Do we lack vision, or is it the message?

NOTE: Chaim Yudkowsky, CPA, CITP, is an MACPA member and chief information officer at Textilease Corp., a uniform and first aid services company serving the Southeast.

By Chaim Yudkowsky, CPA, CITP

In 1968, it is said, an IBM engineer heard about the microchip and exclaimed, "But what ... is it good for?"

The bedrock of innovation is imagination. For example, our modern-day PDAs and feature-rich cell phones have Apple Computer and the ill-fated Newton to thank as the motivators for the functionality PDAs can pack into a hand-held device. Other IT innovations have been less visionary in revolutionizing the market or encouraging market acceptance.

This leads me to discuss the XBRL initiative.

What is XBRL?

XBRL (eXtensible Business Reporting Language) is a subset of XML (eXtensible Markup Language), a framework wherein individual universal tags are associated with the elements of structured documents. XBRL applies this standard tagging for all business reports and the data elements on them. By providing a common platform for critical business reporting processes, XBRL "improves the reliability and ease of communicating financial data among users internal and external to the reporting enterprise."

XBRL International (www.XBRL.org) is the governing organization, with a membership of 170-plus worldwide agencies and vendors. The group has existed since 1998 under an initiative of the AICPA.

Adoption

Despite much excitement among XBRL group members and the AICPA, XBRL has not taken off. For example, in late 2001 Bank of America publicly announced a pilot program involving 20,000 of its commercial loan customers. Since then, this program has been scaled back to an initiative involving 11 commercial loan customers.

And despite the increased call for real-time reporting and other changes in financial reporting in response to the many recent financial mishaps, XBRL's role in effecting real change is not clear or understood. Thus, even in light of Sarbanes-Oxley and greater transparency, XBRL is, at most, plodding along.

Why do some technologies have a hard time taking off?

The XBRL story is telling about how a conceptually good idea does not necessarily translate well into adoption. Reasons for this may include the following:

We do not even understand it. Corporate finance people and many CPAs in public practice do not really know what it means for us. Besides, Sarbanes-Oxley and other standards that are determined by regulatory and legislative decree have our attention for now.
Economic justification. The only thing most of us can be certain about is that XBRL will add cost (process and software). Defining the savings opportunities to offset the cost or competitive advantage of using technology based on XBRL is unclear, even for those who understand it. Also, it may add more cost to the user than any current methodology of data preparation and presentation, eliminating the ROI of any perceived transparency.
Who is the customer? The adoption message associated with XBRL value is convoluted. For whom will the value be increased? Is it the information creator's (an individual or the company) or the processor of that information (analyst, CPA, SEC)? Not understanding who the real customer is complicates the marketing pitch.
Is it solving a real or a perceived business challenge? Some technologies start as business solutions that are misdirected, but consumers' embrace of the technology saves a wayward plan. In this case, seemingly, XBRL has only business applications.
When is a framework a standard? With conceptual technologies like XBRL, implementations of the standards often are not standard. Thus, the real ubiquity of utility is handicapped.

Talking with an innovator

I recently talked with Mark Israel, chief architect at Onesource Information Services, a company already offering solutions based on the XBRL framework. His company takes financial data from a variety of sources, converts it into XBRL format and makes it available to customers. Customers may use Excel plug-ins to Excel, make software calls (using APIs) from applications, or even access the data natively.

Israel made the following points that are imperative to the adoption of XBRL.

This is a need that was defined by the accounting community but introduced into the technology community for joint development. That history means it is essential and more difficult to merely educate the public about it. That must not be the goal. Instead, to encourage broad adoption, the objective must be to introduce meaningful uses and regularly develop business cases.
To truly add value, solutions must be responsive to information that customers need. Israel's customers demand standardized data formats in the data they buy to perform analysis. Some examples include the auditor populating a trial audit and reviewing industry norms for variances, and the insurance company creating a model to assess risk for premium setting during the underwriting process to create an accurate, defensible premium with speed of response.
Indeed, the taxonomies of XBRL are reflective of the different accounting standards globally. To be meaningful, applications must be developed in which this does not undermine the analysis, while global accounting standards are pursued.
Customer business cases will drive this technology. Decisions and announcements driven by the exuberance in the possibilities of XBRL, like the Bank of America story, can inflict tremendous damage in the smaller successes of this misunderstood technology.
Continuously clarify whether XBRL is a document about an event or the event itself. XBRL is about representing data and is not a computer language. It defines the nouns of the financials, not the verbs.

The future marketplace adoption of XBRL is anyone's guess. At least one vendor is using it to leverage real value. This avoids an observation about XBRL like the one that Ken Olson, founder and chair of Digital Equipment Corp., had about the PC in 1977: "There is no reason why anyone would want a computer in their home."

This content has not yet been Rated.

To Rate content, please Login.