XBRL
Abstract
The global issue of data integrity and timeliness has resulted in the creation of standards that aim at the creation of uniformity. XBRL (Extensible Business Reporting Language) is a developed financial and business reporting system that is being embraced globally to provide standards that model business information. XBRL is involved in compiling, distributing, and allowing the use of financial information on a common platform. The adoption and use of XBRL were dated back to over a decade ago and many countries are still adopting the system. Some of the Asian countries such as China and Japan have mandated the use of XBRL data in the stock exchange while others such as the U.S have made it compulsory for the listed firms to issue their reports using XBRL. There are different levels of XBRL adoption as it will be discussed in this paper. Both merits and demerits of each level will also be analyzed.
The adoption and use of XBRL standards
The extensible Business Reporting Language was developed from XML (Extensible Markup Language) with the aim of ensuring that financial information is consistently shared across organizations. It aims at the creation of transparent and accessible business tags that can be obtained from a uniform format. XBRL is a developed technology that applies electrical transfer of business information and it is also referred to as the new business language. Business information was previously perceived as a statistical text but XBRL functions to provide a tag for all data items that can be read and used to share information interactively. Various researchers have come up with different definitions of XBRL but they all have a common element of the financial information. According to Savage (2009), the technical definition of the XBRL system is defined based on the data tags obtained from XML. This definition also insists on the free and open standards set by the system that makes it easily accessible by its users since there is no fee required.
The development and use of XBRL can be dated back to 1997 to a certified public accountant known as Hoffman (Deshmukh, 2004). The idea was embraced and adopted by various organizations with different backgrounds. The companies came together and held the first global meeting that resulted in the release of XBRL 2.0 standards. However, for XBRL to be further accepted and used by global organizations there is the need for it to be continuously improved and updated according to the modern IT standards. The first company to use XBRL in its daily operations was discovered in 2002, and data was collected from over eleven thousand organizations (XBRL International, 2009). Later on, the United States Companies adopted the principle and over 540 biggest companies were listed with XBRL. The adoption resulted from the rule that was issued by the U.S Security Exchange Commission requiring all organizations to file their financial information using XBRL.
There are so many countries in the world that have encouraged reporting to the XBRL while others have made it compulsory. The earliest countries to adopt the system are mostly located in the Asian continent where the primary filing format is XBRL. XBRL is based on several rules and regulations and all companies must be compliant to avoid fines and penalties that that result from the violation. There are four main types of XBRL adoption based on the level at which a firm operates. These types or levels of adoption are differentiated based on the method of data conversion, whether XBRL is used internally or externally the benefits obtained and the costs incurred. The four levels of adoption include the non-adopters, low, medium and high adopters (Weber, 2003).
The nonadopters are not mandated to use XBRL for any of their financial reporting activities by either the state or agency. Therefore, they avoid all costs incurred by XBRL conversions and those that do not benefit from the profits associated with its use. The firms that are mostly categorized in this level are privately owned and are located in countries that have not made compulsory XBRL regulations. The second level of adoption is the low adopters who outsource their filing to avoid the need to change their systems. Often, outsourcing is perceived to be cheaper for organizations that lack skilled personnel in the field of XBRL tagging. Additionally, outsourcing the conversion may require less time compared to the in-house conversion process. The major disadvantage suffered by the low adopters is that they do not benefit from XBRL but only comply due to regulations.
The third level of people who adopt is the medium ones that choose to convert their financial data with an aim of meeting regulatory requirements. The conversion takes place in-house whereby an organization is forced to purchase the XBRL mapping tools then train its employees on ways of using the software. This level is the cheapest in-house conversion method that may require a period of about seven months. A lot of money and time are invested in the conversion process and the firm may not fully reap its benefits since XBRL may not be used for internal purposes. Despite the demerit, the organization at this level of adoption is able to fully monitor and control the conversion process. In addition, unlike in the low adopters level where XBRL tags are not maintained the XBRL tags obtained at this level may be used for other purposes. The last level of adoption is the high adopters who fully enjoy the benefits of XBRL. High adopters have made XBRL a part of their reporting process and have full control of the conversion process. At this level, a company is able to internally transmit financial data with ease and release reports at lower costs. A more integrated XBRL system can save a firm both time and resources. Nevertheless, the greatest limitation on this level of adoption is that it requires high levels of expertise in in-house XBRL and great investment in hardware and software necessities.
The advantages and disadvantages of using XBRL
According to a research conducted and published by Gianluca (2009), most organizations regardless of their adoption level do not feel the need to adopt XBRL for internal data conversions. However, firms are encouraged to adopt and XBRL for other benefits that it brings about. The advantage of using XBRL is found in its automated nature that makes it fast and transparent. The set international standards facilitate the reduction of bureaucracy thus ease the flow of financial information. XBRL is not only used for financial information, but also for sharing with other business information. Both speed and accuracy of a given piece of business information can also be enhanced by use of XBRL through electronically accessing spreadsheet information from source systems. Being an open-source company can benefit from XBRL while incurring the least possible cost.
The disadvantages of XBRL can be linked to its transparency whereby the short term results may limit long-term goals. Errors are also a potential disadvantage in instances where a company may select the wrong tag from a taxonomy which will result in inaccurate information. Another disadvantage of using XBRL is the misuse of information. With the easy access to information regarding a particular organization, safeguards should be put in place to protect companies from dishonest people as well as abuse of information. In conclusion, XBRL information sharing should be fully utilized both internally and externally. However, the information should be secured and the taxonomy elements accurately positioned.
References
Deshmukh, A. (Writer) (2004). XBRL [Article], Communications of AIS: Association for
Information Systems.
Gianluca. G., (2009).“XBRL Implementation Strategies: The Bolt-on Approach,” Strategic
Finance
Savage, M. (2009). XBRL US Launches Intern Program to Foster Cooperation and Build
Community. XBRL US
Weber, R. (2003). XML, XBRL, and the Future of Business and Business Reporting. Trust and
Data Assurances in Capital Markets: The Role of Technology Solutions, 4.
XBRL International (2009). XBRL's History Retrieved on 19th Aug 2016, from
http://www.xbrl.org/history-print.aspx
