ACG 6415Introduction to XBRL

What is a Supply Chain?

Financial Reporting Supply Chain

Source: http://www.bionicturtle.com/learn/article/extensible_business_reporting_language_xbrl_part_1_why_xbrl

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):– Financial Reports have become less useful

• Complexity• Burdens of Compliance

– cause "the essence of the business" to be overlooked.

– XBRL• could be a useful tool to help them find and

interpret financial reporting information• ,although there was a low level of understanding

about how XBRL exactly works.– Regulators were the most positive respondents about

the use of XBRL– auditors and users also considered that having

information presented using XBRL would be useful.

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 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

801482196 Stipend Base 400 2008-03-18 02:56:32 SYSTEM 17601794144497 Object Sale GazeboGiver 200 2008-03-13 23:14:32 Jumphere Carver 17201789465371 Stipend Base 400 2008-03-11 02:54:20 SYSTEM 17001777563514 Stipend Base 400 2008-03-04 02:54:11 SYSTEM 16601766386092 Object Sale Multi Gadget Box 100 2008-02-26 11:20:26 Dedric Mauriac 16201765800506 Stipend Base 400 2008-02-26 02:48:28 SYSTEM 16301765596888 Group Liability 1 2008-02-26 01:28:32 ICT Library Wunderkind, Ltd. 15901765139833 Upload Charge 10 2008-02-25 18:30:04 SYSTEM 15902754215714 Upload Charge 10 2008-02-19 07:34:52 SYSTEM 15912753914769 Stipend Base 400 2008-02-19 02:47:52 SYSTEM 15922

What is this?

ID Type Description Debit Credit Time Resident/Group Ending Bal.801482196 Stipend Base 400 2008-03-18 02:56:32 SYSTEM 17601794144497 Object Sale GazeboGiver 200 2008-03-13 23:14:32 Jumphere Carver 17201789465371 Stipend Base 400 2008-03-11 02:54:20 SYSTEM 17001777563514 Stipend Base 400 2008-03-04 02:54:11 SYSTEM 16601766386092 Object Sale Multi Gadget Box 100 2008-02-26 11:20:26 Dedric Mauriac 16201765800506 Stipend Base 400 2008-02-26 02:48:28 SYSTEM 16301765596888 Group Liability 1 2008-02-26 01:28:32 ICT Library Wunderkind, Ltd. 15901765139833 Upload Charge 10 2008-02-25 18:30:04 SYSTEM 15902754215714 Upload Charge 10 2008-02-19 07:34:52 SYSTEM 15912753914769 Stipend Base 400 2008-02-19 02:47:52 SYSTEM 15922

How can we understand Untagged Data

Multi Gadget Box

4002008-02-26 01:28:32

Jumphere Carver

Tags give meaning to the Data

• <?xml version="1.0" ?>• <transactions>• <transaction_794144497>• <id>794144497</id>• <type>Object Sale</type>• <description>GazeboGiver</description>• <deposit>200</deposit>• <time>2008-03-13 23:14:32</time>• <resident>Jumphere Carver</resident>• <end_balance>17201</end_balance>• </transaction_794144497>• <transaction_789465371>• <id>789465371</id>• <type>Stipend Base</type>• <description></description>• <deposit>400</deposit>• <time>2008-03-11 02:54:20</time>• <resident>SYSTEM</resident>• <end_balance>17001</end_balance>• </transaction_789465371>

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.

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

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• April 1998

– XBRL is conceived by Charles Hoffman, a CPA with the firm Knight Vale and Gregory in Tacoma, Washington

• October 1999– AICPA hosts first meeting

• July 2000– Spec 1.0 is released and International organization created

• February 2005– SEC creates voluntary program for reporting XBRL financial

data on EDGAR

• September 25th 2006– SEC’s chairman Christopher Cox announces contracts totaling

$54 million ... To• Modernize and Maintain the EDGAR Database to Use Interactive

Data• Complete XBRL Code Writing for U.S. GAAP Financial Statements• Create Interactive Data Tools for Investors

XBRL Milestones• September 2006

– XBRL US, the United States jurisdiction of XBRL International, spins off from the XBRL committee of the AICPA.

• September 25th 2007– SEC’s chairman Christopher Cox announces the completion of all

development work on data tags for financial reporting in accordance with U.S. generally accepted accounting principles

• October 9th 2007– SEC’s chairman Christopher Cox announces the creation of a new

office within the 74-year old agency to lead the transformation to interactive financial reporting by public companies

– ... the new office is the agency-wide disclosure modernization program

• December 5, 2007– US GAAP Taxonomies released for Public Comments

• February 11, 2007– Second Draft of US GAAP Taxonomy Released for review– Advisory Committee on Improvements to Financial Reporting

(appointed by SEC Chairperson) recommended mandated XBRL tagged filings for largest 500 companies followed by a phased in approach

XBRL Milestones

• April 16, 2008– SEC Mandates use of XBRL

• June 5, 2008– Final XBRL “US” taxonomies

Acknowledged

• January 2009– SEC Final Rules Published

XBRL Mandated Filing Dates

Company Type

Financial Statements

Block Footnotes

Detailed Footnotes

> 500 Billion in outstanding stock ~ 55 companies

12-15-2009 12-15-2009 12-15-2010

Large Companies

12-15-2010 12-15-2010 12-15-2011

Small and IFRS reporting companies

12-15-2011 12-15-2011 12-15-2012

SEC Rule 33-9002

• 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, 2009.

• 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

• <Assets>1000</Assets>

• Attributes– Meta-data (data describing data)

• <Assets bType = “debit”>1000</Assets>

• Relationships– Is something described as <Inventory>

related to <Assets> ?

XBRL – Lets put it all together

• Instance Document– Contain tags describing data– ICU Medical

• Schema– Contains the definition of the tags

• LinkBases– Contains relationships between tags

• Taxonomy– Combination of Schemas (defining elements)

and LinkBases (relating elements)– XBRL 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.