XBRL has arrived! Since November 2005, firms have been submitting their financial data to the Securities & Exchange Commission (SEC) in eXtensible Business Reporting Language (XBRL) format on a voluntary basis. Now the SEC has mandated that accelerated filers furnish XBRL-tagged statements for fiscal periods ending on or after June 15, 2009. Proponents lend support to the claim that we are witnessing a financial reporting revolution fueled by XBRL's capability, and new software now makes it easier for small- to medium-sized companies to use XBRL. First, we'll provide a crash course on XBRL and then explain the new tools.
XBRL transforms corporate information so any user can use the data, no matter what system it originated on. At its basic level, XBRL is simply language that virtually all computer systems can read, allowing firm-specific data to be shared across firms. It eliminates problems with different hardware and software configurations and enables comparisons to be easier, more accurate, and economical. To do this, XBRL frees the data from the system it was originally created on by using tags, which are codes that are universally recognized. Each tag describes each financial report element, such as account name and type of account (for example, asset, expense, etc.). These tags come from a taxonomy--a standard predefined listing of account names. There's a different taxonomy for each major industry type, such as banking, manufacturing, merchandising, and so on.
XBRL GL (General Ledger) is also available, but it's for internal reporting and consolidations only. XBRL GL collects general ledger detail from internal accounting systems, processes the raw data files, and presents the data in standard, useful, and integrated platform. Since XBRL GL can include nonfinancial data, such as details and descriptions, it can present the detail information necessary for tax, audit, and budgeting tasks that XBRL Financial Reporting (XBRL FR) alone does not. Furthermore, XBRL GL eliminates the repetition of transferring internal accounting data from journal entries, master files, and historical reports to prepare financial statement detail reports, consolidation reports, tax reports, and statutory filings.
Despite the benefits of using XBRL, evidence suggests that obstacles exist that will have to be overcome before companies will fully accept and use XBRL. Peter Derby, managing executive for operations and management at the SEC, summarized them in an April 2005 statement regarding XBRL:
"Preparers are faced with an ever-increasing level of complexity in their financial reporting requirements. To employ XBRL, they are tasked with mating these complex financial statements with an equally complex set of technologies, the XBRL Specification, and the appropriate taxonomies. In order to cut through the complexity, these preparers need tools, guidance, and third-party assistance to lead them through the process."
Complexity arises from the multistep approach required in converting regular financial data into XBRL format, particularly the creation of an instance document. In fact, critics often cite the complexity surrounding instance document generation as one reason that XBRL hasn't been widely accepted. This document essentially matches each numeric value in the general ledger with an account identifier or XBRL tag so data traveling across firms can be compared by XBRL tags. A major barrier has been the availability of tools to lead preparers through the conversion process to create instance documents.
Because the instance document is a necessary prerequisite in the generation of XBRL financial statements, this article is intended as a brief primer, describing the process and reviewing five PC software products that are available for instance document creation.We conclude the article by describing how XBRL is integrated into some enterprise resource planning (ERP) software products.
XBRL: The Instance Document
Data transparency is crucial and is achieved through creating an instance document. At its basic level, an instance document is simply a listing of each account that appears in the general ledger coupled with its unique identifier or tag. In essence, an instance document is a type of roadmap that provides a directional signal indicating where each account appears as well as which accounts are collected into a summary account (different cash accounts into one "cash & cash equivalents" entry on the balance sheet, for example).Most firms that have adopted XBRL actually tag their entire chart of accounts so that all accounts are available for XBRL presentation, even those not currently in use.
To create an instance document, four steps must occur. First, the financial statement preparer must choose a standard taxonomy, which varies by industry (manufacturing, banking, etc.), and download this taxonomy into the XBRL software product. Taxonomies are available free at www.xbrl.org and www.xbrl.us. Second, each individual account value in the preparer's general ledger must be separately matched to (or assigned) a specific XBRL tag (i.e., account identifier) from the standard …