CONTEMPORARY BUSINESS ISSUES

R E A D I N G 6.1

Reading 6.1

Standard business reporting using XBRL

Introduction
eXtensible Business Reporting Language (XBRL) is a Web programming language from the XMLfamily of languages. (XML is discussed in The ICT environment for business under the heading Networking technologies.) It is the outcome of the DutchTaxonomy Project (Nederlandse Taxonomie Project or NTP), which began in 2004 as part of the Dutch Governments objectives to reduce the administrative burdens on businesses. The NTP createdthe XBRL taxonomy to enable businesses to generate the required reporting informationdirectly from their own records, and for government to be able to process this informationefficiently andeffectively. In 2006, the Australian Government adopted the Dutch approach and established theStandard Business Reporting (SBR) program. This program is expected to save Australian business an estimated $800 million per year once fully implemented (TheTreasury 2011). Besides Australia, many other countries are now applying this approach which has sincebeen internationally referred to as Standard Business Reporting. XBRL has evolved as the major vehicle for SBR and is often viewed as a global effort by participants of thebusiness reporting supply chain to build the digital language of business.

Features of XBRL
The two basic features of an effective information management system are to provide meaningful information to management and other relevant stakeholders, and to help management satisfy regulatory reporting obligations, particularly those of tax administration authorities. XBRL achieves these two important objectives in a costeffective way. Richards and Tibbits (2002, p. 3) stressed that XBRL is about improving the reporting of accounting standards in all countries (Richards & Tibbits 2002, p. 3) and enabling organisations to adapt to changing standards.

R E A D I N G 6.1

CONTEMPORARY BUSINESS ISSUES

Richards and Tibbits (2002) identified a number of concerns with the way that financial reporting is traditionally conducted and how XBRL might mitigate these concerns: n Often business enterprises are required to report similar information in different formats to various stakeholders. XBRL can help to generate the information once and make it easy topresent it in different ways electronically. n Frequently, data available to stakeholders is outdated, and finding information about the organisation may be even harder. Furthermore, users often find it difficult to locate the information they need and even when the information is found there may be issues with the way the information is formatted. AnXBRL search engine can locate information from multiple web sites or sources and immediately transfer it into a spreadsheet. Moreover, because an XBRL search engine searches for narrowly defined content and delivers it to oneplace, itautomatically conducts a directive search for information on behalf of the user,rather than forcing the user to view information sequentially. n There are considerable difficulties for information users in understanding different formats entities use to report information (e.g. word-processed/spreadsheet/pdf documents and HTML pages). An XBRL search engine can locate information from multiple web sites or sources in different formats and transform this information into an easily-understood spreadsheet. n If users want to analyse data, they often need to re-enter data into their own systems, whichcan cause transfer errors. XBRL automatically transforms data from multiple web sites and in different formats into a spreadsheet. Consequently, thereis no need to re-enter data, and there is less likelihood of transcription errors.

The advantages of Standard Business Reporting

A study by Kennedy and Hodge (2002) found that XBRL can improve the transparency of financial statements. They noted that users of financial statements tended to give more significance to information disclosed in the body of a financial statement and less significance to information in the notes, thus tempting some organisations to hide negative information in the notes. When financial statements are presented in a non-searchable format, such as a [scanned] pdf file, [readers] may fail to recognise relationships between data; or overlook disclosed items completely (Kennedy & Hodge 2002, p. 38). However, with XBRLs searchable format, users are able to view related and disclosed information simultaneously and eliminate the preference givento one piece of information over the other. XBRL can potentially make the disclosure of information more transparent by enhancing searches and facilitating integration andcomparison of information (Kennedy & Hodge 2002, p. 38). Figure 1 shows the business reporting supply chain. The processes start with business operations, then financial information is recorded and reported to internal and external users foranalysis. Stakeholders in the business reporting supply chain (such as the enterprise preparing the data, investors, trading partners, auditors, etc.) would benefit from the creation ofdigital versions of financial information using a common standard, as offered by XBRL.

CONTEMPORARY BUSINESS ISSUES

R E A D I N G 6.1

Figure 1: The business reporting supply chain

Business Operations Internal Financial Reporting External Financial Reporting Financial Publishers and Data Aggregators Auditors Software Suppliers
Source: Richards, J. & Tibbits, H. (2002), Understanding XBRL, CPA Australia NSW Branch Workshop, <http://www.xbrl.org.au/training/NSWWorkshop.pdf> (accessed May 2011), p. 5.

Processes

Investment and Lending Analysis

Participants

Business Enterprises

Investors

Trading Partners

Management Accountants

Regulators

Figure 2 shows that the reporting supply chain has many information sources. Themajor source is the accounting system. However, the report supply chain also has many different types of reports that are distributed to various stakeholders. Reportsgenerated within this environment are typically from a diverse range of operating systems that need additional manipulation or redesign to enable them to be shared amongst various users. XBRL can act as an intermediary to lessen this complex information exchange process, especially for entities that have many business partners, leading to considerable time and cost savings.

Figure 2: Multiple outputs from a single specification and information flow to stakeholders
Information Source Accounting system XBRL Other Sources of Information Information Outputs Printed Financials Regulatory Filings Web Site Tax Returns Bank Filings Stakeholders Investors XBRL Other Parties

Source: Compiled from Richards, J. & Tibbits, H. (2002), Understanding XBRL, CPA Australia NSW Branch Workshop, pp. 6 and 7, <http://www.xbrl.org.au/training/NSWWorkshop.pdf> (accessedMay2011).

R E A D I N G 6.1

CONTEMPORARY BUSINESS ISSUES

It is not the intention of this section to examine the technical details of XBRL. It will instead show how the use of XBRL can lead to substantial savings for enterprises, irrespective of their size. Figure 3 illustrates that XBRL may be used throughout the business reporting supply chain process in areas such as: n business event and general ledger reporting, and n preparing audit schedules, regulatory compliance filings or lodgements, financialstatements and tax filings.

Figure 3: XBRL and the business reporting supply chain

XBRL for Regulatory Filings (including APRA)

XBRL for General Ledger Reporting

XBRL for Financial Statements External Financial Reporting Investment and Lending Analysis

Processes

Business Operations

Internal Financial Reporting

XBRL for Business Event Reporting

XBRL for Audit Schedules

XBRL for Tax Filings

(Australian Prudential Regulator Authority (APRA) is the Australian regulator of banks, insurance companies and other financial institutions.)
Source: Adapted from Richards, J. & Tibbits, H. (2002), Understanding XBRL, CPA Australia NSW Branch Workshop, p.9, <http://www.xbrl.org.au/training/NSWWorkshop.pdf> (accessed May 2011).

By using XBRL for their standard business reporting, the Dutch Government has been able to reduce the number of data items requested from Dutch businesses by all its agencies from 180000 to 4500 with an estimated annual saving across the Netherlands economy of 750million. XBRL Australia Ltd (Pyman 2006, p. 2) argues that: XBRL will not help where there is duplicated regulatory oversight but it will assist where there is duplicate reporting requirements, by enabling the automation of reporting so that the burden on the preparer is reduced, either by eliminating the duplication for business if the data can be received byone agency and shared with others via a common data format; or making the duplicate reporting a trivial exercise (Pyman 2006, p. 2). A standardised business reporting format based on XBRL can help to reduce the regulatory burden on business in the following ways by: n encouraging system providers to implement the same reporting standard. n permitting relevant regulatory bodies to access audited financial statements inthesameformat. n promoting the free flow of information between business and government. n enabling the collection of data to be explicit and handled directly between computers atallpoints in the business reporting supply chain. n eliminating the need for special interfaces or special software to read the information which would reduce the risk of human error and increase data reliability (Pyman 2006, pp. 23).

CONTEMPORARY BUSINESS ISSUES

R E A D I N G 6.1

As with all new technology, XBRL does have some drawbacks. First, some organisations may experience high start-up costs for implementing the system, particularly those that do not have the latest technology or Web presence. Second, the availability and ease of access to financial information through XBRL may pose a security risk related to the amendment of sensitive information without authorisation and its disclosure to people outside the organisation. Third, having information that is accessible at any time means that there is a greater need forittobe accurate at all times, otherwise it could prove to be misleading and expose the organisation to court action. However, observers generally agree that the advantages of XBRL far outweigh the disadvantages. Moreover, the greater the number of regulatory bodies and government agenciesthat adopt an XBRL-based common reporting standard, the more likely it will be thatbusiness enterprises will do the same, resulting in more timely and automated businessreporting. A range of supporting information and resources is available from the Australian Government Treasurys web site at <http://www.sbr.gov.au/> (accessed May 2011).

References
Kennedy, J. & Hodge, F. (2002) Will a new technology give financial analysts x-ray vision? UW Business, Fall, pp. 389 <http://www.foster.washington.edu/about/Documents/Foster%20Business%20Archives/ Fall%2002/Faculty_Research.pdf> (accessed May 2011). Pyman, T. (2006) Reducing the regulatory burden on business <http://www.xbrl.org.au/news/documents/Regulation%20Taskforce%20Submission%20 XBRL.pdf> (accessed May 2011). Richards, J. & Tibbits, H. (2002) Understanding XBRL CPA Australia NSW Branch Workshop <http://www.xbrl.org.au/training/NSWWorkshop.pdf> (accessed May 2011). The Treasury (2010) About SBR <https://www.sbr.gov.au/content/public/about> (accessed May 2011).