eXtensible Business Reporting Language (XBRL) and Web services have evolved somewhat separately from a common core of XML. XBRL has gained support because it simplifies the electronic distribution of financial statements, performance reports, accounting records, and other financial information.
Web services hold the promise of automating, in a standardized manner, the exchange of data and functionality between different software applications. When used together, XBRL and Web services have the potential to enable a new class of sophisticated financial applications that were previously difficult or impossible to build.
XBRL is an XML-based markup language for financial and business reporting; it provides advantages at each step in the financial reporting supply chain. XBRL focuses entirely on the content of a business report and is completely neutral with respect to the technical means by which e-reporting is accomplished.
Until recently there were few, if any, well-accepted standards that would allow the contents of financial reports to be automatically communicated between different applications. As a result, the cost of consuming and analyzing company reports is often very high. Essentially, financial professionals had "access" to a wide range of financial data on a given company, but using it effectively required extensive manual effort to glean relevant information - as well as time to transfer the information from various formats into an application for processing or comparison with other company or industry data. For example, an analyst who wanted to compare a financial data point, such as cost of sales, from one company to others in the same industry (or to all other public companies) would have to find and consolidate the same line item from all the other companies manually.
With XBRL and Web services, this picture is changing. Organizations can automate data-gathering processes, significantly lowering the costs associated with consuming company reports while increasing speed and accuracy. Additionally, XBRL defines a consistent format for business reporting that streamlines how financial data is prepared and disseminated, as well as how analysts, regulators, and investors review and interpret it. In the previous example, the analyst would have a Web service query and a well-chosen data source with XBRL, extracting just the information required (cost of sales) from all relevant companies to complete the analysis.
Beneficiaries of XBRL and Web Services
Companies that choose to take advantage of XBRL will save time and money when information consumers, both within and outside of a company, analyze complex data. Specific beneficiaries of XBRL are the producers and consumers of business reports: accountants, auditors, financial analysts, investors, creditors, business and technology decision makers, and senior executives of finance, investor relations, financial research, software, and information technology organizations.
For example, CPAs who use XBRL are able to focus on the value-added work of analyzing business information, not the mundane and error-prone tasks of manually collecting data from various sources. Additionally, companies that prepare business reports and financial statements can increase efficiency and accuracy in the preparation of these documents because they are created one time and published as printed reports or on Web sites, exchanged in internal corporate reports, or submitted as regulatory filings.
One of the key drivers of XBRL and Web services is government regulations, such as the Public Company Accounting Reform and Investor Protection Act, Sarbanes-Oxley. As businesses work to regain the confidence of investors and comply with new regulatory requirements, many are making efforts to provide financial information more quickly and in formats that are easier to interpret. Further, XBRL will enable companies to manage information more effectively and react more quickly to changing business conditions. As corporate transparency continues to be at the forefront of discussion in the business world, it provides an important incentive for businesses to make use of these capabilities.
Looking Ahead
In the next three to five years, XBRL will move from the early adopter phase to become the generally accepted way to report business information electronically. As a result, businesses will achieve benefits by simplifying their processes for producing business reports, and their stakeholders and regulators will find it easier to get the information they need to make informed decisions.
Eventually, XBRL and Web services will augment the current model of the Web - people looking at Web pages - with automated communication between software programs, allowing information to be accessed and processed without human intervention.
An auditor might use a familiar tool, Microsoft Excel, with a Web services back end that will search for and retrieve specific financial data about a client and others in the same industry in XBRL format. The auditor''s Excel-based model would then be used to determine which line items on the report need greater scrutiny.
By allowing for rapid integration of external information into existing business systems, XBRL and Web services will make it extremely easy to present financial data that is most relevant to an individual functional group or business operation, in context with internal data. By presenting financial data in a consistent and familiar format, an organization will be able to minimize unnecessary research while improving productivity and allowing end users to rely routinely on a single application with consistent field placement for critical pieces of data. Further, since XBRL is based on the XML standard, it is device independent, which will enable information to appear on any platform, including a desktop PC, wireless phone, or PDA.
Maximizing XBRL and Web Services
Of course, as companies begin to put technologies in place that will enable them to capitalize on XBRL and Web services, it''s crucial that they still be cognizant that they are receiving the data from a reliable information source - since the quality of the data provided is most important. In doing this, they will need to evaluate several factors, including the range of information, the expertise of the information vendor and, most important, the vendor''s business information framework for classifying, organizing, and integrating a wide range of business information. Once the company conducts its due diligence to ensure that it is working with a trusted and proven data provider, it will be able to truly maximize the power of XBRL and Web services - and benefit from what will ultimately be a revolutionary change in business reporting.
