Why XBRL?
by Gerald Trites, FCA

There are still questions being raised by knowledgable people asking why we are getting into XBRL and what the value is of it. A vast quantity of material has been written about this topic, and yet it seems that there is still a need for more. This post is a modest attempt to explain why XBRL is not only desirable, but necessary.

Data is at the core of business activity. Everyone in or connected to business activity understands this fully. Managements spend much of their time digesting and acting on data. Investors need relevant and accurate data in order to make their decisions. Regulators need data to enable them to understand whether their charges are behaving within the ambit of the applicable rules and regulations.

Also, it is no secret that in recent years, the volume of data that these people need to cope with has expanded tremendously. Annual reports, for example, which once were a couple dozen or so pages have grown to hundreds of pages. And the Annual Reports have become only a small part of the data that is made available to investors. Notes to financial statements are becoming legendary in terms of their volume and complexity.

Investors, managements, analysts and regulators all need to try to understand all this data. They certainly have their work cut out for them.

It was this growing volume of data, combined with the effects of the Sarbanes Oxley act that prompted the SEC to require XBRL. They knew that to do a proper job of handling and analyzing all this data would require hiring large numbers of people, and they didn’t have the budget for that. Their only alternative was to find a technology solution.

XBRL was a solution because it enables data to be transferred from a source system to a destination system without human intervention. What’s more, the XBRL tags contain a lot of data about that data (metadata) which enables the receiving system to perform a lot of analysis, again, without human intervention. That leaves the humans with the ability to budget their time to spend on the most important areas, the ones that need the most attention. In addition – a real bonus, the XBRL data is formatted in accordance with internationally recognized standards, which make it easy to ensure the sending and receiving systems are compatible.

For investors and analysts, the present system involves obtaining data and inputting or importing it into spreadsheets and then trying to format it into some form that might be useful. Everyone knows that manually inputting data is inefficient and error prone. Then they need to call the company and ask questions about the numbers they have laboured on, many of which would have been answered automatically by the XBRL metadata.

With XBRL, they can save a great deal of time even with conventional spreadsheets. The software industry has been working on some tools that they can use that will be even better, although they have been slow. But they are coming. Better analyst coverage means better investment decisions, and lower cost of capital.

So why XBRL? It automates many things that are presently being done manually, but that are no longer feasible with the vast amount of data that must be handled. That’s not just something that is nice to have, it’s something that is absolutely essential.