I didn’t know anything at all about XBRL last week, but it’s making my Excel Ninja fingers twitch. For every blogger handling the “A to Z Challenge,” this is the one that really gives us nightmares–X. (They’re out there…Xena, Xolotl…) I briefly considered “X-axis,” but that’s not really accounting-related, or “eXpense,” but that’s not really an “X.” I came across this newfangled thing: XBRL. Y’all, it’s the bees knees!
You know how financial reporting produces paper? Lots of paper? Lots and lots? The computer revolution gave companies the ability to do all their financial data collection and reporting online. Spreadsheets–primarily Excel, but also initially Lotus 1-2-3 and recently Google Sheets–revolutionized the way companies can keep track of and analyze everything.
Financial statements, thanks to GAAP (see Letters E, and G) are also fairly standardized. Assets are on the what? (See Letter “D”–left!) Even the account names on the balance sheet and income statement are pretty standardized–Current Assets, Fixed Assets, Accounts Payable, and so on. It makes it easy for accountants to find and read other people’s statements.
Yet the devil is in the details.
Every company might have unique account-types two or three levels down, and the number in that account might need a lot of explanation in a footnote. That’s why often, all the fun in reading financial statements is in the footnotes, in those audit opinions (letter “Q”).
Let’s say I have to file my quarterly statements with the SEC, the public company regulating body in the U.S., or its mirror regulator in any other country in the world. In the old days, I sent reams of paper. Imagine the stacks of paper flying back and forth through the mail in the 1960s!! Barbaric! So now I’m going to send a digital file. Great! I’ll just send it in Excel.
Can’t Do Everything in Excel
Suppose I don’t have Excel. Suppose the regulating body in my country isn’t using Excel. Even with all the standardization in financial statements, companies have been sold different accounting software, and nowadays it’s not in Excel. Countries use different languages and currencies.
XBRL allows companies to provide their digitized financial information to regulating bodies who can share it with investors, other countries, other companies all on the same standard.
I wondered, can’t they all just put their statements into a PDF? Well, no. First of all, although we think of a PDF as a standardized formatted digital document, it does require Adobe to read it, and Adobe is a proprietary company. I tried to open my PDF of estate documents the other day for an emergency, and Adobe left me staring at a vacant page until I downloaded the Chinese font package. So, screw Adobe.
XBRL was developed by some accountants as a digital formatting language, using XML as its base, to ease the movement of data between interested parties. It was, in fact, created by a CPA dude, Charles Hoffman in Tacoma in 1998, clearly an accounting samurai ahead of his time. The AICPA pulled together all the accounting firms (Deloitte, PwC, E&Y, Touche) and some savvy programmers, and they started mapping like the dickens.
Reconstructing a Plusvalia from Barcelona at Your Desk
It takes a lot of work for accountants in a company to map their financial structure into XBRL, no joke. And, yet, what XBRL does really well is handle complexity. If you speak accounting, the balance sheet items on the left are recognizable. This mapping is pulling that data into a structured and organized database. It can be reconstructed into anybody else’s financial system worldwide.
The mapping in XBRL isn’t just by the account type, but also to structure the mapping so that every individual number is included in a taxonomy (think hierarchy). The taxonomy might be what type of account it is — Goodwill (plusvalia) — or by time period — month, quarter, year.
Needs More Chocolate, Though
But, even further, that number might require explanation. Maybe the accountants interpreted FASB in an unusual way. Maybe the auditors didn’t agree, so they mutually wrote a clarifying footnote. All of the description information can be tagged to accompany the number, digitally, as it moves in and out of systems.
The light bulb went on. To me, the analogy was television. Someone stands on a stage in New York, and a TV camera films their act. Those images are turned into electronic bits and bytes, run along a cable wire (or now through the air, wireless) and are reconstructed in your living room, regardless of what kind of TV you have. Like in the original Mike TeeVee scene in the movie “Willie Wonka and the Chocolate Factory.”
Only XBRL doesn’t involve chocolate bars. More’s the pity.