XBRL at the crossroads: Dodo or the future of financial reporting?
The extensible business reporting language XBRL has been dismissed as "a dinosaur to crack a walnut" in an online debate on our sister site Finance Week. Here is a summary of the arguments.
CODA group marketing director David Turner started the thread with an article that suggested XBRL had reached a turning point. Although a number of national and international standards bodies have embraced XBRL, the electronic reporting standard is getting bogged down by technical negotiations and is failing to excite smaller companies.
"With an ever-growing number of standards, [software] companies are cynical over its purpose and its apparent complexity, arguing that XML would do just as well," Turner commented.
While Turner took an even-handed view, one financial manager responded with a blast of vitriol, claiming that for most SMEs, "XBRL is an expensive dinosaur that is difficult to understand, difficult to use, and gives no practical advantage over other forms of financial reporting, internally or externally."
The XBRL critic backed this assertion by suggesting that users faced with a complex schema that does not quite cater for their circumstances will take the path of least resistance and use an inappropriate tag. "The allocation of taxonomy tags can be guaranteed to contain errors. Errors, that once made will perpetuate throughout the reporting process. Users will be completely blind to these errors believing that the reports are correct due to the technology," the Finance Week member argued. The result would curse electronic financial reporting with technology's oldest adage, "garbage in, garbage out".
What is XBRL and why is this debate taking place?
XBRL is based on the same idea as the web mark-up language HTML, but instead of tagging items to define how they will be displayed on a web page, XBRL defines business information according to how and where it should appear in electronic financial statements.
In theory, XBRL-tagged data can be passed between different electronic systems, allowing investors analysts and regulators to compare financial performance quickly and easily.
The ICAEW provides the secretariat for the UK branch of XBRL International and the standard has been embraced by regulators in the US, Japan, France and Australia. New XBRL extensions to cater for Basel II and the Global Reporting Initiative (GRI) have extended the standard's influence. A US proposal to make listed companies file via XBRL from 2011 "would be the most profound change to financial reporting" since the Sarbanes-Oxley Act was passed, Turner wrote.
But moves to apply XBRL in the corporate world across the Atlantic and elsewhere won't wash with small and mid-size entities in the UK, according to Finance Week's XBRL dissident. Reporting software is supposed to take all the hassle out of using the standard, "But where is that software?" asked the critic.
Experiments with different rendering software produced inconsistencies and typographical errors. But accounting bodies and large software suppliers liked X BRL because it was so difficult for the layman to understand. "So when XBRL is made compulsory by the likes of HMRC, Companies House, etc. they can charge extortionate prices for their products and services."
For the full debate, see XBRL: digital dodo or revolutionary financial reporting tool? on Finance Week.