|
Article Excerpt
ABSTRACT: XBRL (eXtensible Business Reporting Language) is an application of XML (eXtensible Markup Language) intended for use in digital business reporting. Observers predict XBRL will provide benefits to firms that adopt it, such as enhancing information use, facilitating comparability and consistency, and providing technological capability for near-continuous financial reporting through the Web. However, questions arise regarding how well the proposed taxonomy for financial statements corresponds to firms' preferred reporting practices. We argue that a poor fit may lead to information loss and to subsequent resistance to use or general adoption of the taxonomy. A lack of fit could therefore negate anticipated firm or information-user benefits.
To address this issue, we assess how well the year 2000 version, for financial reporting by commercial and industrial (C&I) firms under U.S. GAAP, accommodates current financial-reporting practices of public companies. We attempt to match each line item in the 1999 annual financial statements of 67 companies with an XBRL taxonomy "tag," employing two measures of the frequency of "special attention" (difficult-to-match) items as indicators of the quality of "fit" between the taxonomy and firms' reporting practices. Analyses show a good fit on average, but also indicate significant differences in the number and proportion of exceptions across financial statements and industries. In light of these results, we suggest modifications to the taxonomy and discuss the need for industry-specific taxonomies.
I. INTRODUCTION
XBRL (eXtensible Business Reporting Language) is an application of XML (eXtensible Markup Language) intended for use in digital business reporting. Hill (2001, 55) describes XML as "enabling data on the Web or any large network to be readily swapped between any kind of device...any kind of application, regardless of what programming language the application was originally written in." (1) To accomplish this task, XML "tags" enclose (delimit) each fact or item of data generated. The data item and tag together constitute a string of plain text that can be digitally transmitted. XML tags provide enabled software with context information to aid in the interpretation of the data, with multiple-nested tags providing additional context. XML-consistent tags allow a firm to aggregate financial-reporting data across its subunits, even if they use incompatible hardware and software, through the consistent use of identical tags for the same types of data.
Anticipating the value of XML, the AICPA and major international firms are supporting the efforts of the XBRL.Org, an international consortium of firms, to develop XBRL. This effort includes development of a taxonomy for financial reporting under generally accepted U.S. accounting principles (U.S. GAAP). That taxonomy is intended to provide a set of XML-consistent tags that identify various items of financial and nonfinancial information relevant to business decisions. The goal of the developers of XBRL is to tag (in an XML-based framework) every piece of information relevant to business reporting and decision making. A taxonomy of such tags would provide a stable, semantically consistent system, enabling efficient, effective search and reporting of such information, as well as facilitating continuous monitoring and auditing.
In addition to the task force that is developing a taxonomy for financial reporting under U.S. GAAP, several other entities are developing taxonomies for different purposes, such as for management reporting of balanced scorecard information, and for IRS tax filings. The ebXML task force (not affiliated with the XBRL consortium) is developing a taxonomy for tagging information at the transaction (vs. account) level. This system is ultimately intended to provide a digital language for continuous monitoring and auditing.
For these benefits to be realized, such taxonomies should sufficiently capture information reflected in current reporting practices, and so be adopted by the communities they are intended to serve. Otherwise, the taxonomies will likely be met with resistance, be modified (and thus lose semantic consistency), or be disregarded in favor of other (probably customized) solutions. The goal of this article is to assess how well the year 2000 version of the XBRL taxonomy for financial reporting by commercial and industrial (C&I) firms under U.S. GAAP accommodates current financial-reporting practices of public companies. We argue below that this issue is interesting because lack of fit between the taxonomy and firms' preferred reporting practices leads to a loss of information and, potentially, to resistance to the ultimate adoption of the taxonomy.
In the next section of the paper we provide more background on XBRL. Then we discuss the potential for loss of information when applying the XBRL taxonomy to firms' financial reports. In the subsequent section, we specify the research issues and describe the research methods. We then discuss the sample and the tagging process in which the taxonomy was applied to sample firms' financial statements. After describing some of the difficulties encountered in tagging, we provide results followed by conclusions.
II. BACKGROUND ON XBRL
This section provides an overview of eXtensible Business Reporting Language (XBRL). XBRL is intended for business reporting both internal and external to a firm. An initial application will be to publish digital corporate financial statements for external users. According to the XBRL consortium, (2) XBRL enables dramatic improvement in the processing of financial reports. XBRL documents can be prepared efficiently, exchanged reliably, published easily, analyzed quickly, and retrieved by investors simply. (3)
Observers predict that XBRL will soon give many firms the technological capability for providing near-continuous financial reporting through the Web or other mediums. (4) Motives for more frequent financial reporting also exist, particularly since the Securities and Exchange Commission (SEC) issued Regulation FD in October 2000. Regulation FD ("fair disclosure") essentially requires that companies deliver material information simultaneously to all audiences (Parish 2000). It is intended to prevent corporate managers from favoring some analysts over others, or over the public as a whole, at least with respect to material information. While Regulation FD still requires companies to disseminate material information via press releases, it specifically encourages them also to use the Internet to accomplish broad and rapid dissemination (Baker 2000).
One observer predicts that "FD should jump-start the move to real-time reporting" (Seligman 2000, 148). The rationale is that firms can best comply with FD through the continuous release of financial data to the public rather than quarterly financial reports supplemented by occasional news releases. In addition, the continuous release of financial data arguably should prevent the major stock price declines that often accompany occasional news releases, and that generate lawsuits against managers. XBRL should facilitate real-time financial reporting via the Internet, although we emphasize that XML and XBRL provide agreed-upon methods for exchanging information via any digital medium, not just the Internet.
To implement XBRL requires the XBRL Specification (Hampton and vun Kannon 2001), the XBRL Schema, an XBRL Taxonomy, and an XBRL Instance document. (5) The specification provides the technical grammatical rules for creating taxonomies and instance documents; the schema defines the core building blocks for building them; a taxonomy defines the tags for things of interest and their interrelationships; and the instance document is the actual business report containing the information of interest embedded in tags defined by the taxonomy, plus address information pointing to the definitional documents. We focus here on the XBRL taxonomy.
Accounting software vendors are likely to design XBRL capability into their accounting systems to allow users to cross-reference their accounts to this framework, enabling a more efficient reporting process and a more efficient experience for the users of financial information. Consider the following example. A firm's Balance Sheet contains the following data item for 1999:
Net Receivables $153
In the electronic file containing the financial statements, XBRL coding represents this information as follows: (6)
153
Additional coding specifies the grouping of this element with related elements (i.e., the items belonging to the Balance Sheet), the other elements in the grouping, the definition of numeric context of the value (i.e., the reporting organization, precision, period, unit of reporting, reporting scenario, and assumptions), and the reference locations and documents indicated by namespace abbreviations such as "ci." This coding comprises "meta-data" about the content and context of the data. Net receivables are part of current assets; current assets are part of total assets that, in turn, form a portion of the Balance Sheet. Typical XML nesting of...
|
