It is essential to harmonize and standardize reporting of financial issues in the world of business. Different organizations use different standards in their data reporting. In most organizations, data are transferred through the databases of the company. One of the most commonly used standards is the eXtensible Business Reporting Language (XBRL). It is one of the most globally accepted standards. This paper is set to research the adoption and use of XBRL standards. Additionally, the advantages and disadvantages of the standard are discussed.
The various companies consume different data standards in an attempt to swap, share, and deliver data. In the contemporary business world, financial as well as financial transactions of several businesses are always transferred through their websites (Müller-Wickop, Schultz, & Nüttgens, 2012). After the transfer or swapping, these operations are combined into reports for external and internal uses. These reports are always presented in digital formats or printed hard copies. Some of the digital formats for the production of reports include excel, Microsoft word, text formats, portable document format (PDF), Apple Numbers, Pages, as well as Hyper Text Markup Language (HTML). Most of these formats are not standardized. Besides, the standards cannot be used in the absence of appropriate software.
It is hard communicating between any two formats of the digital data interchanges. This necessitates the adoption and use of a universal format. Such a universal format is commonly known as the eXtensible Business Reporting Language (XBRL). This particular standard unifies the other standards. It also ensures that the data formats are easy to use as well as readable. The XBRL has solved the problem of the readability of financial data. It is an internationally accepted standard.
Hoffman Charles introduced the standard in the late 1990s. It has revolutionized reporting of business as well as financial information worldwide. It is an extension of the eXtensible Markup Language (XML). It is used in the reporting of financial data globally. The Securities and Exchange Commission (SEC) recommended the use of XBRL in reporting financial matters in the United States of America. The XBRL is one of the simplest and standardized ways of communicating financial and business data. Financial analysts regard XBRL as a more flexible and powerful form of the XML (Müller-Wickop, Schultz, & Nüttgens, 2012). The primary distinction between the two forms is that XBRL is exclusively developed to assist in the processing of information regarding finances. For instance, the need to re-enter financial information when one wants it to be displayed on a different platform is eliminated.
Standardization of financial information enables companies to compare their financial reports. Comparability allows businesses to learn from each other. The use of XBRL also makes accessibility to a company's financial reports easy (Gostimir, 2015). Various stakeholders in the business sector can access the reports from the websites. Some of the stakeholders that can access the information include investors, shareholders, banks, as well as the government. Sharing such financial information is crucial for transparency and accountability in an organization. Transparency and accountability are essential concepts in the financial management of all business institutions.
XBRL has numerous uses in the field of finance. These uses can be external or internal (Müller-Wickop, Schultz, & Nüttgens, 2012). Some of the uses include external and internal reporting on finances, preparation of tax returns documents, loan reports, and risk assessments involving credits. Additionally, it can be used to share information among institutions, storing of financial data, as well as analysis of different types of data. The adoption of eXtensive Business Language Reporting (XBRL) by business organizations has been made easy due the availability of software that is compatible with the format. The software enables users to transfer data in XBRL format and assist individuals in mapping certain financial accounts.
The XBRL International is the institution that is responsible for the development of the XBRL. The organization is composed of approximately five hundred governmental, academic, as well as governmental entities (Diane & Gyun, 2012). The XBRL is a non-profit organization that has been working on the development of the standard from1998. The main purpose of the organization is to assist businesses in adopting the XBRL. Since its inception, the organization has developed various taxonomies and specification to help in the provision of an XML-based language. These reports are digitized by the accounting rules of individual countries. They can also follow the rules and regulations of certain reporting regimes including performance benchmarking and banking regulations. The organization’s members are drawn from various regions of the world. They also include members of certain professional and regulatory organizations. Such organizations include American Institute of Certified Accountants (AICA) and International Accounting Standards Board (IASB).
Software that is compatible with XBRL is being developed. Rivet Dragon Tag (RDT) is an example of software that has been designed to assist in implementing the XBRL. Through the software, XBRL documents can be prepared from Excel spreadsheets. The accountant must be able to use the software to prepare and report financial information (Weerakkody, 2012). Additionally, they must have vast knowledge on tags, taxonomies, instance documents, as well as validation. When financial information is tagged by hand, validation must be done by XBRL. Tagging is essential in ensuring that proper preparation and reporting of financial data is done.
Several business entities have started using XBRL in their financial operations. In some regions of the globe, XBRL is a mandatory requirement to all business organizations. Various groups pushed the adoption of XBRL in different areas (Ramin & Reiman, 2013). These groups had their reasons for preferring the use of XBRL. For instance, the banking sector was at the forefront. In Europe, an organization was created to fast-track the adoption of XBRL in Europe. The organization is known as XBRL Europe. In most organizations in Europe, XBRL is adopted for governmental purposes. In contrast, business organizations in Asia, as well as America, adopt XBRL mainly for the capital markets. In Japan, all companies are required to file their financial information in XBRL form.
The XBRL has several advantages to business organizations as well as the government. Immediately after the financial reports are uploaded into websites, all stakeholders can access them. This enables the interested parties to retrieve financial information of various companies easily. This easy accessibility is essential when an individual wants to compare two or more companies financially (Weerakkody, 2012). It enables users to make evidence-based decisions on financial matters. The use of XBRL also eliminates the task of information re-entry when an individual wants to share given information. Other XBRL compatible software can use the data without re-entering the information into the software. This enables users to share financial information faster through different mediums.
Despite the advantages of XBRL, it comes with certain disadvantages that have hindered its worldwide adoption. There are concerns about the provision of unreliable information by business entities (Diane & Gyun, 2012). The relaxed auditing and high error rates have been faulted for this. When employers file their returns voluntarily, there are high chances of errors due to poor tagging of information. This is a new format in the market with high failure rates. A filing system based on the XBRL format can also turn into an expensive venture for companies. The task of adopting the system is not an easy one. It has the potential to cost the companies many resources concerning money and time.
When adoption of XBRL is mandatory, the business entities may be required to train their staff (Ramin & Reiman, 2013). This is an additional cost since most accountants only read about XBRL without getting a chance to experience its operations. A company with workers who are inexperienced in the use of XBRL can have errors in preparation and reporting of financial resources. This can make Chief Financial Officers (CFO) outsource the preparation and filing of financial information. This, in turn, may also lead the company into experiencing additional costs. Therefore, the companies need to employ XBRL experts to train their employees.
In summary, XBRL is an important financial and business reporting format. It can lead to speedy sharing of information among stakeholders. Additionally, it can assist business entities in the filing of their financial information with the government. However, the disadvantages need to be addressed. A mechanism should be developed to ensure that organizations that are unable to roll out XBRL are assisted. This would enable the companies to use digitized information at a subsidized cost.
References
Diane, J., & Gyun, W. (2012). XBRL Implementation: A Field Investigation to Identify Research Opportunities. Journal of Information Systems, 26, (1), 169-197.
Gostimir, D. (2015). “XBRL Standard for Financial Reporting in Croatia: Current State and Perspectives”, Business Systems Research. Journal of Accountancy, 6, (1), 31-40.
Müller-Wickop, N., Schultz, M., & Nüttgens, M. (2012). XBRL: Impacts, Issues and Future Research Directions. In International Workshop on Enterprise Applications and Services in the Finance Industry. Journal of International Technology and Information Management, 112-130.
Ramin, K., & Reiman, C. (2013). IFRS and XBRL: How to Improve Business Reporting through Technology and Object Tracking. Hoboken: John Wiley & Sons.
Weerakkody, V. (Ed.). (2012). E-government services, design, adoption, and evaluation. Hershey: IGI Global.
