Has XBRL delivered the user the expected benefits or has simply added more problems?

        There is a tight relationship between these benefits and the qualitative characteristics of accounting, defined in IASB Conceptual Framework. It can be said that the quality of financial reports, and hence the extent of efficiency of decision-making processes, gains a major value thanks to XBRL. Users are provided with a broader range of timely and reliable financial facts and are able to gather and compare the relevant information for them, with a deeper understanding of where the figures come from, through drill-down and search tools.

        Important consequences are also to be considered about Internet reporting: the creation of an acknowledged standard of information allows homogeneous data to be delivered through the Internet to a wide range of users. However, it can be pointed out that the disclosure of financial statements over the Internet is no news. According to the ICAEW paper Digital reporting, a progress report, 3 levels of digital reporting are identifiable: Level 1 simply exploits the speed of the Internet to convey the same type of information contained in the paper-based reports. Accessible PDF annual reports, press releases and tax filings on company websites are an example of Level 1. Level 2, instead, aims at a more effective disclosure of standardized data within a common tag system, that can be manipulated and reused in a multiplicity of contexts. Clearly, XBRL collocates here and enables this upgrade. Level 3 is more theoretical than practical, since it aims at the total integration and drill-down of internal management and external reporting databases. However, issues about security of access and confidentiality of corporate information leave this project stranded.  

        This distinction is necessary to fully understand the impact which the different levels of digital accounting can have on users and their expectations. In fact, users present a multiplicity of needs and not all of them can be met by traditional accounting. For instance, a lender will be more concerned with non-equity information and loan securities, whilst an employee is more likely to pay attention to cash flow data. From now on, users and respective needs will be referred to as they are described in the IASB Conceptual Framework. However, it must be borne in mind that users are defined in this document without an achieved knowledge about their irrational decision processes and, therefore, they are identified with the economic model of rational investor. Consequently, if guidance in decision-making is considered to be the primary scope of financial accounting in relation to users, it can be said that the benefits users expect from digital accounting are greater support in financial decisions, greater transparency and an improved capacity in the provision of information in line with particular group necessities. As a matter of fact, traditional accounting is not able to overcome these conceptual limitations: in the first place, it favours investor's need and disregards other needs that are not overlapped by this group's interests. It relies on lagging indicators, like historical costs, that do not meet the forward-looking nature of investment decision-making. Moreover, financial reports does not present a sufficient level of detail, causing a yawning gap between the information possessed by management and private shareholders. In this sense, the above-mentioned Level 1 has a limited effect. The opportunity opened by Level 1 simply lies in the exploitation of a new fast and affordable medium, in order to deliver pretty much the same financial information to a larger number of stakeholders. Conversely, Level 2 opens new challenges to traditional thinking, since it makes possible to serve a multiplicity of stakeholders' needs, as well as decision-making and transparency: companies could reputedly prepare pre-packaged reports for every category of users, rather than load the whole of the information required by every group of stakeholders, and then the task of selecting different templates of information would be transmitted to the user. At present, there is no technological hurdle to this stage, because this possibility is enabled by XBRL taxonomies. The difficulties that XBRL and digital accounting are facing are related to conceptual limitations of traditional accounting: in the first place, Level 2 is still firmly anchored to a model which rests upon the neat distinction between internal management and external disclosure, precluding a radical enhancement of transparency. Furthermore, changes occurred in modern business world require a restructuring process of certain aspects of accounting, as a mean of dealing with central outstanding topics like intangible assets, non-monetary and future-oriented information. The debate probably overreaches the capabilities of XBRL, indeed it “does not set new accounting standards. XBRL expresses certain aspects of existing standards electronically...XBRL does not define financial accounting or reporting concepts”. 

        At this point, it is clear that the question about stakeholders' expected benefits lies on the need for accountancy to keep pace with the economic changes of the modern era. The conclusion is that “format, timing and content” of reporting sought by a massive slice of users could be met through the adoption of technological innovations, such as XBRL: a wide-ranging, timely, supple information is the pledge of taxonomies indeed. What is missing is a wide agreement within the standard-setter community on reforms of underlying concepts. The reference is to the thorny discussion around fundamental limitations of accounting, such as its limiting provision of numerical and lagging indicators only, rather than its incapability to adopt a unique accepted set of regulative measures. Since the debate about these limitations is still open and far from conclusions, the utter adoption of a new reporting model founded on XBRL is not possible yet and, therefore, the above-mentioned benefits are not properly addressed to users. As a matter of fact, a large communal dimension is required for stakeholders and companies, in order to mutually profit from this technical standard. In other words, the accounting profession should address these topics first, as a mean of enhancing the quality of the information provided to users and being then prepared for an effective and targeted adoption of Level 2 reporting models. Though the research for solutions may be lengthy and frustrating, as well as requiring major investigations and exerted pressure by regulators.

        Although the debate on the harmonization of neuralgic accountancy concepts probably deserves a pre-emptive analysis before a wider XBRL implementation, “numerous regulatory agencies and financial markets around the world have mandated or recommended XBRL in the past few years and its usage is steadily growing”. If, on one hand, XBRL is supposed to introduce remarkable improvements to quality and efficiency of financial reporting, on the other hand it has added new issues, besides the ones already faced by traditional reporting, chiefly in matter of taxonomy development, required skills and auditing assurance.

        As far as the taxonomy development issue is concerned, the extensible property of XBRL allows different industrial sectors to extend taxonomies and adapt them to their particular business environment. Furthermore, a plethora of frameworks have been developed in accordance to different jurisdictional GAAP. Despite this possibility of customization may be seen as an advantage, it is in fact a threat to the main objective of XBRL, that is the harmonization of the financial reporting transmission through the Internet. In order to allow users to compare reports prepared in different countries, it is necessary to converge different accounting principles under a mutually agreed international taxonomy. The introduction of IFRS rule set in 2005 cleared the way for a global compliance to a unique standard of accounting principle and the development of the IFRS-GP Taxonomy. However, the adoption of a world-wide accepted standard is still an ongoing process and issues are to be faced. One of these concerns the fit between the framework and the actual reporting practices of companies, which must be consistent, whilst the other pertains to the continuous controlling process on incongruities between taxonomy and real procedures that could arise over the time.  

        As regards the required set of skills, some argue that XBRL implementation and improvement are way too complex and demand expertise in programming and accountancy by the company side, whilst ask a certain extent of awareness by the user side. The concern is legitimate, if XBRL is to be considered a driver to the simplification and the optimization of reporting. Indeed, the problem is not of easy solution: XBRL is expected to reconcile accounting and digital environments under a mutual frame, maintaining an acceptable degree of simplicity. The judgemental nature of accounting standards, however, does not lend itself to the mechanistic  procedures of digitalization used by taxonomies. Additionally, the recent emphasis on qualitative parts of reporting and the growing importance of intangibles represent a further snag in taking the XBRL project forward.

        A final consideration about auditing assurance: a massive adoption of XBRL will gradually change the auditing profession, because taxonomies “carry all the same challenges that paper-based reports contain, but add the extra dimension of divisibility”. In fact the authentication of a legal person, required by law for financial statements, in the case of XBRL reports becomes a “digital signature”. The divisibility of XBRL electronic documents entails a shift from the concept of assurance as a whole to a scheme of multiple authentications for small portions of financial statements, i.e. the digital signatures. However, the construction of a solid system of authentication is no easy task, and is perplexed by the necessity of control on another side, that is the integrity of data as well as the appropriateness of tags and taxonomies. This issue is being progressively addressed and standard auditing techniques are already in use, but further guidance on detailed aspect of the question is needed.

        In conclusion, XBRL  positions itself as a powerful enabler for new forms of reporting. The potential contribution in terms of quality of disclosure is certainly sound, with regards to those procedures that are already clearly regulated by determined standards. There is, however a part of accounting that is underpinned on judgemental reasoning and, thus, can benefit from XBRL to a limited extent in an initial phase. If the users of accounting are referred to as government agencies and regulators, the momentum of XBRL is definitely positive, because it favours harmonization in reporting and filing processes. No wonder many of the main backers that are willing to introduce voluntary or mandatory compliance are regulatory authorities. Nonetheless, users at the end of the financial supply chain need a very wide adoption of XBRL, in order to fully benefit from its advantages. This adoption is an outstanding project, but needs underlying agreement on important questions of modern business, in order to meet in the best way possible the expectations of multiple stakeholders as regards to the disclosure of qualitative, forward-looking information and the treatment of soft assets. In the foreseeable future, a considerable and further development could be anticipated, even if the innovation process brings an inevitable burden of issues that must be addressed, in order to implement an effective adoption. In this sense, the application of an international taxonomy, the simplification of digital processes and the necessity for auditing guidance are the most important to be addressed. To conclude emphasizing the positive role of XBRL, it could be meaningful to say that it is maybe not the panacea to the problems of accounting, but it has the potential to make a major contribution to a solution.

Bibliography:

1. www.xbrl.org

2. Beattie, V. and Pratt, K. (2003) Issues concerning web-based business reporting: an analysis of the views of interested parties, The British Accounting Review, 35, pp.155-187.

3. Bonson, E., Cortijo, V. and Escobar, T. (2009) Towards the global adoption of XBRL using international financial reporting standards (IFRS), International Journal of Accounting Information Systems, 10(1), pp. 46-60

4. Cohen, E., Schiavina, T. and Servais, O. (2005) XBRL: The standardized business language for 21st century reporting and governance, International Journal of Disclosure and Governance, 2(4), pp. 368-394

5. Debreceny, R., Are We There Yet? A Research Perspective on the XBRL (Paper given at the 27th Annual Congress of the European Accounting Association, Prague, April 2004)

6. Deshmukh, A. (2006) Digital Accounting, the Effects of Internet and ERP on Accounting, IRM Press, Idea Group Inc.

7. Elliott, R.K., 1992. The third wave breaks on the shores of accounting. Accounting Horizons 6 (2), 61–85

8. IASB (2001) Conceptual Framework for the Preparation and Presentation of Financial Statements, www.ifrs.org

9. ICAEW (2003) New Reporting Models for Business, London: www.icaew.com

10. ICAEW (2004) Digital Reporting: a progress report, London: www.icaew.com

11. Strader, T. J. (2007) XBRL capabilities and limitations, The CPA Journal online http://www.nysscpa.org/cpajournal/2007/1207/essentials/p68.htm

12. Yoon, H., Zo, H. and Ciganek, A. (2011) Does XBRL adoption reduce information asymmetry?, Journal of Business Research, 64 (2), pp. 157-163.

13. Young, J.J. (2006) Making up users, Accounting, Organizations and Society, 31, pp. 579-600