XBRL stands for eXtensible Business Reporting Language, the title is pretty self explanatory but allow me to expand a little before we look at how it is likely to change your life. It is a sub-set of a technology (XML) which has revolutionised much of the computing world over the past decade, taking us from a state of poor interoperability between computers and software to a really simple method of data interchange between almost any application on any platform.

XML is a generic standard, it describes essentially how you can tag data, so for a simplified example an xml document describing me might be

<person>
<name>Steven Tolley</name>
<sex>male</sex>
<age>39</age>
<sense of humour>yes</sense of humour>
</person>

The key point here is that you can structure in plain text almost anything because you can decide what the tags are. This might not sound like a big deal but the first point is it can be read by almost any system, second point is you can create a set of rules for how this document should be structured and share this set of rules with any system.

So for example you could create a standard for sharing patient records between hospitals, it might say that each patient has to have a first name, a last name, a date of birth, an NI number, and that it may or may not have a date of next appointment. Once you have the data and the set of rules any computer system can process, share or interchange patient data.

XBRL is just that, a set of rules to standardise the tagging of financial data. As an example an XBRL data file for IFRS accounting data might look like (I’m over simplifying)

<company>
<name>XYZ plc</name>
<ifrs:NetProfit context=”2008” units=”Pounds Sterling”>2000000</ifrs:NetProfit>
<ifrs:SharesInIssue context=”To Date” units=”Each”>30567899</ifrs:SharesInIssue>
</company>

At the most basic level, if all companies filed accounts in XBRL format, and that data is publicly available, and because XBRL is an open standard anyone can get the rules of the tagging system, common office software can compare financial results of thousands of companies in seconds.
Another point worth making here is that because the data is individually tagged it can be rearranged and measured to suit the user, and can be validated by virtue of its relationship to other tagged data. In short it is easy to customise and test.

So What?

So far you may not be terribly aroused at the thought of making analysts jobs easier, particularly not if it costs you more to put in the systems to tag your data and supply it to the relevant authorities. Well you will be pleased to know it has far greater potential than that.

Network Effects

If the web has done nothing else, it has hammered home the concept of standards. The very fact that you can look at the website of any company or even send an email has revolutionised many work practices. This critical level of technological development has paved the way for innovations which of themselves would have never shown sufficient ROI to make viable.

In this networked world imagine a situation where just your accounting data was interoperable and instantly transferred. Let me paint you a picture.

From the point in time where an initial order gets entered it doesn’t need to get printed again, through invoice creation, transfer to customers and partners( possibly ebXML), transfer through departmental performance accounting to subsidiary and group accounts (this frequently happens already) but then on to national tax offices, company regulation bodies and auditors.

Many of the old reconciliation and review processes will step up a gear to become appraisal and decision making phases. Auditors for all sizes of companies will have little re-entry work to do a so will have to make up their charges with value added services. Management accounts should be available more quickly and the potential for competitive advantage creeps in through sheer speed to the decision makers of trading information.

It has the potential to do to the accounting and management trade what barcodes did for retailing.

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Links

XBRL UK (standards body for XBRL)

Microsoft Demo using XBRL in Microsoft Excel

Example of XBRL analysis tool

Example real xbrl document (not for the faint hearted)