XBRL: First U.S. exchange of financial information signals good news for businesses

It's a Thursday afternoon in Orlando and something big is happening. It's not at a theme park or on a golf course. It's happening in an office, where CPAs and financial managers are watching the miracle of real-time financial information instantly and automatically being transferred from a small CPA firm's database to a bank. Even though the bank uses different software from the firm, Extensible Business Reporting Language — commonly known as XBRL — is facilitating the exchange of financial information.

XBRL is a software language developed by the AICPA and an international consortium of organizations. The AICPA began its work on the technology when Charles Hoffman, a CPA now known as the father of XBRL, introduced the idea three years ago. Today, more than 120 organizations around the world participate on the XBRL project committee known as XBRL.org. (Visit its Web site at www.XBRL.org.)

By using XML — a kind of electronic translator that helps software applications talk to each other — XBRL describes the financial information in business reports and databases. XBRL allows companies to prepare, publish, analyze and automatically exchange financial data, regardless of software format. XBRL for financial statements is the first specification but other versions will follow, including XBRL for regulatory filings, tax returns, audit schedules, bank call reports and accounting and business reports.

Businesses can use XBRL to solve two significant problems. First, companies need to prepare a financial statement only once since XBRL renders information in a variety of formats — a print-ready financial statement, an HTML document, an EDGAR filing, a raw XML file and a specialized format such as a regulatory report. Usually this information has to be entered separately to meet the needs of each format. Second, with XBRL, computer programs can easily extract specified detailed information from a financial statement. That seemingly simple step has traditionally been a labor-intensive process, requiring personnel to hunt for information even if it was entered electronically.

Both improvements mean less time for data entry and more time for financial analysis.

Benefits for businesses of all sizes

These are the kinds of advantages that brought the small CPA firm of Hevia Beagles & Co. and Bank of America to participate in the groundbreaking demonstration in Orlando. The event heralded the first time financial data has been exchanged in the United States using XBRL. Hevia Beagles is the first accounting firm in the country to begin using the new technology for its clients. Though the transaction occurred almost invisibly in cyberspace, its success signals a revolutionary new method for sharing financial information. And the participants prove that XBRL is good news for companies of all sizes.

Bank of America recently announced an XBRL pilot program collecting data from its customers that regularly provide financial statements for lending and credit analysis purposes. Hevia Beagles & Co. is one of those customers. The bank embraced XBRL because it brings such great advantages to its customers.

"XBRL reduces large amounts of manual processing and re-keying of data," says Brian Staples, vice president of information technology at Bank of America. "The key advantage for our customer base is once they are able to automatically provide XBRL from their accounting systems, we gain more confidence in the quality and timeliness of financial information."

Daniel Hevia, a partner at Hevia Beagles & Co., was drawn to XBRL for similar reasons.

"What we see today when we have to cross platforms to transmit data are time delays and misinterpretation of data," Hevia said. "In this pilot program with Bank of America, these problems are eliminated with XBRL."

In addition to fewer errors, XBRL has other powerful advantages. Not only does it make financial information easier to access and distribute, it also reduces the costs of analyzing and reporting. And these advantages bring another reward: Business decisions can be made instantly rather than waiting for data to be processed.

These benefits can be particularly helpful to small firms. And because it simplifies the exchange of financial information, XBRL frees up resources, providing CPA firms with an opportunity to enhance relationships with clients and generate revenue.

Two more XBRL features also are important: XBRL uses and relies on existing accounting standards, so companies can continue to use their regular statement formats. "XBRL does not require a company to disclose any additional information beyond that which it normally discloses in its current financial statements," said Brad Saegesser, consulting services manager at Moody's Risk Management Services and a proponent of XBRL. And with international collaboration among companies at every level of the financial information supply chain, the accounting profession is bearing the cost of developing and maintaining the technology, meaning XBRL is free.

The word spreads

XBRL is gaining momentum. A November 2001 publication developed by the Joint Financial Management Improvement Program has mentioned XBRL as a "value-added" requirement for U.S. government agencies.

Government agencies will use XBRL to more easily analyze and exchange information. "No single entity requires so much reporting, processes so many reports and makes such important decisions based on its information than our government," said Zachary Coffin, KPMG's Global XBRL leader and a member of XBRL.org who spearheaded the discussions with the JFMIP. "The decision by the JFMIP is good news not just for taxpayers and cost-cutters, but at a time when all Americans are interested in having the most effective and efficient government possible, XBRL can enable greater accountability in federal agencies — and therefore better performance."

In addition, EDGAR Online, an XBRL member and a provider of financial information derived from SEC data, announced it had launched XBRL Express (www.xbrl-express.com). Analysts, investors, credit and lending institutions, news organizations and accountants can go to this public repository to find company financial statements prepared and published in XBRL format. The site initially will hold XBRL statements from 80 companies in 12 industries. Pricewaterhouse-Coopers also has added XBRL Query Services to EdgarScan. In addition to tools for analyzing data online or offline, companies can now download XBRL files and, using hyperlinks, go directly to specific sections, including financial statements, footnotes, extracted financial data and computed ratios. With more companies and institutions embracing XBRL, "the message for CPAs is clear," said Louis Matherne, director of business assurance and advisory services at the AICPA. "XBRL is about sharing information. As the information professionals, CPAs have a huge stake hold in its development and implementation."

Hoffman agrees. "The world is going to change because of XBRL. Basically, XBRL will touch virtually everything that accountants do on a daily basis."

To help practitioners learn more about XBRL, CPA2Biz has begun an education and implementation program with a number of CPA firms across the country. Other resources available at CPA2Biz include information on XBRL and XBRL Essentials, a new publication by Hoffman and Carolyn Strand. Both can be found at the Information Technology Resource Center at CPA2Biz.com.

CPA firms interested in participating as XBRL pilot firms should contact Alison Gilman at (212) 993-0524 or e-mail her at Alison.Gilman@cpa2biz.com.

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