Nearly a decade ago, a Tacoma, Wash., CPA named Charles Hoffman, conceived the idea of an XML-based extensible business reporting language. He introduced it to the American Institute of CPAs, which ultimately voted to fund the effort and take on XBRL as a committee.
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He was co-editor of the first XBRL taxonomy-a dictionary of agreed upon reporting terms-and a significant contributor to the XBRL 2.1 specification, released in December 2003.
He has been working on XBRL full time since 1999 and currently serves as the director of innovative solutions for UBmatrix, a developer of XBRL technologies.
Despite XBRL's worldwide strides, Hoffman says software vendors have a long way to go toward producing the right tools for accountants to truly grasp how using XBRL can change the way they handle business reporting.
He shared some of his thoughts on XBRL's progress:
How did you come up with this concept and how did you envision it being used?
XBRL is not limited to just financial reporting. It's called business reporting language.
When I started my accounting career in 1982, that's when computers were starting to take off. I used technology to help me do my job. But one of the problem areas was these financial reports. It was inefficient to create information at one point and consume the information elsewhere. I heard about XML in a class at Microsoft. It was obvious we needed this for financial reporting. That's how XBRL started. People say I had this brilliant idea, I say I did the obvious. There's a technology, there's a problem. Apply technology to the problem. Creating XBRL itself was trivial. But creating a consensus to use that technology and getting the taxonomies built to use the technology-that was far more challenging.
Why is there a need for change?
Financial reporting was built for paper. We're in a digital age. It's probably the case that the product needs improving. Take digital cameras. It's real time. You take the picture and get to see it. Boom, boom, boom. That's a very efficient process. That's what's going to happen to financial reporting, whether CPAs like it or not.
What are the benefits?
One, the processes are more efficient and effective: better, faster, cheaper.
Two, the ability to properly differentiate your company from other companies. What happens today is data aggregators take that information you've spent a lot of time differentiating, and they normalize it and sell it to people. You will more adequately be able to differentiate your company, highlighting its value, being able to communicate better in the capital markets, and being able to get capital where it's deemed appropriate.
Today, you can look at financial information one way, the way it was published. With XBRL, you can look at financial information any way you want, and different people want different things. That's why Baskin-Robbins exists. It's about taking financial reporting from vanilla to 36 flavors of ice cream.
What can you use it for internally?
There are lots of preparers and consumers of information within a company. I want information, you have it, and we have to communicate and get it so it's efficient to exchange that information. The internal use of XBRL will totally dwarf the external use.
What are the remaining hurdles?
The No. 1 hurdle is creating high-quality, end-user software that has the right fundamentals to make reporting easier. It will allow for people to have less experience in accounting, and do a better job of accounting.
The software out there does not reflect the future. It's a glimpse. What's being developed now is infrastructure, but there's no user software.
Accountants don't think abstractly. When they see it, they will grasp it. It's not the case that accountants swarmed to Microsoft Excel when it first came out. They were dragged in kicking and screaming. That's the way accountants will be pulled into XBRL-kicking and screaming.
XBRL is not about simply being able to exchange information from Point A to Point B. It takes a lot of imagination to grasp at this time, but there are a lot of imaginative people. Those people are going to be building software, and that software will be incredible. It's not there now, but just wait.