Thursday, March 1, 2012

Some of the Pros and Cons of XBRL

The XBRL adoption debate has been going on for over a decade now with as many detractors as there are proponents across the world. Each group is steadfast in their position, citing the many advantages or disadvantages of XBRL, in support for their position.


1. XBRL is a universally accepted information sharing language. XBRL is available across many countries and facilitates sharing of business information in many languages, on any computer platform and in multiple accounting standards. Regulators and Investors alike can access this information electronically and in seconds be able to perform real-time analysis within and across organizations.

2. XBRL improves Corporate Transparency and increases overall credibility of the Global Financial community. The global financial crisis in 2008 has fueled the adoption of XBRL by regulators across the globe. Standard financial element definitions, common validation rules, increased reporting, and improved analysis have all conspired to improve the financial transparency of organizations that might have otherwise used accounting tricks to mask their financial health.

3. XBRL improves the quality and speed of information exchange while reducing overhead. The implementation and deployment of XBRL drastically reduces the ongoing costs of information collection, analysis and dissemination, while substantially improving the accuracy and quality of the data. Regulators adopting XBRL as the required standard for filing see many benefits, starting with more accurate filings since validation is typically performed on the filer’s end prior to submission. This leads to a reduced administrative burden, providing better oversight at reduced costs.

4. Availability of standard global Taxonomies. Since XBRL is Open Source, Regulatory organizations around the world can readily and freely re-use standard Taxonomies that may have taken years and cost millions to develop and document. These Taxonomies could be adopted as-is or can be tweaked/customized by the adopting organization, reflecting the unique way they regulate and/or do business in their jurisdiction.

5. XBRL adapts well to a variety of uses. XBRL is not just a financial reporting vehicle; although it is primarily used today for financial reporting, it can equally be used to share non-financial business information like inventory levels, production volumes, reseller sales and returns.

1. XBRL Complexity can lead to transmission errors. Being XML-based, XBRL is complex and not easily read or written by accountants, regulators or business users, necessitating the dependence on experienced IT developers to assist with the electronic filing. XBRL’s complexity combined with letting inexperienced users create data for transmission increasing the likelihood of errors.

2. Increased Organizations’ filing Costs. Many regulators around the globe have mandated XBRL, but have not provided their filers with a data collection or an XBRL conversion facility to assist with the XBRL adoption. This forces organizations to hire 3rd parties to generate the XBRL filings for them, or alternatively revamp their back-end systems at huge costs in order to generate XBRL filings themselves.

3. XBRL facilitates near real-time disclosure. The potential to quickly report information in an automated way is a double-edged sword. On the one hand, near real-time disclosure improves transparency and sharing of information; on the other hand, near real-time disclosure may emphasize short-term results at the expense of long-term objectives. Some argue that real-time disclosures may cause undue stock price volatility and impulsive decision-making by investors, suppliers, customers and management.

4. XBRL Taxonomies are extensible and possibly too flexible. Taxonomies are by design extensible, allowing organizations to add data elements that better describes an amount that doesn’t currently exist in that particular taxonomy. However, overuse of taxonomy extensions may result in an organization’s filing being non-standard and less comparable to companies in the same industry - thus reducing transparency and eliminating many of the XBRL benefits.

5. Early Global adoption of XBRL has resulted in chaos and increased costs. Global adoption of XBRL as the Financial Reporting standard has rushed organizations into adoption before integrated XBRL productivity tools were readily available. This resulted in a huge amount of custom coding by desperate IT groups rushing to fill the gap between readily-available technologies and the immediate business requirement of generating or collecting XBRL filings.

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