Chambers, during Cisco’s Year End Earnings Release Call, August 10, 1999.
110 2000 Hackett Group Benchmarking/Solutions Book of Numbers, The Hackett Group, 2000.
111“[T]he audit remains rooted in historical reviews while transactions are increasingly processed in a real-time manner. … We believe
real-time auditing is not only possible, but it is necessary for the independent audit to survive in the information age.” James C.
Emerson, Emerson’s 2000 Big Five Annual Report, p. 14. Bellevue, WA: The Emerson Company, 2000.
112 MetaFax Weekly Research Summary, MetaGroup, December 11, 2000.
113 “The WebTrust Program is a comprehensive, e-business solution that provides companies with a series of e-business 'best
practices' designed to build trust and confidence in e-commerce. The WebTrust Program includes standards that cover On-line
Privacy, Security, Availability, Business Practices & Transaction Integrity, Confidentiality and Non-repudiation.”
http://www.cpawebtrust.org/faqs.htm#a
114 “SysTrust is an assurance service that independently tests and verifies a system's reliability. This service is part of a broader future
vision of the accounting profession to supply real-time assurance on information databases and systems and is a natural extension of
the CPA's audit and information technology consulting functions.: http://www.aicpa.org/assurance/systrust/faq.htm
115 AICPA Special Committee on Assurance Services, Report of the Special Committee on Assurance Services, AICPA, 1997.
116 The XBRL consortium is working in this area, but it is more difficult than simply XBRLizing existing financial standards. As
Robert E. Litan and Peter J. Wallison have noted in their monogram The GAAP Gap: Corporate Disclosure in the Internet Age
(AEI-Brookings Joint Center for Regulatory Studies, 2000): “For XBRL to be truly useful in addressing the needs of users, it must
include indicators and measures that go beyond the scope of a company’s financial statements. The problem is not insurmountable,
but it must be seen as a further development of XBRL--in effect a combination of XBRL and several other efforts discussed earlier
[the Jenkins report and other studies on business reporting]. … It would not be difficult to design in general terms the kinds of
indicators that would be useful for particular industries or market segments. The truly difficult part would be defining the indicators
or measures with sufficient specificity that they could be consistently applied by all companies that chose to adopt them as a basis for
nonfinancial disclosure." (67-68)
117 KPMG White Paper, Beyond the Numbers, KPMG, 2000, p.15.
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.15
118 “…a new, global professional designation, focused on the ability to provide strategic business insight, that will complement
existing professional credentials.” http://globalcredential.aicpa.org/content/info/xyz/executive.htm
119 CFO Magazine, December 2000, p.104.
120 See, e.g., John Elkington, Cannibals with Forks. New York: New Society Pub, October 1998.
121 See the paper “Emotional Capital: The Evolution of Business” by the author.
122 Ali Hashim and Bill Allan, Information Systems for Government Fiscal Management, The World Bank Sector Studies Series, p.1.
Washington, DC: The World Bank, February 1999.
123 U.S. CFO Council Systems Committee & OMB/OFFM [Office of Management and Budget and Office of Federal Financial
Management], Status Report on Federal Financial Management Systems, 2001; and U.S. General Accounting Office, Agencies Face Many
Challenges in Meeting the Goals of the FFMIA [Federal Financial Management Improvement Act], GAO-AIMD-00-178, 2000.
124 The CFO Act of 1990 (OMB Bulletin 97-01 and Related Amendments) and GASB 34.
125 John F. Sowa, Knowledge Representation: Logical, Philosophical, and Computational Foundations. Pacific Grove, CA: Brooks
Cole Publishing Co., 2000. Also, compare the computer graph above with its equivalent form in Knowledge Interchange Format
(KIF):
(exists ((?x1 person) (?x2 believe))
(and (name ?x1 'Tom) (expr ?x2 ?x1)
(thme ?x2
(exists ((?x3 person) (?x4 want) (?x8 situation))
(and (name ?x3 'Mary) (expr ?x4 ?x3) (thme ?x4 ?x8)
(dscr ?x8 (exists ((?x5 marry) (?x6 sailor))
(and (Agnt ?x5 ?x3) (Thme ?x5 ?x6)))))))))
126 Clayton Christensen, Thomas Craig and Stuart Hart, “The Great Disruption,” Foreign Affairs, March/April 2001, pp.83-84. “[T]he
gross profit margins in minicomputers for a firm such as Digital—the mid-range computer producer of the 1970s—averaged about 45
percent, and those margins were always under pressure from competition. The choice was between making higher-performance
minicomputers, which promised margins of 60 percent and could be sold for more than $100,000 apiece, or personal computers,
which yielded margins between 20 percent and 40 percent and were priced at $2,000 to $3,000 apiece. Hence personal computing
represented a much smaller market than minicomputers did during the formative early years.”
127 Tim Berners-Lee, James Hendler and Ora Lassila, “The Semantic Web,” Scientific American, May 2001.
http://www.scientificamerican.com/2001/0501issue/0501berners-lee.html
128 As Litan and Wallisan (62) have described this: “…a program could be developed to go into the XML database, find the data for
laptops, extract the prices for the machines, and compute the median price. Similarly, if a user thought that it was important to know
whether the company’s laptops were factors considered important—say, RAM, weight, and operating speed—and develop a
relationship to price that he could compare with the offerings of others.”
129 Not all information in XML may be publicly available, but even with what is, the scope of what we view as nonfinancial
performance information, may extend to any information. Previously, performance metrics have been defined as being "quantifiable,”
“standardized or standardizable” and “relevant,” e.g. by Prof. Baruch Lev in his book Intangibles (Brookings Institution, 2000). But
the point here is that one might find insight in information not originally identified as material. Because all information in XML will
standardized, and much of it quantifiable, it can be analyzed. Thus, analyzing non-material XML information may provide significant
competitive advantage for users who capture this information.
130For instance, Sir David Tweedie, Chairman of the International Accounting Standards Board (IASB), has identified a “three-legged
financial reporting stool”: (1) good international accounting standards; (2) strong and consistently applied auditing standards; and (3)
effective enforcement mechanisms. The IASB is working on the first; the International Federation of Accountants (IFAC) and its
Forum of Firms are working on the second; and the International Organization of Securities Commissions (IOSCO) is working on
the third. “Globalisation Here We Come,” Financial Times, February 1, 2001, Survey Section, p.2. The XBRL.org consortium, of
course, is attempting to Internet-enable their work.
131 Mark Coker, BestCalls.com President, during “The Information Disseminator and Media Perspective” session of the U.S. SEC
Public Roundtable, “Regulation FD: How Is It Working?”, New York City, April 24, 2001.
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
THE TOP TEN EFFECTS OF XBRL: THE FUTURE OF INT ERNET REPORTING COFFIN P.16
132 “Outlook for the 21st Century,” CFO Magazine, January 2000.
133 Plato, The Republic (Jowett trans.), 29:514a-521b.
134 J. Fenn and A. Linden, “Twelve Technologies for 2000 to 2010,” Gartner Group Research Note T-10-8085, April 18, 2000, p.1.
Stamford, Connecticut: Gartner Group Technology, 2000. “An era of spontaneous computing will begin around 2007, predicated on
the availability of ubiquitous, reliable wireless connectivity that will provide any time, any place access to information and messaging
through highly portable or wearable systems with speech interfaces. Spontaneous computing will allow users to obtain real-time
information at the point where they need it (e.g., a sales representative in contract negotiations conferring with a remote sales
manager). This responsiveness will create a fundamental change in the way users view information access and creation. Instead of
being the center of attention, information processing will become a secondary activity achieved while the user is performing some
other task (driving or sitting in a meeting), leading to true multitasking.”
135 Of course, making an objective, sound decision requires having some perspective, which is to say reviewing performance over a
period of time. The ultimate goal, then, would appear to be to attain the correct equilibrium between year-long uninformed decision-
making at one extreme and continuous decision-making at the other, or, put another way, between viewing shadows on the wall and
getting so close to the fire as to be burned by its flames. In any case, the reporting period first must be collapsed dramatically.
136 Zachary Coffin, “Digital Reporting: XBRL, MPEG-21, and Why Every Company Is a Digital Media Company,” in Enrique
Bonsón (Coord.), Los Estados Financieros en Internet. Madrid: RaMa Editorial, 2001. The term “performance calculus” was
described as “the calculus of digital reporting” in this chapter, which served as the basis of the keynote paper, “XBRL: The Digital
Media Perspective,” for the Fifth Annual Conference on Artificial Intelligence & Emerging Technology in Tax, Accounting &
Finance (Universidad de Huelva, November 2000), available at http://groups.yahoo.com/group/xbrl-public/files/conferences.
137 Marshall McLuhan, Understanding Media: The Extensions of Man, p.12. Cambridge, MA: MIT Press, September 1994.
138 “In one of the boldest moves of the post-Regulation FD era, Progressive later this month plans to begin reporting a slew of
detailed financial data on a monthly, instead of quarterly, basis. The fast-growing Cleveland auto insurer will hand out the information
to Wall Street and the world at large. While it won't release an income statement replete with a bottom line, it will reveal premium
volumes and ratios of underwriting profitability, among other details of its operations.” The Associated Press, May 11, 2001.
139 “Outlook for the 21st Century,” CFO Magazine, January 2000.
140 Speech to the National Association of Business Economics, NABE Policy Conference, March 27, 2001.
141 Financial Times, March 26, 2001, p.1.
2 0 0 1 B Y Z AC H A RY C OF F I N . AL L RI G H T S R E S E R VE D . Z A C H A RY C OF F I N @ E MAI L. C O M
