ACG 4401 Introduction to XBRL

What is a Supply Chain?

Financial Reporting Supply Chain

Who’s in the Supply Chain? –all stages of the preparation, approval, audit, analysis, and use of financial reports. –Participants in the financial reporting supply chain include: accountants working within organizations, company management, boards of directors, audit committees, outside auditors, standard setters, regulators, investment bankers, lawyers, credit rating agencies, investors, and others.

The International Federation of Accountants Financial Reporting Supply Chain Survey Results (2007)International Federation of Accountants Survey Results Financial Reports have become less useful –Complexity –Burdens of Compliance cause "the essence of the business" to be overlooked. –Similar results were found in the 2008 follow-up survey

The International Federation of Accountants Financial Supply Chain Survey 2008 “despite improvements to the financial reporting process, the usefulness of financial reports has not improved much. The reliability of financial reports has certainly increased and so has the relevance of the information that they provide, but not their understandability.” “Examples of improvements include easier access to financial information (due to progress in web-based information and in XBRL5)…”

So what is XBRL? A tool to create efficiency in the Financial Reporting Supply Chain But First......

Networks and Connectivity What is the primary problem with networking/connectivity? –Software applications that do not understand each other … therefore special interfaces must be designed & maintained, etc. –And humans have different understandings and views of data and information produced by the applications

Electronic Data Interchange (EDI) Computer-Computer Exchange of Data Business Data Direct processing Standardized –ANSI X12ANSI X12 US and Canada –EDIFACT International

EDI Components

Electronic Data Interchange Set EDI Service Bureau

XML in Business What if you need to move information from one business application to another within your organization? What if you have data in a number of different databases that you frequently need to integrate, compare, share internally? What if you need to share information with trading partners & others outside your organization? XML provides the necessary rules, syntax & structure to make it possible!

XML How can you appropriately structure information exchanges so that they can be seamless & efficient? –There are 2 parts to the solution: –1) Metadata – adding data about the data … data that gives the data more meaning Tags that give meaning to the Data –2) Agreement on structure of the data being shared … an agreed upon vocabulary defining the rules the metadata must follow Taxonomies create this structure In addition, the solution must be general enough to be able to be applied universally!

Metadata – Data about data - Flickr Flickr

What is this – Untagged Data

What is this?

How can we understand Untagged Data

Tags give meaning to the Data Object Sale GazeboGiver :14:32 Jumphere Carver Stipend Base :54:20 SYSTEM 17001

XML Extensible Markup Language Markup? –Data being exchanged Sent from computer-to-computer (intra and inter- organizationally) –Defining the data Enclosing the data with descriptions of what the data is –<> Tags used to enclose data Used to create Vocabularies –Standardized sets of tags (kind of like EDI) –XBRL is one such vocabulary –UBL is another

XBRL

XBRL: What is it? XBRL (Extensible Business Reporting Language) is a royalty-free, open specification for software that uses XML data tags to describe financial information for public and private companies and other organizations. XBRL benefits all members of the financial information supply chain by utilizing a standards-based method with which users can prepare, publish in a variety of formats, exchange and analyze financial statements and the information they contain. The world's leading accounting, financial, government and software organizations are involved in the adoption and use of XBRL in the U.S.

XBRL Defined A Vocabulary Adds Meaning and Context to: –Accounting –Financial –Business Performance Turns data into Information –Understandable Humans and Computer applications –Reusable

Interactive Data XBRL –Liberates financial data from financial documents –How do we validate the data? Huge opportunity for CPA’s

What was accounting like before XBRL? Accounting Cycle –Journal, Ledger, Trial Balance, Financial Statements –Debits and Credits Text based! Manual input, manual interpretation, Re- entry of data for each separate use

XBRL X –eXtensible Beyond original intended use Extended by End User Tags extend use B –Business Financial Statement Reporting R –Reporting Using US GAAP L –Language XML Vocabulary based on XML –Extensible Markup Language –Rules for describing data

XBRL Specification 2.1 (November 2005) Defines rules and syntax for XBRL documents –Taxonomies Dictionaries of standard tags –Instance Contain “facts” and meta-data

Instances and Taxonomies Instance Document –An instance of a companies financial reporting What company What period What currency What purpose What information Taxonomy –Dictionary of what tags can be used to mark-up data

XBRL Information Once in tagged format does NOT need to be re-entered –So HTML statement for SEC –Glossy Printed Annual report for investors –HTML for investor section of web page ALL CAN BE DONE WITH ONE UNDERYLYING DATA SET, XBRL! Eliminate human error

Who is behind XBRL Securities Exchange Commission –Public filings are currently voluntarily filed in XBRL format –Mandatory public filings coming soon... –Interactive Data! AICPA –Efficiencies to the accounting profession –Re-use of data without manual re-entering XBRL International –Non-profit Organization –Creates Standards XBRL U.S. –Charged with creating US GAAP taxonomy

XBRL Milestones XBRL Timeline

XBRL Mandated Filing Dates Company TypeFinancial StatementsBlock FootnotesDetailed Footnotes > 500 Billion in outstanding stock ~ 55 companies Large Companies Small and IFRS reporting companies

SEC Rule Mandates the 3-year phase-in of XBRL for corporations beginning with the financial statements and block-tagged note disclosures for the 10-Q filings of large accelerated filers for periods ending on or after June 15, Includes a lower bar on liability for the XBRL filings than for those in HTML or text format. The rule prescribes that interactive filings are ‘‘deemed not filed for purposes of specified liability provisions” –The XBRL filings are ‘‘furnished” as an exhibit and not necessarily ‘‘filed.” When the instance document is furnished in the second year, filers are required to detail tag the notes and explanatory disclosures –in addition to providing the block-tagged notes. Other filers will phase-in by 2011 – including foreign filers that will use the IFRS XBRL taxonomy.

The XBRL Structure Tags –Description of what data is 1000 Attributes –Meta-data (data describing data) 1000 Relationships –Is something described as related to ?

XBRL – Lets put it all together Instance Document –Contain tags describing data –ICU MedicalICU Medical Schema –Contains the definition of the tags LinkBases –Contains relationships between tags Taxonomy –Combination of Schemas (defining elements) and LinkBases (relating elements) –XBRL USXBRL US

Types of LinkBases Presentation –How to organize output E.g. what tags make up Current Assets Calculation –How related tags are summed (+ or -) Definition –Different tag names are related for the same thing Inventory and Merchandise Inventory Reference –A tag element and the standard reference (FASB) for an element Label –Machine Readable to Human Readable CashAndCashEquivalents = Cash and Cash Equivalents

Some Early Findings Does it add up? Early evidence on the data quality of XBRL filings to the SEC –Debreceny, Farewell, Piechocki, Felden, Gräning (2010) Journal of Accounting Public Policy Quality = correctness of the mathematical relationships implied by the taxonomy and implemented in the instance document. –i.e. Current Assets = Cash + ST Investments + Inventory + … Found that there is an average of 1.8 errors per filing ¾ of the filings were error free There was an average of seven errors per filing, for those filings with errors. The median error was $9.1 m per filing with the maximum exceeding $7b.