How XBRL will change your practice

By Eric E. Cohen and Neal Hannon

In Brief

An Accounting Crystal Ball

Businesses can’t afford to communicate the way they used to; the pressures of speed and timeliness are simply too great. It is the role of CPAs, however, to ensure that financial reporting satisfies the highest standards of accuracy, reliability, and quality. XML (Extensible Markup Language) is the rapidly expanding electronic communications technology that makes timely, quality reporting possible. The missing link has been an agreement on standardized terms within a sector or industry that will make data easily transferable between disparate systems.

XBRL (Extensible Business Reporting Language) is this missing link, the specification that allows the expression of financial and business reporting concepts using XML. With XBRL, organizations can use their accounting data more quickly, less expensively, and more efficiently; once its use becomes widespread, it will streamline reporting and transaction tracking in every area of business, from regulatory and tax compliance to internal performance measurements and international harmonization. The authors look into their crystal ball to see what XBRL has in store for the profession.

We are in a time of massive change in the way businesses communicate. The accounting profession is rising to the challenge by coordinating the development of specifications to let businesses find order amidst change. By creating a new reporting language for business and financial reporting, the profession is laying the foundation for applications and business uses of the present—and the future.

Businesses do not communicate the same way they did 20 years ago. The early ’80s brought express delivery services. The fax machine changed things in the mid-’80s. The late ’80s saw the emergence of Electronic Data Interchange (EDI). The mid-’90s brought the Internet and B2B (business to business) electronic commerce, making Amazon, Priceline, and Yahoo! household names in record time.

The turn of the century has brought a new underlying technology, XML (Extensible Markup Language), to the forefront of electronic communication. Every major software developer has embraced XML, and it is rapidly gaining acceptance as a tool for integrating disparate systems. As with EDI in the ’80s, businesses are being forced to embrace XML by their trading partners. The missing link is an agreement on standardized terms within a sector or industry that will make data easily transferable between systems.

With XML, it is the responsibility of the leaders of each industry to devise an agreed-upon set of terms and the technology to express them. The accounting profession has led the effort to create a foundation for future applications and business processes by developing a new business language, XBRL (Extensible Business Reporting Language). Detailed information about XBRL can be found at

XBRL has the potential to change accounting practice as profoundly as the Internet has. XBRL establishes no new accounting standards; it is a specification that allows the expression of financial and business reporting concepts using XML technology. Organizations that agree to use XBRL internally or externally can use their accounting data more quickly, less expensively, and more efficiently.

On July 31, 2000, released its first two products: a technical specification for expressing business reporting data and hierarchical language for expressing the information found in a typical U.S. financial statement for a generic commercial and industrial company using GAAP. A name has been assigned to every number and informational concept in the financial statement, along with a defined relationship between those items. The resulting list, called a taxonomy, provides any commercial and industrial corporation reporting according to U.S. GAAP with the ability to produce financial statements marked up in XBRL.

XBRL is an underlying technology based on XML. All of the expected benefits of XML should also eventually apply to XBRL. With XBRL, a single document can instantly be transformed into a report from the raw data. The applications using XBRL and its uses are largely yet to be determined. Just as Tim Berners-Lee designed HTML (Hypertext Markup Language) to exchange information among physicist colleagues—and has seen it transform the world of communications, business, entertainment, and even government—XBRL might be the foundation of dramatic change in the business reporting environment.

July 31, 2000: XBRL Is Born

Major corporations spend undue amounts of time creating financial statements with desktop publishing tools, web design tools, word processors, spreadsheets, and templates that are supposed to check their Edgar filings. Combinations of automated and manual systems are necessary to consolidate data for analysis and reporting. Corporations face constant frustration when they need to report in another jurisdiction or face a change in reporting requirements from a particular jurisdiction. They spend a long time creating financial exhibits—which have to be recreated whenever someone changes the tiniest detail. There are strong pressures to get their financial reporting out faster and before their competitors do.

Leading edge companies are considering the new XBRL release, which offers a representation of current accounting standards tailored to commercial and industrial companies that report according to U.S. GAAP. XBRL provides a common vocabulary developed by an international consortium of professional accounting organizations, CPA firms, accounting software developers, and investment-related firms. The release is largely useful at this point for limited external reporting. However, as market acceptance grows, and more organizations take advantage of XBRL, it will grow in its use as a tool for communication between a company and its investor community.

Using XBRL is not a simple task for most firms at this point in time, because few end-user tools are available to create, modify, and analyze these files. The software developers on the XBRL steering committee have begun to offer capabilities that make creating XBRL files as simple as “Save to XBRL.” Navision (, for example, has already begun including XBRL capabilities in its accounting products. For now, most companies must create XBRL manually, using text editors or programming.

A disadvantage of being a leader is having to blaze a trail before others are ready to follow. The choice to base XBRL on emerging XML standards has preceded the general availability of tools for developers, let alone end-users. Companies who “won’t re-key and won’t tag” are reticent to fully embrace XBRL—yet.

Although XML has grown in popularity, the number and quality of XML tools have yet to hit the big time. Some basic programs are available, but more user-friendly tools are necessary. XBRL-specific tools are rare, as developers waited until the July 31 release to commit resources to their development.

August 15, 2000: Spreading the Word

XBRL steering and jurisdictional members are endeavoring to create many other taxonomies for different industry sectors, jurisdictions, and reporting areas. The timeline is shown in the Sidebar.

In addition, the first annual XBRL academic competition was announced at the American Accounting Association conference in Philadelphia on August 11, 2000. This competition is designed to inform the academic community about XBRL, provide a structured vehicle for incorporating XBRL into course curricula, and provide a method for academic researchers to be more involved in the XBRL development process.

Instructors will be coaching teams of students in the development of taxonomies, applications, and research projects surrounding XBRL. This should help in its exploration of new methodologies and applications.

Taxonomy development will focus on the creation of full and partial additional taxonomies for both U.S. and international accounting standards.

Applications development will focus on “XBRL Applied”: Web and client-based applications that show how XBRL can be used in practical use. One example of such an application might be a “60-second loan approval” application, where the user uploads an XBRL file to the bank and the system does calculations to see if the information falls into a clearly predetermined acceptable or unacceptable range. Another possible entry might include a five-year trend analysis with data in XBRL format that produces ratio and trend analyses.

Research projects offer students the opportunity to think through any aspect of business and XBRL. Possible topics include “marketing and XBRL,” “legal implications of XBRL,” and “sociotechnical issues surrounding XBRL.”

Applications for participation are due by November, and submissions are due early next year. More information can be found at Representatives of the winning teams will present their results at an meeting in the spring or summer of 2001.

To cap off an interesting August, the SEC announced that it will require companies to disclose market-moving information such as quarterly financials simultaneously to financial analysts and individual investors. [The new rule, part of SEC Chair Arthur Levitt’s crusade against “selective disclosure,” reins in a longstanding practice of relaying significant announcements via private conversations with Wall Street analysts. Possessing market-moving information—earnings forecasts, mergers, new products—has at times allowed brokerage firms and their best customers to reap trading profits before most investors got the news. (Wall Street Journal, August 20, 2000)] This could give XBRL a big push.

August was a huge month for XBRL, but what does the future hold? Gazing into the crystal ball, the following events became clear.

December 31, 2000: Delivering the Goods

The members of the steering committee have promised to deliver XBRL as part of their products and services by the end of the calendar year. Users of the accounting software products represented on the steering committee can create and use XBRL files.

XBRL-specific tools hit the market. Generic tools for creating financial statements from scratch are still on the drawing boards, but the demand for more appropriate tools is growing and development is under way.

Users of the first taxonomy have been offering feedback and brickbats about the first release, and an update to that taxonomy is published. As the underlying rules and practices involved in financial reporting evolve, so will the XBRL specifications. One of the benefits of XML-based technology is that maps, or transformations, between versions can be used to ensure that information does not become unusable as it becomes obsolete.

Industry-specific extensions for groups other than more generic commercial and industrial businesses are being delivered. The federal government is beginning to work with a governmental vocabulary. Other extensions for industry sectors and other jurisdictions, including German accounting standards and International Accounting Standards Committee (IASC) standards, are emerging.

The first academic conference on XBRL with its call for papers highlights the increasing involvement of the academic community. Their assistance to the group in laying out the path to further development for both external and internal reporting is vital. XBRL has already begun developing these relationships. Three of the authors of the excellent IASC discussion paper “Business Reporting on the Internet” (published November 1999), Andrew Lymer, Roger Debreceny, and Glen L. Gray, are already helping plan out the necessary processes for the acceptance, publication, and maintenance of the taxonomies.

September 1, 2001: XBRL and the SEC

The SEC announces that XBRL will be accepted as a voluntary reporting format for all financial disclosures. XBRL permits the SEC to post the information to the SEC website within minutes of the release, compared to the 24-hour delay in 2000. The ruling is applauded by investors and financial analysts alike because of the release of XBRL analysis tools available on the software market. Major brokerage houses announce coverage of an additional 500 publicly traded corporations that publish in XBRL—previously the cost of coverage was too expensive. XBRL greatly reduces the time and effort required to mechanically manipulate the data, vastly reducing the “data to conclusion” timeframe.

April 15, 2002: XBRL Inside

XML, on which XBRL is based, reaches maturity; all necessary recommendations for presentation, security, and publishing are established and accepted. XML tools mature to the point that working with XML is as easy as using an Excel or dBase file.

With these standards in place, “XBRL Inside” transforms the 2002 tax season. Getting data from client systems into the accountant’s workpapers has been vastly simplified by the XBRL general ledger standard form, which is designed and accepted by all of the major accounting software developers and the CPA product developers. With few exceptions, getting client information from the accounting system into tax and audit-workpaper software is a cakewalk. XBRL for general ledger provides the ability to transfer the data from client systems directly into the software CPAs use for processing, auditing, and compiling financial and tax reports.

Banking systems all recognize XBRL. Companies are given favorable loan rates when they file with XBRL, so practitioners are embracing it quickly in an effort to help their clients reduce the overall financing costs.

Larger companies are using XBRL for internal reporting purposes at more detailed levels. The pressures to provide more timely information for management decisions drives the need for virtual closes; the growth, collapse, and eventual leveling out of application service providers (ASP) and growth of Internet-enabled computing have brought tremendous demand for the standardized representation of accounting and other information.

Small companies find that “XBRL inside” software, available in virtually all low to medium-end accounting software systems, gives them a real advantage when seeking small business loans and credit from suppliers. The Small Business Administration (SBA) requires all SBA-backed loans to have cash flow projections coded in XBRL.

International adoption of XBRL brings new vitality to the economies of numerous smaller countries and communities. XBRL makes it as automatic as possible to move between local standards (including U.S. GAAP) and IASC standards. Investment in smaller international companies increases dramatically as the financial community sees the benefits of having basic accounting information easily translated from one set of accounting standards to another. As trust builds, capital markets respond and businesses expand.

July 1, 2004: Driving Financial Performance

Timely business event reporting becomes the newest tool in corporate disclosure. Companies learn the benefits of identifying, classifying, and reporting business events along with financial data. The surprising result is enhanced information for the market, enabling users to analyze company performance more timely and accurately. Corporations are quick to point out the contribution made by XBRL, which expands through a collaborative market-based effort to include even more information relevant to corporation stakeholders. Corporate controllers feel more in control. After decades of looking in the rearview mirror to determine how a company is performing, controllers are now looking forward, steering corporations to higher financial performance.

July 1, 2005: Clarity

Investors can pull down near real-time financial information from companies, with accompanying near real-time analysis from investment advisors and assurance from the CPA. Large corporations can add new divisions and reporting units and instantly consolidate information without a concern about which financial system that division may have in place.

The accounting profession prepares to help financial markets face some interesting challenges; the widespread use of XBRL has brought to light how nonstandard reporting has been for ages. CPAs are called in to help identify the issues and answer some tough questions. The relevance of the present financial reporting system can now be addressed as speed and communications issues are all but removed.


XBRL is a digital business reporting language for the digital business environment. The accounting profession and stakeholders in the business reporting environment have come together to craft a tool, an underlying technology, as the foundation for the future.

The applications and the uses for this language are beginning to emerge, and the opportunities for its use are limited only by the imagination. XBRL has the potential to greatly enhance the information liquidity in the business reporting supply chain and as a result will benefit the profession.

Eric E. Cohen, CPA, joined PricewaterhouseCoopers LLP in June to help the firm’s support for XBRL.
Neal Hannon is an instructor at Bryant College and represents the IMA on the XBRL Consortium.

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