Accounting & Audit Alert- What’s all the buzz about XBRL?
The Securities and Exchange Commission (SEC) requires public companies to provide their financial statements in the eXtensible Business Reporting Language (XBRL) format as an exhibit to their regulatory filings. But XBRL isn’t just for reporting to the SEC. There are many compelling reasons for public companies to expand their use of XBRL data — and for private companies and financial statement users to jump on the XBRL bandwagon, too.
Introduced in 1999, XBRL is based on a complex technical infrastructure. It provides a universal standards-based method to prepare, publish, exchange and analyze financial data across disparate accounting and operating systems.
Using a tagging system, computers filter XBRL data “intelligently,” automating many aspects of report preparation, data collection and due diligence. Companies can apply XBRL to various types of business data, such as internal and external financial reports, tax returns and loan applications.
This machine-readable reporting format makes financial statements more useful to researchers, regulators and investors. It has the potential to increase the speed, accuracy and usability of financial disclosure — and eventually reduce costs.
Companies that report financial data using XBRL can share it directly with their auditors and lenders. This significantly reduces the need to manually re-enter data into spreadsheets and other analytic software programs and repackage it into new formats. Automation, in turn, cuts data processing costs and minimizes human error.
Another upside is that XBRL permits automatic validation of financial data by highlighting inconsistencies, deviations from industry norms and even transaction patterns characteristic of fraudulent behavior. And it provides a global framework for exchanging financial information that transcends current language and reporting standards barriers. XBRL doesn’t replace current operating or accounting systems but, instead, piggybacks onto existing systems.
Further, XBRL speeds up the financial reporting process, facilitating real-time disclosures and continuous auditing, and eases the burden of Sarbanes-Oxley compliance for public companies. For companies making acquisitions, XBRL can link formerly incongruent systems, eliminating costly conversions to a common operating system.
Put XBRL to work for you
Companies that choose to adopt XBRL can convert data to this format in two ways. They can either 1) purchase off-the-shelf software and categorize line items themselves, or 2) outsource their XBRL projects. Once the company incurs initial setup costs, ongoing costs generally are minimal.
XBRL may ultimately reduce compliance costs through greater efficiency. Contact us for more information on switching over to this user-friendly reporting format.