Do the definitions live inside a multitude of dusty reports, half forgotten intranet sites and thick books that may or may not be up to date? How do people apply those definitions? By searching through the reference materials or tracing through computer code, spreadsheets and databases? Via local folklore? And are they applied consistently across the enterprise? How material is this problem in your organization?
XBRL is designed to help you tackle this problem, with a basic focus on data definition. The technology encourages the thorough and consistent development and application of definitions in business reporting.
We believe that this is one of the key strengths of the XBRL initiative and will serve as the foundation for systemic improvement in corporate reporting. It provides a neutral way to define information and can be used to exchange not only reports but also the definitions themselves, enhancing understanding.
Business reporting is often based on generalized sets of rules, and business reports that are going to be made public are, as often as not, based on accounting standards.
As far as accounting standards are concerned, the required, or common disclosures are already being defined in XBRL format in many countries, including through the efforts of the International Accounting Standards Committee Foundation.
But often, that is not enough. Seldom are all the reporting needs of a company met by the minimum requirements. So XBRL allows individual or unique reporting needs to be defined and communicated in a very direct manner. It is a straightforward exercise for consuming analytical applications to identify the unique things about a business and present them to the end-user. This is far simpler than trying to identify the different and interesting information in a paper report. By requiring that data be defined in substantial detail, and allowing those definitions to be communicated directly and in electronic form, XBRL will solve a number of crucial business reporting problems that exist today.
What should you take away from this? In a nutshell:
- Digital business reporting is likely to allow companies, especially their investment-relations functions, to very clearly target investment messages in the body of the financial statements.
- A broad range of business reports (not just financial statements) can benefit from improved definitions and improved communication of definitions. So XBRL will impact information flows inside organizations as well as external reporting.