| PAs have a rare opportunity to help the business
world take a giant leap forward. The extensible business
reporting language (XBRL) can vastly improve the timeliness,
accuracy and flexibility of data in financial statements and
other business reports. Many experts think it will boost
today’s commerce just as double-entry bookkeeping led to
clearer financial statements that attracted investors and
stimulated the Industrial Revolution. To help their clients
and employers reap the benefits, CPAs need to understand how
XBRL can upgrade a variety of business functions, including
the representative sample this article briefly describes. |
Fair value accounting. Tagging assumption disclosures in XBRL formats would make management’s choices more transparent to users and easier to compare with those of other companies—and take away some observers’ worries about the reliability of corporate managers’ fair value determinations.
Financial statement preparation. XBRL makes it easier to create and document financial information and reduce manual intervention. It can help CPAs integrate disparate systems and apply and monitor internal controls, reducing the burdensome costs related to the Sarbanes-Oxley Act of 2002.
Mergers and acquisitions. Using XBRL as a universal standard will allow companies to integrate and improve information sharing with regulators, investors and other external entities—and dig out of the morass of useless data that often accompanies corporate consolidations—without moving to uniform hardware or operating systems.
Compliance. New SEC rule amendments enable public companies to voluntarily submit XBRL-tagged information as exhibits to some required filings. Participating companies still must submit these filings in traditional electronic format, but the voluntary program will show how XBRL can help improve report quality and usefulness to investors and other end users.
Standard setting. XBRL complements the objective of a single set of high-quality, understandable and enforceable global accounting standards and makes it easier to accurately compare financial statements across borders. XBRL also could be a defining factor in the principles vs. rules debate, as seeing all the information in the same format simplifies validation of management’s judgments and adjusts company-issued information to suit individual analytical purposes.
Investment and credit analysis. XBRL reduces research costs and makes it easier to create financial models and compare companies’ performance and solvency. While virtually all company information is publicly available, few but professional analysts can locate and understand much of it. Tagging data in XBRL improves transparency without additional disclosures and makes more information available to everyone. Making information more accessible also benefits the capital markets, which depend on timely and reliable business data to allocate investments, and helps public companies meet accelerated filing deadlines.
COLLEEN SAYTHER CUNNINGHAM, CPA, is president and CEO of Financial Executives International. Her e-mail address is firstname.lastname@example.org .
XBRL: A Multitalented Tool
XBRL can save time and money and facilitate information analysis.
BY COLLEEN SAYTHER CUNNINGHAM
April 1, 2005