What is XBRL?
XBRL is the abbreviation for the term "Extensible Business Reporting Language." This XML-based "language" (structured data) is used to automate and streamline the reporting flow of information from provider to recipient and iXBRL is a format that can be read by machines as well as humans.
The history of XBRL
In April 1998, Charles Hoffman, at that time a CPA at Knight Vale and Gregory in Tacoma, Washington, was investigating XML for electronic reporting of financial information. Hoffman began developing prototypes of financial statements and audit schedules using XML. He briefed Wayne Harding, chair of the AICPA High Tech Task Force, on the potential of using XML in financial reporting in July 1998. That was the birth of XBRL.
How do you make a report machine-readable?
An annual report produced using the XBRL format is machine-readable. How does it work specifically? Using a taxonomy which is based on international and recognized standards, report information is marked with "predefined" tags and other attributes that must correspond to the report content, making it uniquely assignable. Once all relevant report information has been appropriately tagged, it is "packaged" as an instance document and checked for accuracy using validation software. As soon as no corrections are pending, the XBRL package is transmitted to the relevant authority and thus made freely available to the public and all interested parties. The XBRL standard defines a number of different formats for XBRL reports, including inline XBRL (iXBRL), XBRL-XML, XBRL-CSV, and XBRL-JSON.
Advantages of XBRL
XBRL is a powerful tool for transparent, cost-conscious, and compliant reporting. The format meets international reporting standards and reduces manual processing as well as creation time for corporate reports. In addition, XBRL speeds up analysis time and facilitates the exchange and processing of information. In a fraction of a second, annual reports from different companies in different industries can be compared and analyzed. Increased transparency, consistency, reliability and quality as well as increased integrity in the preparation of corporate reports are further advantages. Finally, implementing XBRL lowers the cost of reporting, including data collection, aggregation and correction.
Who uses XBRL today
- Regulators and government agencies (ESMA, SEC, FDIC, IRS and others).
- Companies that publish financial statements / company's own analysis
- Publishers of financial data, aggregators and analysts
- Business and academic researchers
- Investors
- Auditors
- Data provider (yahoo finance, Google finance and many more)
- Software vendors
Why is XBRL used
- to strengthen monitoring capabilities
- to increase analysis efficiency in support of activities
- to make investment decisions
- to create a comprehensive picture of a company
- to use internal information for decision making
- to determine the efficiency of information in enterprise systems
There are also challenges
A thorough understanding, a high level of quality, and good time management make for an optimal XBRL experience. It is very technical, and it requires fundamental accounting skills. In addition, it takes time to implant as well as the support of a third-party vendor (reporting software).
- Careful application of the taxonomy;
- Educating users on how to interpret the taxonomy;
- Ensure consistency of labeling and use of extensions (custom tags);
- Ensure that the XBRL data produced is of the highest possible quality;
- Understand the underlying taxonomy and tagging; and
- Keeping up with a taxonomy that changes every year.
Increasing regulations and cost awareness will further facilitate the use of XBRL.
- Structured data and XBRL taxonomies will be ubiquitous;
- Non-structured data will increase costs and may no longer be permitted
- Data used by the market must be in a consistent format that can be processed by software;
- The increasing trend towards more regulations, e.g. CSRD (EU Sustainability Standards), will facilitate the use of XBRL;
- Companies will leverage the power of XBRL to reduce manual effort;
- High quality and transparent reporting is required to gain further trust;
- XBRL is a response to the requirement for higher quality data; and
- XBRL improves the quality of core information, including through validation processes.
There are several disadvantages to not requiring companies on exchanges to use XBRL. Location disadvantage for stock exchanges, disadvantages for companies in data analysis by investors and more.
But it goes even further. XBRL is the basis for analytics using artificial intelligence
- Data is the raw data that we collect according to certain agreed-upon standards;
- Information is a collection of data points that can be used to understand something about the thing being measured;
- Better business decisions can be made by analyzing data and information; and
- Artificial Intelligence (AI) efficiently and accurately analyzes an enormous amount of data, recognizes patterns in the data, and learns how to deal with a variety of data.
