By the end of this year, all public companies will be required to file their financial statements with the SEC using eXtensible Business Reporting Language (XBRL). Regulators around the globe believe that XBRL provides for greater transparency in financial reporting. Even though this requirement does not apply to private companies, making use of the power of XBRL is worth considering for all sized companies.
Interactive Financial Information
Basically, XBRL is a means to automatically report financial information in an interactive format that can be used by anyone. It tags accounting information directly from the general ledger so it can be accessed across several platforms. Eventually, it will replace paper filings. Many believe that more and more companies will begin to also use it internally. Its use will increase accuracy and shorten the time that financial information is made available to a company’s stakeholders (e.g., owners, banks).
There are three basic options for implementing XBRL:
- Bolt-on – tagging financial statements at the end of the reporting process as an extension to the traditional process in order to convert the statements to XBRL format;
- Built-in – integrating XBRL mapping capability within information systems across the organization as part of the reporting process;
- Embedded – standardizing XBRL in the internal reporting process by embedding it in enterprise resource planning (ERP) applications and ledgers.
The bolt-on option is the easiest and fastest way because it is most similar to what many organizations currently do when they prepare documents in Hypertext Markup Language (HTML) to comply with Electronic Data Gathering, Analysis, and Retrieval system (Edgar) filing requirements. The built-in option, using XBRL’s general ledger taxonomy (XBRL GL), enables reporting data to be automatically mapped, on demand, using a standard taxonomy. It requires that the company’s software applications support mapping to XBRL. The embedded option goes beyond mere SEC compliance for external reporting. XBRL is embedded into the company’s enterprise reporting systems so that it can leverage this standardized integrated data to provide information that increases the value of the business.
As XBRL edges ever closer to being the de facto standard for reporting corporate financial data, it is even more important to shift away from merely thinking about compliance with the new reporting rules and to focus on the control and communication advantages of the technology. We believe that companies (public and private) that accelerate the integration of XBRL into their business and financial reporting processes will reap the rewards ahead of their competition.