What XBRL Means For You

XBRL promises to bring a little context to numbers. And yes, that's a good thing.
Scott Leibs and John GoffMay 29, 2003

We know, we know. You’ve been hearing about the coming XBRL revolution for the past three years. So far, there’s been a lot more talking about the coming revolution than the coming of the coming revolution.

But make no mistake, XBRL is going to substantially alter the financial software landscape. In turn, it’s also going to sizably change how finance department staffers (up to and including finance chiefs) do their jobs.

In case you’ve been living in Ulan Bator for the past few years (uhm … mutton), here’s a little primer on XBRL. Essentially, eXtensible Business Reporting Language is an XML-based, electronic language that simplifies the flow of financial data — statements, performance reports, accounting files, and the like — between different applications. Currently, XBRL International, a consortium of about 200 software vendors, regulators, and accounting firms, is flogging XBRL.

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Members of that consortium, as well as academics, finance-watchers, and other generally brainy people believe the Web-based format will dramatically change business reporting in coming years.

Just listen to Mike Willis, founding chairman of XBRL International and a PricewaterhouseCoopers partner, wax poetic about XBRL. According to Willis, “The effect that XBRL will have on the business community will be more significant than the transition from paper and pencil analysis of financial information to the use of electronic spreadsheets.”

Okay, Willis can be forgiven for the hyperbole. He did, after all, chair XBRL International. But Willis is not far off in his forecast. The fact is, meta-data — that is, the tagging of data with information about the data — enables software programs to handle financial information seamlessly, regardless of the source. In essence, XBRL gives you context about numbers.

And the subtext of this context? Many observers believe a standardized format for business reporting will make it much easier for companies to collect and analyze data. Same thing for outsiders who collect and analyze a company’ data (investors, regulators, analysts, and bankers).

As it stands now, it’s nearly impossible for investors or analysts to go onto a corporate Web site, and pull out relevant financial information without re-keying that data into a spreadsheet. XBRL, which is based on XML, will put an end to all the typing.

Carried out to its logical conclusion, XBRL should make it quite simple for companies to collect and analyze data about their competitors. In short, XBRL should be a boon for benchmarking.

Now, if you’re one of those who think this whole XBRL thing will simply blow over, consider this: some major banks are already contemplating asking corporates to file financial statements in the XBRL format. The SEC is also starting to embrace XBRL, and its Edgar Online service already publishes some information in an XML format.

Once lenders and regulators start requiring meta-data from businesses, you better believe companies will move most of their reporting systems to the XBRL format. In fact, a few companies already file some of their financial statements in the XBRL format, including Microsoft.

Indeed, a recent forecast by Big Four accountancy PricewaterhouseCoopers identified XBRL as one of the technologies that will most effect business in coming years. In fact, the only real question about XBRL is not if it will catch on, but when. The guess here is sooner — two years — rather than later (five years).

So far, the real hurdle for XBRL has been taxonomy — that is, standardizing definitions for different types of financial data. Without an agreed-upon taxonomy, one company’s view of free cash flow may be different than another’s, which makes it nearly impossible to make any meaningful comparisons between the two.

In Europe, however, it appears that taxonomy issues have been pretty much worked out. In the U.S., there’s still plenty of disagreement.

Nonetheless, major software vendors have rolled out some XBRL applications already. The Strategic Enterprise Management application from SAP, for example, supports the converting of exiting data into meta-data and the mapping of XBRL taxonomies to the company’s various apps. An out-of-the-box R3 product probably won’t be far behind. Likewise, PeopleSoft will be launching a full-blown XBRL-enabled version of its FMS (Financial Management Solutions) package in the fourth quarter.

Microsoft, too, is a big backer of XBRL. The company’s Business Solutions for Analytics-FRx(r), a financial reporting tool that ships with Great Plans and Solomon software and about fifty other mid-market general ledger offerings, features a XBRL tagging capability. More importantly, a downloadable XBRL add-in for Microsoft’s ubiquitous Office System will be available when Office 2003 ships in the coming months. The add-in means users can mark up data within Excel in the XBRL format.

Excel going XBRL? That may truly convince finance types that the meta-data revolution is nigh upon us.

Hype: 4 (out of 10)
Business Impact: 8
Your Move: We’re not buying that XBRL will have the same impact on finance departments as the advent of VisiCalc and Lotus 1-2-3. Still, it’s a big deal, and should save finance departments a lot of time and money. Enabling various applications to seamlessly access and analyze the same data could have a huge impact on a company’s budgeting & planning process (trumpets up, cue chorus singing “Hail Hail Virtual Close”). XBRL will also be ideal for business intelligence systems, which tend to gather information from disparate — and often far-flung — data silos. Moreover, data with context should help CFOs as they seek upstream certification of financial reports. Given the onerous Section 404 requirements of Sarbanes-Oxley, that’s got to be good news for finance chiefs.

The Truth is In There

In the film Catch Me If You Can, an inventive con man lived large on forged checks, thanks to ingenuity and an eye for detail. Today he’d need a degree in molecular physics.

Bar codes and radio-frequency ID (RFID) tags allow a company to mark its goods inexpensively, but a new breed of molecular and near-infrared markers may make counterfeiting and related forms of fraud vastly more difficult to pull off.

Developed at Los Alamos National Laboratories and currently marketed by Isotag Technology Inc., the markers are nonintrusive molecules that provide a chemical signature detectable in a lab or via an infrared reader in the field. Added to, say, gasoline or car parts, these markers provide a way to distinguish the real thing from a fake or even a diluted product.

“Counterfeiting, theft, and diversion are no longer acceptable costs of doing business,” says Isotag CEO David Moxam. Priced at less than a penny per unit (although a complete system entails other expenses), the markers are invisible, yet their presence (or absence) provides what he calls a “legally defensible” proof of authenticity; in fact, the technology has been presented successfully in court several times. Moxam says molecular markers won’t replace bar codes or RFID tags for supply-chain purposes, but for brand-authentication they may become elemental.

Counterfeiting costs companies money, of course, but it gets worse: counterfeit pharmaceuticals are rampant, particularly in less-developed nations. A foolproof way to distinguish real medicine from snake oil could save lives.

This Just In

Wireless Internet may be the way and the light for mobile computing, but it’s also scaring the epilettes off of airline pilots. According to a story in the Boston Globe, the left-seat set is apparently concerned that Wi-Fi devices may interfere with communications systems on planes. “The proliferation of these new devices has opened a wide variety of new concerns,” John Cox, executive air safety chairman for the Air Line Pilots Association, told the Globe.

While radio signals from Wi-Fi cards are 20 times weaker than signals from cell phones, airlines nevertheless allow passengers to turn their laptops on once a plane surpasses an altitude of 10,000 feet. Passengers are prohibited from using cell phones on planes — no matter how high up. Officials at the FAA have commissioned an in-depth study to see if Wi-Fi devices present any danger to navigation. The agency is also examining if the flatware used on flights could be any colder.

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