A standard method of exchanging financial data is crucial in the financial department of all institutions. In the past, the financial community was often frustrated by the lack of proper financial reporting formats. Most of the formats used were inflexible in sharing of data. Some of the formats used in the past include Microsoft Excel documents (MED), HTML, Adobe files, as well as text files. These formats had a little advantage of paper presentations. The inflexibility of these methods necessitated the adoption and use of XBRL in reporting financial statements. XBRL solved the dilemma that surrounded uniform exchange within financial institutions. This paper is set to examine utilization as well as the adoption of XBRL standards. Additionally, it explores the merits as well as demerits of the standard.
The Use of XBRL Standards
The eXtensible Business Reporting Language (XBRL) has been a revelation in the business world. It has solved the problem of data exchange between devices. The standard is based on the eXtensible Markup Language (XML). It is used by several institutions worldwide. Some of the institutions that use the standard include accounting firms, software vendors, and trade and government institutions. XBRL allows data to be tagged with certain standardized descriptions (Basu & Saha, 2013). These descriptions enable applications used in devices to understand the context and meaning of particular information in financial documents. Through XBRL, the data entered is perceived, interpreted consistently, and accurately. It eliminates the need to re-enter information after the initial operation.
The regulatory institutions, banks, credit companies, as well as the investment firms have benefited significantly from the use of XBRL. It allows reliable extraction of financial data as well as an automatic exchange of financial information. The data can be shared across all formats and devices (Gostimir, 2015). The tagged information is often transmitted in varying formats attached to analytical tools. These analytical tools ensure that the data is interpreted correctly and consistently. The XBRL has also improved efficiency in financial analysis and reporting. Improvement in efficiency leads to reduced costs of preparation and analysis of financial reports.
The use of XBRL has also enhanced access to financial data. Business institutions can share their financial information with the stakeholders. The standard also assists the stakeholders to access reliably extracted and accurate financial reports. XBRL benefits regulatory agencies, preparers, as well as users. The preparers benefit through lowered cost of production of information, accurate, and timely analysis of data and improved analytical analysis (Müller-Wickop, Schultz, & Nüttgens, 2012). The users of financial information benefit through the reduction in the cost of obtaining financial data and accurately analyzed information. Individuals using transnational data often benefit from the simple translation of financial information. For instance, financial statements can be translated from English to Japanese. This interpretation makes comparability of financial information easier. The regulators can benefit from facilitated validation, increased flexibility, and simplified programming.
The Adoption of XBRL
The adoption of XBRL has been rapid since its introduction into the business world. The primary drivers of the adoption of XBRL are regulatory bodies. In countries such as China, U.S, and Japan, all listed companies are required to report to the market as well as securities regulators through XBRL (Gostimir, 2015). In the European Union, individual companies have an obligation to report in XBRL to allow for supervision. Several businesses in the world have also adopted XBRL for use in performance comparison in different years as well as the various sectors of the same company.
The XBRL International maintains the XBRL standards. The institution solely regulates the adoption and application of the standard. XBRL International has approximately four hundred and fifty members' worldwide (Müller-Wickop, Schultz, & Nüttgens, 2012). The principal purpose of the institution is to build, maintain, as well as support the adoption of XBRL language by different firms. It uses the Financial Reporting Taxonomy Architecture (FRTA) and XBRL specification in setting the standards for its products. These standards are applied in line with the financial and accounting rules in the respective member countries (Diane & Gyun, 2012). This enables different companies from various parts of the world to customize their financial reports according to the regulations in their countries. In the United States, the XBRL US, Inc. regulates the rules and regulation for the adoption and use of XBRL in financial reporting. It is a chartered non-profit entity working on the taxonomies for the application of XBRL in America.
Advantages of the XBRL
The XBRL has several advantages that have led to its rapid adoption and use in the world business. The implementation of XBRL is beneficial to external and internal users of financial information. These benefits can be short or long-term. Some merits of using XBRL include improved efficiency in reporting financial data, increase in information quality, and improved transparency (Basu & Saha, 2013). When companies file their data using XBRL, manipulation and analysis of data can be done without re-entering of the information. In essence, the XBRL reduces the time needed for analysis of data. This procedure is in sharp contrast to the traditional methods that required re-keying of information after an initial operation. The XBRL increases the integrity of data as well as the reduction in time cost for both the regulators and institutions. Businesses are more often than not faced with the mayhem of submitting their reports to various regulatory firms. The complicated reporting puts a lot of pressure on the resources of the businesses. The utilization of XBRL format enables the companies to tag data then send the same data to multiple regulatory institutions.
Disadvantages of the XBRL
There are particular challenges and disadvantages posed by the use as well as the adoption of the XBRL. These demerits have had adverse effects on the development of the business reporting language. The initial costs if implementing XBRL is often high (Ramin & Reiman, 2013). Most companies struggle with the implementation of the standard due to high costs of training employees. When the employees are not properly trained, the potential for error increases. The inappropriate tagging of elements in the financial reports has been cited as the leading cause of mistakes associated with the XBRL. Additionally, the use of the standard increases the abuse of information (Basu & Saha, 2013). The open access of information allows unauthorized individuals to access them. These people can tamper with the information or use it illegally.
In conclusion, it is crucial for companies to use XBRL for sharing financial information internally and externally. When utilizing the standard, they should consider the security of information, selection of appropriate taxonomies, as well as prevention of information abuse.
References
Basu, A. K., & Saha, M. (2013). Studies in Accounting and Finance: Contemporary Issues and Debates. New Delhi: Pearson Education
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.
