The future of financial transparency is XBRL, the international language for the electronic communication of business and financial data. In development by an international non-profit consortium with the cooperation of approximately 450 corporations and government agencies, XBRL (eXtensible Business Reporting Language) is supposed to save money, increase efficiency, and improve the accuracy and reliability of financial data. So what is it?
What is XBRL?
XBRL is essentially digitized financial information. Instead of treating financial data as a block of text (as it appears in an annual financial statement) XBRL assigns identifying tags to each individual item of data. These tags are computer readable, which enables automated processing of the information. People who grew up with computers may find it shocking to learn that this is actually a relatively new development in the financial world. XBRL replaces hordes of interns and junior staffers plugging financials into databases.
Why is XBRL the Wave of the Future?
XBRL increases the speed of handling of financial data, and reduces the chance of human error. It helps companies by reducing the cost of collecting and reporting financial information. It helps consumers of financial data (investors, analysts, financial institutions and regulators) by making it easier to get compare and analyze financial data faster and more efficiently.
One of the best things about XBRL is that it can translate data in different languages and accounting standards. This will make it easier to compare apple sellers to apple sellers (and banks to banks) all over the world.
Will XBLR Replace the Financial Audit?
According to Federal Computer Week Labor Department CFO Sam Mok hopes so:
Currently, too much emphasis continues to be focused on audits as a means to monitor the quality of financial reporting. Audits are not really audits but ratification of financial reports.”
Joe Kull, a director at PricewaterhouseCoopers agrees:
“And they’re costly. We need to be able to better understand the flow of money” in real time to make better decisions” Kull added that while the federal government has made great strides in speeding up financial-reporting cycles, there are still too many restatements.
So soon we’ll have access to real time, super accurate data. The question is who will audit XBLR?