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Software Decisions – XBRL

XBRL, or eXtensible Financial Reporting Language, has been touted as the technology to propel financial reporting into the 21st century: enabling financial information to be extrapolated easily and compared by any interested party – be it FD, shareholder or regulator.

XBRL is a spin-off from the popular web-based computer language XML. Financial information is tagged using the XBRL format, so it can be collated easily and used in whichever way required by the business. Management reports or financial statements prepared for HM Revenue & Customs and the FSA, for example, can be gathered simply and compared with other filings using the tagged data.

In 1998, a consortium was formed, XBRL International, to promote and develop the technology that was set to revolutionise the way in which businesses could provide financial information. In the words of XBRL International, XBRL “increases the usability of financial statement information”. According to the consortium, there are 250 companies and agencies worldwide working together on the format, as well as supporting its adoption.

Yet seven years since XBRL International set out to encourage what was expected to be the data-tagging format’s inexorable path to global takeup, inertia has set in among its adopters, including the FSA and Inland Revenue, while questions have been raised about the technical complexities in tagging the data.

One of the biggest hurdles facing adoption of XBRL is the cost and complexity of creating a range of different tags to suit each piece of data required to create an accurate set of reporting figures. And with each country GAAP or regulator requiring its own group of tags, or taxonomies, the format that was meant to make everything easier has not proved to be the case.

BASDA, the body representing the UK’s biggest application software companies, vehemently opposes the adoption of XBRL in its current guise, due to the prohibitive cost and the complexity of creating these taxonomies. BASDA chief executive Dennis Keeling says there is “no interest” from industry to report using the format because of the complexities involved. For business, the use of XBRL was a “mighty task” and would only be taken up if simplified.

BASDA chairman Eduardo Loigorri says that creating a single standard for financial reporting is a “fantastic principle”, but that it has been “hijacked” by national accounting bodies to develop their own taxonomies. “The resultant divergence has completely undermined the previous clarity: a good, simple concept has been mired in nationalistic labelling interpretations. XBRL is a huge missed opportunity. Not only has the concept of standard terminology been lost, but also the number of headings is so huge, its use is highly interpretive and decision-making subjective.”

The ICAEW has taken a prominent role in developing XBRL through the UK arm of XBRL International, but John Court, head of the ICAEW’s IT faculty, admits that a definitive conclusion on XBRL’s future is yet to be made. “XBRL is the most promising show in town, towards an XML-based technical standard for reporting, although progress has been slow. However, expectations were a bit extreme.”

Court believes that FDs haven’t been “engaged” as to the format’s benefits. “The FSA and Inland Revenue are committed. It’s now time that FDs found benefits looking at the format in general.”

But he warns that digital reporting standards could be viewed by FDs as little more than a necessary inconvenience put upon them by regulators. “Its benefits are then overloaded, and this is the position we’re in at the moment.”

CIMA technical specialist Danka Starovic agrees that the complex taxonomies are the format’s biggest problem, but the criticism XBRL is receiving might get it back on track. “XBRL is still in its infancy, but the biggest gap is on the educational side. FDs could look at XBRL and think, ‘this is going to cost me’.”

The Inland Revenue confirms that plans to introduce compulsory corporation tax filing using XBRL have ground to a halt. “The merger of the Revenue and Customs is priority – other things may move around it. All sorts of factors could come into play,” says a Revenue spokesperson.

Meanwhile, the FSA has also reined back on introducing regulatory reporting with XBRL. “There’s no time when it will come into force at the moment,” says an FSA spokesperson. “We are developing and working on making XBRL into the model, but we won’t introduce it until we believe it will be 100% effective.”

While the format’s development looked to drift aimlessly, XBRL received a massive shot in the arm when the SEC announced last July that it would look into the benefits of receiving filing submissions with XBRL-tagged data. By February 2005, the SEC allowed companies to voluntarily send XBRL information through its EDGAR filing system. This move by the SEC could be definitive in pushing the XBRL project towards a conclusion where it finally becomes an accepted standard for financial reporting.

“People are trying to create an elephant of XBRL – it has a long gestation,” says Court.

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