Financial reports are an essential component of any organization. The reports need to be accurate and easily accessible. In the past, the reports were produced in the form of Microsoft Word or Excel. This could not be easily accessed by the stakeholders due to their inability to be accessed on different devices without appropriate software. Such inflexibility, as well as inaccessibility, necessitated the introduction of a standards-based format for financial reporting. The eXtensible Business Reporting Language (XBRL) provided the needed flexibility in reporting of financial information. The focus of the paper is to examine the use and adoption of the XBRL standards. Besides, it looks into the advantages and disadvantages of the technology.
The use of XBRL
The XBRL has revolutionized the financial market by offering a platform for easier and better financial reporting. It has made communicating, transporting, accessing, as well as sharing of financial reports cost effective and efficient. These activities can be done without the interaction of human beings and with no regard to the type of computer operating system (Gostimir, 2015). XBRL technology has also reduced errors caused by humans when retyping information for reporting, sharing, and decision-making. The technology also has improved transparency and accountability in business organizations.
The concept of a standard based format for preparation and Hoffman Chris conceived reporting of financial information in the 1990s. He was a Certified Public Accountant (CPA) in Washington during that time. He wanted to ensure total transformation in the reporting of business finances. Through the support of the American Institute of CPAs (AICPAs), he was able to create the XBRL. The technology is regarded as one of the best forms XML language (Hall, 2012). It has digitized business reports. The digitization has been conducted following the rules and regulations of accounting in the particular countries globally. The XBRL International, which is composed of over two hundred and fifty organizations, is responsible for the use and adoption of the XBRL.
The XBRL technology has its origin from the eXtensible Markup Language (XML) family. It has developed into the newest way of communication between business entities as well as stakeholders (Basu & Saha, 2013). The reports are always available on the websites and can be accessed by authorized persons. The standard web pages present financial data in block format. This type of reporting is not suitable for the presentation of enormous financial information of the companies. Additionally, accessibility of the information is limited due to the poor format for presentation. The XBRL has a potential to tag individual data item making it readable in almost all computer devices. XBRL format is also readable on several phone interfaces.
The speed of preparation, reporting, sharing, as well as the presentation of financial reports, has also improved due to the use of XBRL. Besides, the cost of conducting these operations is also reduced. It is essential for the accountants as well as the Chief Financial Officers (CFOs) to be able to use this format (Gostimir, 2015). The technology can also reduce the chances of re-entry errors. There is often no need to re-enter information when the data is to be shared. The information can always be available to all authorized persons. This is because XBRL allows data to be shared among computers within a given network. This accessibility is in deep contrast to the past reporting formats, which shared information in forms that were non-interchangeable. These past formats include Portable Document Format (PDF), Hyper Text Markup Language (HTML), or spreadsheets. These formats were error-prone, labor-intensive, and time-consuming.
For an individual to understand the importance of XBRL to financial reporting, comprehension of its use is essential. When preparing an XBRL document, accounting information to be reported is retrieved from the financial systems of the organization. All data are coded using an appropriate taxonomy (Hall, 2012). The process of coding data in XBRL technology is referred to as ‘tagging'. In ordinary language, the term is equivalent to assigning identifiers that are coded to data. After the inclusion of available identifiers into taxonomies, the users select relevant reporting concepts existing in the financial reports of the organizations.
Besides, the taxonomies have the potential of describing significant interrelationships between the concepts. These interrelationships are essential in comparing different business organizations (Basu & Saha, 2013). The primary purpose of ‘tagging' is to ensure all items in the financial statements have particular attributes identified for them. Through the XBRL, business entities can customize certain taxonomies enabling them to create new concepts. This is referred to as ‘extension of the taxonomy’. The extension ability of the XBRL is essential for companies that report unique financial items. These unique items are often not available in the taxonomies.
Adoption of XBRL
It is a requirement in the United States that all large business organizations adopt the XBRL technology. However, certain companies have resisted the adoption of the technology. The XBRL International has been pushing for worldwide adoption of the XBRL format of financial reporting (Gostimir, 2015). The United States Securities and Exchange Commission (SEC) ordered all companies to ensure that their filed financial reports are in XBRL format. Additionally, they were also required to post their financial information on their website in XBRL. Most regulatory institutions worldwide have also encouraged business entities in their respective countries to adopt the technology.
In Europe, all banking institutions are also required to embrace XBRL fully. This is similar to a directive in the United States. In certain jurisdictions such as China, the companies are required to adopt XBRL for external use. The use of XBRL in preparation and reporting of information for the public as well as the government agencies is essential. There are no requirements for the adoption of XBRL for internal purposes (Perdana, Robb, & Rohde, 2014). The companies can also decide to outsource the XBRL for internal purposes rather than entirely converting their financial system. Due to lack of internal mandate, adoption of XBRL in particular countries has been poor. This is the main reason for resistance among particular business organizations.
The Advantages of XBRL
The companies that embrace XBRL have reaped several benefits from its accessibility as well as flexibility. The technology can be used for various purposes within the organization. They include reporting of organizations external and internal financial information, conducting risk assessments of credits, as well as faster or effective filing of reports on loans (Hall, 2012). The many uses of the technology highlight its importance to business organizations. For businesses to realize the importance of XBRL, they must adopt the technology either wholly or partially. In the modern business world, it is important to ensure that the operations of business organizations are digitized.
When companies adopt the use of XBRL, they can automate their data collection processes. This would enable them to collect data faster and accurately. For instance, data collected from different departments of a given company can be easily assembled for analysis. This automation assists the company in reducing costs in terms of time and human resources. Besides, XBRL helps in managing the finances of business entities through auditing of financial information (Basu & Saha, 2013). Through its flexibility, the XBRL can also be used in the detection of disparities in financial data. It does this faster than the use of financial auditors who may take several days to complete the auditing of accounts.
The Disadvantages of XBRL
Besides the advantages, XBRL technology has certain disadvantages. For a company to adopt XBRL, it needs an overhaul of its financial system. This has the potential to affect the operations of the organization (Hall, 2012). Awareness creation among the employees, analysts, and other stakeholders is essential for proper functioning of the system. This can be done through training. If the individual business organizations were to train their employees, it would be expensive in the short-term (Lai, Lin, Lin, & Huang, 2015). The introduction of technology to any organization threatens the human resource of that particular institution. Similarly, the introduction of XBRL would threaten and subsequently lead to loss of jobs to certain employees. Such employees include analysts, auditors, as well as data clerks. This has been another contributor to the resistance faced by the attempt to ensure worldwide adoption of XBRL.
In summary, the XBRL has a potential to improve world business reporting. It has to be conducted in phases to avoid resistance. It is also essential to address the disadvantages of the technology for its proper operation. It promises a brighter future in the field of accounting as well as financial reporting.
References
Basu, A. K., & Saha, M. (2013). Studies in Accounting and Finance: Contemporary Issues and Debates. New Delhi: Pearson Education
Gostimir, D. (2015). “XBRL Standard for Financial Reporting in Croatia: Current State and Perspectives”, Business Systems Research. Journal of Accountancy, 6, (1), 31-40.
Hall, J. A. (2012). Accounting information systems. Boston: Cengage Learning.
Lai, S. C., Lin, Y. S., Lin, Y. H., & Huang, H. W. (2015). XBRL adoption and cost of debt. International Journal of Accounting & Information Management, 23(2), 199-216.
Perdana, A., Robb, A., & Rohde, F. (2014). An Integrative Review and Synthesis of XBRL Research in Academic Journals. Journal of Information Systems, 29(1), 115-153.
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