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XBRL at the crossroads: Dodo or the future of financial reporting?

1st Oct 2008
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 sharing financial data electronicallyThe 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.


Replies (4)

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By nrainer
09th Oct 2008 13:56

Maybe not a dodo, but definitely at a crossroads
The commercial viability of developing XBRL compliant software seems yet to be proved at the volume end of the market, where pressure on licence revenues is the highest. That is not to say XBRL is not being catered for in other parts of the market. For example, Oracle's Hyperion XBRL Manager and SAP's XBRL Publishing and Benchmarking tools are already in the marketplace.

However, those with vested interests on either side must appreciate that eventually commercial reality and the market will prevail. There is therefore a fantastic opportunity now for XBRL-UK, HMRC, Companies House and the software companies to work together to make XBRL a success. As David Forbes points out, the technology isn't complex to negotiate. Entrenched views, dogma and "all stick and no carrot" could however be fatal. Working together entails co-operation, discussion and the appreciation of each other's viewpoints.

At present, the benefits of XBRL as a medium are perceived as being weighted in favour of regulators and the authorities. It therefore falls on HMRC, XBRL-UK and others to assist with improving the standing of XBRL across the full spectrum of software vendors. In this context, Peter Calvert's comments are less than helpful. Likewise, software houses need to appreciate that the authorities are trying to achieve more within tight constraints and improving the services they offer will inevitably involve pushing further costs out to the business community. This shifting of cost may be acceptable if XBRL does indeed support greater efficiency in Government.

Irrespective of whether XBRL is a success, an unwanted but necessary obligation or an unmitigated disaster, I believe that an unwelcome outcome of the current movement will be further consolidation in the software market and the consequent loss of choice for the consumer.

Nigel Rainer
Technical Director
Tax Automation Limited

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By Peter C
06th Oct 2008 14:57

XBRL - certainly not a dodo
I detect a campaign by some software companies to avoid the bother of implementing XBRL rather than a serious criticism of the introduction of the language for business reporting.

SMEs should be unaffected by the change, provided software companies implement XBRL properly.

The benefits come in much more efficient processes and cost savings at HMRC and other consumers - which tax payers should be glad to see - and better targetted HMRC enquiries - which all should be glad to see.

The chances of incorrectly allocated tags are actually low and will fall further with experience. (How difficult is to apply a tag labelled 'operating profit', with all the correct accounting references, calculation links etc. to the correct line item in the accounts?)

You bet some software companies are cynical - they don't see enough profit in it for themselves. Other software companies are more sensible and see opportunities - as well as the public benefits which will flow from XBRL adoption.

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By plega
03rd Oct 2008 12:20

XBRL will not hurt SMEs
David Turner is right that SMEs won't see a lot of benefit at the outset. That will come later, when banks start to tie credit facilities to provision of XBRL accounts.

The move to XBRL is happening all over the world because the regulators are all looking for transparency in corporate accounting. With the events of the last few weeks, that isn't going to change for a generation at least.

As David Forbes points out in his comment, tagging accounts is always going to be difficult - but SMEs should be the last people to worry, because their software will handle the problem. HMRC has mandated XBRL and a number of the leading firms in the UK are already working on their XBRL implementations. I would be very surprised if any of the major packages don't support XBRL when the time comes.

Philip Allen
DecisionSoft Limited
Editor, Specification for Inline XBRL

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By daveforbes
02nd Oct 2008 15:09

computer readable accounts
I see three questions:- what is the point in computer readable accounts, is XBRL the right technology and why the lack of enthusiasm from the software development community ?

At present there is little incentive to produce computer readable accounts. The benefits are predominantly there for the consumer of the accounts rather than the producer (who unfortunately is the one that pays for the software). After HMRC mandation it might become of interest to other parties. If you can get a mortgage or car loan approved quicker when you send your company accounts to the bank in XBRL the pressure will come.

Is XBRL the right technology ? Whatever technology you choose csv files, excel spreadsheets, XBRL or some other xml dialect the problems are essentially the same. You need to come up with names for all the different things that come up in accounts e.g. Turnover, AdvertisingCosts. To be comprehensive many thousands of items are needed. At the end of the day XBRL is just xml. Element names are very long winded e.g.


.. but it this is read by computer - humans won't look at this bit. The actual size of an actual XBRL instance is tiny by modern standard. Our own company abbreviated accounts filed in XBRL only came to 12 kilobytes ( a kilobyte is 0.001 megabyte for any too young to have heard the term. My mobile phone has sufficient storage for over a million sets of abbreviated accounts !).

The XBRL documentation's primary purpose appears to be to keep consultants in jobs. XBRL is basically an (unavoidably) large collection of xml elements with very long names (i.e. a text file) wrapped up in terminology that is designed to make it sound much cleverer than that. Once you get passed the intimidating jargon it is essentially tedious rather than straining on the IQ. This is inherent to the problem of computer analysable accounts rather than the particular solution language used (XBRL).

Software companies generally produce software because they think people will pay for it. With XBRL there is not currently much demand.

David Forbes
Forbes Computer Systems Ltd
(filing in XBRL since 2005 !)

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