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XBRL: A new era of financial reporting?

By Stewart McKie How does your company publish its financial statements electronically? Probably your financial reporting or other financial management software publishes information as text (ASCII) files, as Microsoft Office Word or Excel documents or perhaps as Adobe PDF files. And that’s great for simply displaying the information in desktop applications and via the Web. But what happens if you want to compare your statements to others published by other companies, to search for specific information within a report or across reports, to apply business rules to the numbers and generally make much more active use of the information? Well that’s when you need eXtensible Business Reporting Language (XBRL). XBRL is the result of an international initiative backed by some 200 commercial, regulatory and government organizations to create royaltyfree specifications and taxonomies to specify in a standard way how business reporting information are to be described. The XBRL community is located at www.xbrl.org and had its genesis in work begun by US CPA Charles Hoffman in April 1998. What Is XBRL? XBRL uses eXtensible Markup Language (XML) “tags” to describe financial information to make it understandable not only to humans but also to other software programs. This is important because it makes financial information in an XBRL report available programmatically to a wide range of search, portal, analysis and aggregation software for further added-value processing. Take the number “100”. You know what I mean by 100 right? Of course you don’t. I could mean 100 rupees or 100 elephants. Now let me give my 100 some structure and context: CFOINFO LTD. Sales Expenses Gross Profit 2003 US$ 100 50 50

Now based on the table above, you can at least assume that “100” refers to the sales of an entity called CFOINFO LTD for the year 2003 in US dollars and understand my data (if you read English that is). But even so, you can’t be completely sure about all of this until we have agreed what things like “CFOINFO LTD”, “2003” or “US$” really mean. And in any case displaying information like does not help a software program understand what the information means so that it can actively process it, rather than just read it. For a software program to understand the data above it needs something to reference, a dictionary of tags that XBRL calls a taxonomy document. A taxonomy is a special kind of extended XML Schema that usually describes a particular kind of business information report, like a balance sheet or a tax return for example. Two key components of any XBRL taxonomy are items and elements.

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My sales and expenses numbers above are examples of item data although an item may represent a number or text, such as an explanatory note. In the taxonomy, these items might be defined by use of the XML start and end tags like <sales> </sales> and <expenses> </expenses> that are used to “delimit” and define what the numbers enclosed between the tags mean. “CFOINFO LTD.”, “2003” and “US$” are examples of what would usually be element data in an XBRL taxonomy. The elements themselves may be defined in the taxonomy as entity, year and currency. Items and elements plus other parts of the taxonomy put my “100” into its context of the sales figure for the entity CFOINFO LTD, in the year 2003 and the currency US$. This XBRL taxonomy provides the essential reference to understand the report data, which are stored in a separate instance document. For example in the instance document my sales item “100” might be listed as: <sales>100</sales>. The instance document contains the actual report data tagged using the item, element and other types of tags defined in the taxonomy. So every report instance document produced in accordance with the same XBRL taxonomy is structured in the same way, even though the data in each instance document may be different. And any software program capable of reading and using an XML schema with access to both the taxonomy and instance documents can read and make use of the financial information. Once an XBRL taxonomy is agreed and published, either for private or public use, it can then be used to implement a standard, programmatically-accessible reporting format – for use within an organization, across a business partner network, or within a national or trans-national regulatory reporting framework for example. Potentially taxonomies can be created for publishing • • • • • Company financial statements Regulatory filing formats Tax returns Internal management reporting Authoritative literature (e.g. as published by IAS or FASB)

So What? Let’s use our imagination for a moment. Imagine every profit and loss statement produced in your organization is published as an XBRL instance document subject to a specific XBRL taxonomy. Imagine every other organization in your industry is doing the same thing using the same XBRL taxonomy and imagine that your accountant and auditor, bank and regulatory reporting authorities accepted profit and loss statements from you using the same XBRL taxonomy. What would that mean? For a start it would make understanding the financial statements published within your own organization easier, because they are all structured in the same way. No more publishing from one application, re-keying or importing into another and re-publishing the same

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information in a standard format. It would also make consolidations easier and any type of inter-company comparative reporting. Then it would make it easier for you to compare your results with those of your industry peers and competitors, assuming you all publish your financial statements to a publicly accessible web site. XML-based web services (yours or those of third parties) designed to find and analyze XBRL reports could find the various published instance reports, apply the appropriate taxonomy and then spew out all kinds of comparative or benchmark data to help you better manage the performance of your business. Finally you could publish your financial statements once and send them to any external body or business partner who needs them. They’ll have their own programs that can read your instance reports, apply the taxonomy and then use their own proprietary programmatic business rules to do whatever they need to do with them to complete your regulatory filing process, audit your books or process a tax refund/payment claim. Also, recent legislation such as Sarbanes-Oxley and Basel II has highlighted the need for more visible and transparent reporting processes and reports. XBRL supports this greater visibility and transparency. XBRL taxonomies standardize report formats so there is zero margin for any surprises in the data and make these reports open to a wide range programmatic interrogation and analysis, limited only by the ingenuity of software developers. That’s real transparency. Another benefit of XBRL is publish once-render/repurpose many. By publishing a report using XBRL it becomes very easy to display the report (or render it) in a variety of ways, as a whole or in part, since XML-based files only require the creation of different style sheets to change the way the report data is presented. And because the data is published in XML it is easier to re-purpose it into different formats, because it can be mapped into other XML based documents, or read by other business applications that support XML import/export. The number of thee applications is growing and already includes analytic, database, ERP and other business applications. It’s this kind of potential that is exciting XBRL evangelists like Morgan Stanley, Microsoft and Reuters as well as regulatory authorities around the world. According to XBRL.org, the US Federal Deposit Insurance Corporation (FDIC) and the UK’s Inland Revenue are early adopters of XBRL and in Australia every leading institution already reports to the Australian Prudential Regulatory Authority using XBRL. XBRL: Opportunities and Challenges Over the next few years every business will have to decide whether to use XBRL. For some the decision will be made for them. It’s likely that many regulatory bodies around the world will follow Australia’s lead and mandate reporting to them using standard XBRL taxonomies. Good progress is already being made in Canada, Germany, at the IAS and in Japan, the Netherlands, New Zealand, the UK and the USA. Although many businesses using legacy financial reporting and ERP systems may be unable to publish in XBRL without a lot of effort, most businesses using modern mid-tier and top-tier ERP and financial

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reporting systems already have the capability to publish in XBRL formats. A recent XBRL Software Survey found that half of the 59 products included in the survey will be XBRL-enabled by the end of 2004. But many ERP systems are already XBRL-enabled as are the leading enterprise and small-to-medium size enterprise (SME) financial reporting and consolidations systems, from Hyperion and FRx Software. But in the main this XBRL-enablement means the ability to export and save data into XBRL instance reports. Some packages can import XBRL taxonomies for use to create XBRL output, but few are yet ready to import XBRL instance reports say for inter-company processing or consolidations. The challenges for businesses that decide to embrace XBRL are largely not to do with technology but about deciding what to publish, where and what taxonomy to use as the basis for this publication. At this stage it probably only makes sense for the largest organizations to build and publish to their own taxonomies. Smaller businesses will probably wait until some kind of standard emerges either in their industry or through the regulatory or accounting bodies in their country. However if you do want to get started then maybe the recently created XBRL Financial Reporting Taxonomy Architecture (FRTA) can help. One minor issue with XBRL is that the instance documents can generate quite large files because of all the extra tagging data that is included. But with today’s cheap storage and the increasing penetration of broadband Internet connections, these “verbose” reports are unlikely to pose much of a problem in practice. Once the momentum builds we can expect to see a flood of new, lower cost financial consolidation, report mining and business benchmarking software that will take advantage of the way XBRL standardizes the publication and dissemination of financial information. XBRL: Driving Improved Investor Relations The original commercial impetus for XBRL came from the US financial services industry which wanted a cheaper, faster, better way to get and analyze company reports to improve transparency and provide a more efficient service to company investors. And although the potential of XBRL now extends way beyond the financial services industry, it still offers some significant benefits. Regulatory and market analysts because it provides a simple, inexpensive way to electronically transmit reports via the Internet, reducing the “time to analysis”. XBRL also provides financial information in a format that can be programmatically interrogated as soon as it is received, to generate initial analyses faster using applications that can apply pre-defined business rules to the XBRL instance file. There is also no reason why financial statements can’t be provided more often, improving the quality of information provided to regulators and financial analysts. XBRL based reports are easier to aggregate, consolidate and compare via technology such as web based investor relations portals. These portals can generate revenue for financial services businesses or at least provide the kind of added-value services that help to gain or retain

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customers. I also expect many financial services firms to provide Web Services to enable customers to publish their XBRL reports quickly and easily and to query comparative performance and benchmarking data provided by the firm’s analysts. XBRL is a slow burn but the momentum is increasing and on a global basis. XBRL will truly help drive a new era in financial reporting, as well as in consolidation, benchmarking and analytical web services. Don’t buy your next financial system without it. Bio Stewart McKie is an independent consultant and technology writer specializing in analytic, ERP and Web Service applications. You can reach him via his web site at http://cfoinfo.bcentralhost.com

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Sidebar Where to find XBRL-Enabled Software Microsoft Business Solutions Navision mid-tier ERP suite and FRx Reporter are just two Microsoft applications that support the production and export of XBRL-based financial statements. And at the top-tier ERP level, Oracle’s Financial Statement Generator (FSG) module has been XBRL-enabled to enable taxonomy import, mapping of chart of account entities to XBRL tags and publishing of XBRL instance reports. However if your current financial software does not support XBRL then a product like SemanSys XBRL Composer can help. XBRL Composer supports the production and maintenance of taxonomies; the creation of XBRL reports and management of the reporting process. This type of product could be used to create XBRL output from legacy ERP and financial reporting systems. iLumen have recently announced the iMonitor financial monitoring and benchmarking network for the banking and accounting industries that can use XBRL-based report submissions to enable the customers of a bank or CPA firm to submit company financial information electronically and immediately receive analysis, alerts and information on the financial condition of their business. With support for XBRL through the AppLink SDK, OneSource customers can now configure applications via a Web Service to request individual financial variables from across almost 800,000 companies worldwide. This allows comparative analyses to be created from over 1600 data items mapped into a set of over 100 standard financial variables with six years of history. Several standard reports are also available for query directly using XBRL, including profit and loss statements, balance sheets, income statements, statements of cash flows, and ratio reports. Some Useful Links Vendor iLumens Microsoft Business Solutions Morgan Stanley OneSource Oracle Semansys XBRL Product iMonitor FRx Reporter Financial Reports in XBRL AppLink SDK FSG XBRL Composer Demo Home Link http://www.ilumens.com http://www.frxsoftware.com http://www.morganstanley.com/xbrl http://www.onesource.com/products/content_173.asp http://www.treasuryandrisk.com/article.asp?ID=199 http://www.semansys.com/about_composer.html http://www.nasdaq.com/xbrl http://www.xbrl/org

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