XBRL has been around for over ten years and for a long time has been a technology that has fallen into my 'must get around to learning more about this sometime' category.  But recent events have prompted me to dig deeper and what I have discovered has been a real eye opener.

Firstly, for those like me of a few months ago who need a basic explanation, what is XBRL?  Extensible Business Reporting Language was conceived by Charles Hoffman in the US in 1998. It is a language for the electronic communication of business and financial data and is one of a family of "XML" languages which is becoming a standard means of communicating information between businesses and via the internet.

The XBRL international website provides the following simple explanation of XBRL:

Instead of treating financial information as a block of text - as in a standard internet page or a printed document - it provides an identifying tag for each individual item of data.  This is computer readable. For example, company net profit has its own unique tag.  The introduction of XBRL tags enables automated processing of business information by computer software, cutting out laborious and costly processes of manual re-entry and comparison.  Computers can treat XBRL data "intelligently": they can recognise the information in a XBRL document, select it, analyse it, store it, exchange it with other computers and present it automatically in a variety of ways for users.  XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits automatic checking of information.

For a number of years, it has been seen as an emerging technology mainly of interest to regulators and other users of financial reporting information.  And this view has only been reinforced by recent regulatory developments.  First the SEC in the US required companies to file their annual returns in XBRL format. The first returns were filed earlier this year by the largest US companies and within a year all company filings will need to utilise XBRL. 

At the beginning of September the UK tax and filing authorities jointly confirmed their intention to move towards a joint filing capability which would require all UK companies to submit their tax returns, tax computations and statutory accounts by XBRL.  As part of the transition the tax authority announced that companies would need to submit all tax returns and supporting information due after April 2011 using XBRL.  Certain statutory accounts are already submitted by XBRL such as Abbreviated Accounts and Companies House has also announced that unaudited full accounts will need to be submitted via XBRL from summer 2010.

As if that is not enough, at a branch presentation last week in Coventry two further potentially more far reaching consequences of the development of XBRL technology were brought up.

1) XBRL and its underlying technology XML is fundamentally changing the way some companies operate.  It was argued that XBRL increases the potential for eCommerce - financial information comes in tagged ready to be fed electronically into accounting systems, so removing the need to process invoices / payments manually.

2) Annual reports filed using XBRL will be much more accessible to analysts, tax authorities and other users.  Whereas in the past analysis would have had to be limited to relatively few companies (due to the manpower needed to physically extract the information); electronic access could exponentially increase the number of target companies.  One consequence would be that more and more companies and hence their finance functions would be required to field questions from external bodies.

Have you any experience of the former and what do you think will be the impact of the latter?  Let me know what you think.  I'm also interested in the level of awareness of XBRL in general - do you use it, just starting to think about it or is it not yet on your horizon?