XBRL is too complex for adoption

Extensible Business Reporting Language, which is used for displaying financial data on listed companies, will not take off in its...

Extensible Business Reporting Language, which is used for displaying financial data on listed companies, will not take off in its present form due to its complexity and the lack of an international accounting standard, industry experts have warned.

XBRL is the emerging standard for the electronic distribution and comparison of business reports. Aimed at City firms and private investors, the specification enables a user to compare the financial performance of groups of companies.

In its latest technology forecast, PricewaterhouseCoopers predicted that in three to five years' time XBRL will become the accepted standard for reporting business information.

While many IT and business leaders see the benefits of XBRL, some industry experts have voiced concerns that the standard risks becoming too broad.

Dennis Keeling, chief executive of the Business Application Software Developers Association, said the creators of XBRL have mistakenly tried to deal with every eventuality, focusing on every element in a financial report.

"One of the main problems with XBRL is that it is far too complex - it has become a nightmare for programmers and accountants," said Keeling, referring to the large number of lengthy XBRL tags used to define the data. "They are not trying to compare the summary data but the minutiae."

Another problem is the lack of a common accounting standard. XBRL is used to represent financial information that has been prepared in accordance with accounting standards. However, as the standards vary, it may be impossible to compare company performance data - one of the key drivers behind XBRL.

The International Accounting Standards Board is working on the International Accounting Standard (IAS) but it is not due to enter use in Europe until 2005 and the US will not adopt it until 2007. In addition, Keeling said, "It will only cover the broad principles."

Paul Druckman, vice-president of the Institute of Chartered Accountants in England and Wales, said the lack of a common standard is a problem but he believes the IAS will be a catalyst to the uptake of XBRL.

The Institute of Chartered Accountants is considering using XBRL for its accounts next year. "And we are not the only ones," said Druckman. "I think XBRL is going to happen."

However, Keeling insisted the technology is flawed. "You cannot compare data anyway - that is the big problem," he said. "XBRL is not going to happen in its current form."

Only two companies, Reuters and Microsoft, have tried to make financial data available using what Keeling calls "the elusive XBRL" since its inception in 1999.

What is the purpose of XBRL?

In a white paper last year on XBRL, Al Berkeley, vice-chairman of thought leadership at the Nasdaq stock exchange, said the role of XBRL was to make it easy for investors to analyse a company's financial data. He said the new data needs to be analysed and thought through for what it says: 

  • How big are revenues? 
  • How big are profits? 
  • How big are profit margins? 

It must then be compared to earlier data to answer the questions: 

  • How fast are revenues growing? 
  • How fast are profits growing? 
  • How are margins changing? 
  • How are growth rates changing? 

The company's results must also be related to other firms' results: 

  • How is this company doing relative to its competitors? 
  • How is this company doing relative to other places the investor can place his or her money? 

Further information

http://about.reuters.com/results/2001-pr/html/xbrl.asp  

www.morganstanley.com/xbrl/

www.apra.gov.au/

www.microsoft.com/msft/

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