XBRL As a Supply Chain Standard
Why collaboration is critical.
February 1, 2007
by Liv Watson
In simple terms, XBRL (eXtensible Business Reporting Language) is a supply chain standard for moving business reporting information in an interactive format. It requires the whole financial and business reporting supply chain to come together and adopt a single standard way of representing the business reporting data. Consistency is the key increasing the value of the data that has been converted to this common platform.
Standardizing supply chain information such as XBRL is nothing new. In fact, many supply chain standardization projects have saved millions if not billions to market participants. For example, containerization is a cargo transportation standardization method for containers that is used to load container onto ships, railroad cars, planes, and trucks for transporting goods. Today, almost every consumed manufactured product spends some time in a container and is recognized as one of the most important elements of the innovations in logistics that revolutionized freight handling in the 20th century. In this system, standardized size containers produce a huge reduction in port handling costs, contributing significantly to lower freight charges and, in turn, boosting trade.
Accountants’ Role in the Business Information Supply Chain
So what does XBRL have to do with supply chain standards such as the containerization?
Standardization such as in the container industry impacts everyone in a supply chain (see figure for a simple version of financial and business reporting supply chain). Stakeholders of any supply chain who wish to improve efficiency must adopt such a standard sooner than later for everyone to benefit. The single key concept of XBRL is to promote electronic data exchanges along our business information supply chain in an end-to-end manner for promoting enhanced efficiency of the information that we spend so much time aggregating, copying and pasting today. The fact is poor information management can add costs, slow handoffs, open security gaps and even lead to erroneous movements of information. Over time all this contributes to congestion and inefficacy.
Like the transportation industry has gained by establishing a standard way of moving goods, much can be gained in our business reporting supply chain.
XBRL's main benefit is the simplification of the exchange of business reporting data. Consider that the interchange of hierarchical data between different companies, various departments within the same company, different applications, or even different portions of the same program can be very challenging. For example, let's say that you'd like to send you’re client’s bank a financial report. Ideally, you'd like to send it electronically from accounting software application so that they can easily import it into theirs. How would you go about doing this? You could send the information as an Adobe Acrobat document, a Microsoft Word file or a plain text file. While this is convenient for people, it isn't as easy for a computer to extract information from any of these formats. You could also work with the financial analyst’s accounting department to come up with a custom format, such as a common-delimited file. Of course, should they later decide to change the file format to accommodate another client, you'll have to make changes to your financial generator program as well.
XBRL offers a solution to this problem. Your accounting program can be set to create a report formatted in XBRL that can be sent directly to the recipient’s computer. Once there, the standardized method of exchanging this data will enable the data to arrive in a ready-to-use format. Because you have agreed that XBRL will be your method of exchanging this data, minor changes are handled quickly and easily.
Given the importance and growing role that capital markets have on economies, the movement of information plays an important role in an interactive global economy. The accounting profession needs to take the time to understand the benefits of participating in bringing efficiency to our profession.
Here’s a suggestion for you. The next time you sit next to one of your peers ask him or her if they have XBRL. When a majority of accountants can answer yes, the entire business reporting supply chain will start realizing benefits. XBRL is an open standard and is publicly available.
For those of you who would like to learn more about the efficiency that XBRL brings to the table, please download a free copy of an article on XBRL by Bob Eccles, Mike Willis and myself from the February issue of Harvard Business Review. Each year they publish “20 Breakthrough Ideas for 2007” and the article “Here Comes XBRL” made the list as number 10, although nothing is implied in the rank order. You might even enjoy some of the other breakthrough ideas as well. Enjoy!
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Liv Watson is an accountant and Vice President of Global Strategy for Norwalk, Connecticut-based EDGAR Online Inc. (Nasdaq: EDGR ) – a provider of global business and financial information.