XBRL Four Letters, Numerous Benefits by sparrowjacc


									                                                                Fo u r L e t t e r s ,
XBRL:                                                       N u m e ro u s B e n e f i t s
                By M. Elizabeth Haywood-Sullivan, Ph.D., CPA, CMA and Dorothy A. McMullen, Ph.D., CPA, CFE, FCPA

       XBRL (eXtensible Business Reporting         EXPEDITIOUS (Timely)                           employ analytical software that detects
Language) is a derivation of XML                         With these standardized tags of          incongruities, misstatements and possibly
(eXtensible Markup Language). Both are             information, users of financial (and            fraud. With Section 408 of Sarbanes-Oxley
Internet-based information languages,              nonfinancial) information can retrieve          requiring that the SEC review filings
but XBRL focuses on a seamless flow of              and send data much quicker without             more frequently, XBRL can save the SEC
business and financial information for both         reentering, reformatting, recalculating        additional time (and money).
public and private organizations and for           or reconciling the data. Think about the             Moreover, with the bailout of the
internal and external reporting. XBRL, like        potential mistakes individuals can make        financial sector and potential financial
XML, treats data as standardized tags of           when moving data from source documents         rescues of other industries, the ability to
information rather than blocks of text.            to spreadsheets; spreadsheets to general       closely monitor executive compensation
       The key to XBRL lies in the                 ledger accounting systems; general ledger      is imperative to politicians and taxpayers
standardized tags of information. The              systems to printed documents; or printed       alike. XBRL allows the SEC and others to
use of standardized tags allows financial           documents to the Web. Instead, users           tag executive compensation disclosures.
information to be shared, extracted and            extract the information from the original
analyzed by different users with different         source automatically and eliminate errors      RELEVANT (Making Differences in
accounting systems and be readable                 caused by transferring or manipulating         the Decisions)
by both humans and computers. As a                 information from source to source and                All stakeholders make more effective
computer language, it allows various               system to system. This accuracy, in turn,      and efficient decisions when using XBRL.
software applications to pass the data             speeds up the filing and analysis of data       Companies employing XBRL become more
back and forth and be uploaded to the              for key reports and documents without          socially responsible through increased
Internet. In fact, XBRL has been called            having to authenticate the information         transparency. Financial information that
the “bar code” of financial statements.             every time. In fact, analysts estimate         is difficult to locate in normal financial
Like bar codes that are used to identify           that using formats such as XBRL can            datasets can quickly be retrieved and
inventory items, XBRL tags identify                reduce report preparation costs by up to       analyzed when standardized classifications
specific attributes related to a financial           70 percent. Stakeholders who save time         are utilized. This allows labor time to be
statement element. For example, cash on            include: corporate accountants closing         channeled toward more productive uses.
the balance sheet or cost of goods sold            their books and preparing financial             For example, instead of hours spent on
on the income statement will each have             statements; auditors testing numbers and       transferring information from one system
its own tag. Information can be extracted          controls; financial analysts and investors      to another and consolidating numerous
from any point in the business cycle, not          assessing performance; and regulatory          systems into periodic closings, employees
just from financial statement line items.           bodies (such as the SEC and the IRS)           focus on important operational and
Data from invoices, orders, journal entries,       enforcing rules and regulations.               strategic decisions. With the drill down
general ledger postings and reconciliation               One example of a governmental            features, operational data and transactions
processes are also pieces of data that users       agency that has reaped the benefits             can be traced to facilitate internal decision
can pull from this reporting language.             of XBRL is the FDIC (Federal Deposit           making such as benchmarking, budgeting,
       The adoption of XBRL is growing.            Insurance Corporation). Starting in            performance measurement and cost
In fact, the SEC has mandated its use by           October 2005, the FDIC began using XBRL        accounting. Because the information is
the largest public companies effective             to gather 2,000 different pieces of data       readily available, these key decisions can
December 2008. Because of its rising               from its member banks. In doing so, the        be made faster.
acceptance, it is important to understand          FDIC has estimated a savings well over               Investors, armed with the same
the numerous benefits XBRL holds.                   $20 million in processing costs and has        tagged items for different companies,
In addition to representing eXtensible             shortened its reporting cycles from 14 to      compare financial results more easily.
Business Reporting Language, the four              fewer than five days. Such benefits are one      Analysts can cover more companies and
letters “X” “B” “R” and “L” portray the            reason why the SEC issued a rule requiring     industries since the data can be easily
many benefits of this new language. “X”             the use of XBRL for financial reporting         analyzed and manipulated. This opens
stands for “eXpeditious,” which represents         disclosures for public companies with net      the door for recommendations on smaller
how timely and efficient the language               worth exceeding $5 billion effective Dec.      firms that are not currently followed.
can be. “B” signifies “Beneficial” as is             31, 2008. Additionally, the SEC will require   All of these reasons, in turn, can lead to
described in the three other categories of         a phase-in of XBRL reporting for all public    less informational asymmetry and more
benefits. “R” denotes “Relevant,” meaning           companies over the next three years.           efficient capital markets.
XBRL makes a difference in the decisions                 Why is the SEC so interested in                Creditors also benefit because key
involved. “L” characterizes “Linked,” as           mandating XBRL? Companies compare              leverage ratios can be computed instantly
XBRL helps connect other information and           financial statement data to the SEC’s           without requiring bank employees to
processes to one another. The following            reporting guidelines and detect errors         pour over numerous paper reports and
explains the benefits of XBRL through               prior to sending the financial reports to the   documents necessary to support those
its expeditious, relevant and linked               SEC for review. Because the information        calculations. Lenders and credit agencies
properties.                                        is computer readable, the SEC can              can analyze more and different pieces of

6    Tennessee CPA Journal   |   JANUARY/FEBRUARY 2009
Internet-based data to better assess the        tag data elements. Then, expenditures for        has been spearheaded by the American
level of risk of businesses and industries.     employee education and training for this         Accounting Association which, for the
Reduced paper creates a “greener”               software need to be made. The software is        past three years, has sponsored training
business environment, further promoting         still evolving, thereby rendering it difficult    sessions for professors on understanding
social responsibility.                          for implementers to learn. However,              XBRL and its applications in the classroom.
                                                to minimize the effort involved, all of          XBRL’s potential is great and will
LINKED (To Other Information and                the major ERP vendors including SAP,             undoubtedly generate even more benefits
Processes)                                      Oracle and Microsoft (Great Plains and           in the future - so many benefits, in fact,
       The standardization of XBRL              Business Solutions) offer XBRL format for        that they probably will be too many to
simplifies the transfer of data from any         financial reports now. Furthermore, all           count!
medium and software application –               tax preparation software vendors have
databases, spreadsheets or reporting            committed to supplying XBRL as a format          About the Authors:
systems. Disparate systems within               for importing and exporting data from                  Dr. Mary Elizabeth Haywood-Sullivan is
an organization, systems outside the            their systems.                                   an associate professor at Rider University. She
organization such as extranets and                     Companies will also need to ensure        can be reached at msullivan@rider.edu.
different modules and platforms all share       that the tags are correctly applied, thus              Dr. Dorothy A. McMullen is an associate
information easily when using XBRL. For         incurring additional labor costs. Resistance     professor at Rider University and can be
example, a parent company using XBRL-           by employees can pose an additional              reached at mcmullen@rider.edu.
tagged data can consolidate transactions of     problem. Companies are just now
subsidiaries even when those subsidiaries       becoming comfortable with the reporting
have inconsistent reporting systems.            requirements of the Sarbanes-Oxley Act
Inconsistent terminology and formatting,        of 2002. Many managers and financial    al
various currencies and different languages      personnel can be reluctant to adopt yet et
often create chaos in the consolidation                                                 e
                                                another type of reporting change. One way
process. With standardized tags, each                                                   b
                                                to assist in the transition is a new Web site,
business unit is on the same terms.             tryxbrl.com. It was created to help usersrs
       Auditors, too, can be connected to       learn about XBRL and to demonstrate    e
their clients through XBRL. External and        to accountants how to convert their
internal auditors can conduct continuous        company’s financial statements to XBRL. BRL.
audits via the Internet and reconcile their            Once the company uploads the
working papers with any reports prepared        information to the Internet, computer  r
by their clients. Auditors can assess           controls such as access, authentication n
internal controls much easier because           and other security measures must be
information originates from one source,         established to prevent hackers and other her
not from multiple individuals rekeying          unauthorized persons from ruining the   he
data or multiple systems that need to be                                                hile
                                                integrity of the data. Furthermore, while
tested. CaseWare Working papers allow           numerous stakeholders can benefit from   om
data to be uploaded, mapped into XBRL                                                  ther,
                                                XBRL by being connected to one another, if
tags and then generate HTML files that           a company employs XBRL and its auditor, ditor,
can be printed or uploaded to a Web             lenders or investors do not, then the
site. XBRL-GL (the standardized global                                                  s
                                                company fails to reap the full benefits of
ledger) frameworks incorporate drill-           XBRL.
down features which allow individuals
to review the transactions and source                                          ?
                                                Do the benefits exceed the costs?
documents that support the numbers.                                                   ient
                                                      XBRL supports timely and efficient
XBRL-GL provides information such as                                                   ions
                                                reporting and fosters important decisions
the originator of the journal entry, the        for all types of stakeholders. Despite the
time of the entry, related parties such as      costs and problems still beleaguering
the supplier, customer or employee and          implementation of XBRL, one can
the types of documents involved such as         conclude that the benefits do exceed
the purchase order, invoice or check that       the costs. Accountants and educators
substantiate the entry. Such capabilities can   need to take the lead in embracing
be beneficial for detail and control testing.    any challenges XBRL poses as the
By minimizing risks of controls, auditors       business environment moves
(and their clients) save money, especially      toward its realization. In a
as Section 404 of the Sarbanes-Oxley Act        survey of accounting professors
requires enhanced emphasis of controls.         teaching the course Accounting
                                                Information Systems, the
Despite these benefits, what are the             consensus was that XBRL is a
costs?                                          very important topic to cover,
       This is not to say that XBRL is          particularly its usefulness in the
without its costs. Although the language        analysis, monitoring and financial
is free and readily available to use, a         reporting by company analysts,
company needs to consider other outlays         auditors and regulators. The
to make XBRL fully functional. First,           importance of teaching XBRL to
companies must pay for the software to          future accounting professionals

                                                                                           JANUARY/FEBRUARY 2009    |   Tennessee CPA Journal   7

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