Standard financial reports tend to follow the same template, which is a list of accounts and their totals for the month and year. This information is critical to financial advisors, but the standard report template doesn’t tell us what the values mean. One of the goals of any report is to highlight relevant information so a user can easily see if something’s wrong and take corrective action. Let’s examine two kinds of financial reports and you can decide for yourself which one would make an impact for more stakeholders at your organization.
This report (after the jump) shows a sample income statement for a fictional company. While it displays all of the necessary information, you’d have to read every line item in order to find out that the total income from this month is down 50% from the same time last year. It’s also difficult to differentiate the total from specific line items because the dollar amounts are the same font size and color. With the technology available to finance teams today, this type of boring, ineffective financial report should become a thing of the past.
What is it?
XBRL is short for eXtensible Business Reporting Language, a technical standard for exchanging business Information — more specifically standard financial reports. Technically, XBRL is XML and some people call XML the digital duct tape of the future; it is and will be everywhere. XML is data surrounded by descriptive elements (tags) that define the context of the data and what it means. Since XML is based on standards, many computer programs can read and interpret XML in a standard way. Business users utilize XML every day. All modern day spreadsheets, presentations, and Word documents are technically XML data surrounded by tags. Even the internet is based on a tagged-based standard called HTML.
Why Do It?
It’s the law, at least according to the Securities and Exchange Commission (SEC). Large companies had to start producing their financial statements with XBRL in mid-2009. All public companies — and all companies that want to be public — will be producing XBRL financial statements by the end of 2011. During 2011, mutual fund companies will need to produce their prospectus as an XBRL file.