Hans Hoogervorst, chairman of the International Accounting Standards Board, said Wednesday that he believes Extensible Business Reporting Language, or XBRL, has “the potential to improve the effectiveness of financial reporting.”

The use of XBRL data-tagging technology has been catching on globally, including in the United States, where it was mandated by the Securities and Exchange Commission for the financial filings of public companies in recent years. In the U.S., the Financial Accounting Standards Board oversees the XBRL taxonomy for U.S. GAAP, while the IASB is involved with the XBRL taxonomy for International Financial Reporting Standards.

Speaking at the 2012 IFRS Taxonomy Annual Convention in London, Hoogervorst, a former Dutch finance minister who took over the chairmanship of the IASB last year, admitted that he had become “something of an expert on XBRL.”

He noted that despite the potentials of the technology, certain aspects of financial reporting appear to be stuck in the offline, pre-PC world. He said he had witnessed endless debates about whether Other Comprehensive Income should be shown on the same sheet of printed paper as net income, or on a separate sheet. “Welcome to the 21st century!” he exclaimed. “XBRL has the potential to supplement the one-size-fits-all approach of today’s financial statements with an à la carte menu of financial information. Doing so will allow users to extract the information they need, and no more. Retail investors, employees and casual observers of a company will be able to extract information about the key metrics of a company. While more sophisticated users are free to slice and dice financial information and wade through as much or as little information as they need – all at the click of a mouse.”

Hoogervors noted that XBRL has the potential to eliminate the re-keying of financial information into proprietary systems, thus reducing cost and error while increasing the speed and efficiency of analysis.

“Furthermore, XBRL allows users of financial statements to consume financial information in whatever language they are familiar with,” he added. “These are all significant benefits and there is no doubt that XBRL is an idea whose time has come.”

However, he cautioned that XBRL proponents should also be careful about promising too much.  “I sometimes get the impression that some see XBRL as the answer to every financial reporting problem,” said Hoogervorst. “Perhaps this is a little unfair, but I make this point for a reason. XBRL is indeed an important form of presentation. But we should also be realistic about what XBRL can and cannot do. The XBRL standard should not define, or indeed impede, the Board’s standard-setting activity. In other words, the XBRL tail should not wag the IASB dog.  XBRL should be a normal output from our IFRS standard-setting work.”

Hoogervorst noted that despite the significant progress of the last few years, there are many challenges ahead.  “A few weeks ago I sat through a presentation from a leading sell side analyst,” he said. “He told me he was a huge fan of XBRL, but that he didn’t use it. He felt there were too many inconsistencies, and that the technology was too immature for it to replace their existing proprietary databases and their current methods for tagging and analyzing information. This is one view. There are many other users around the world that do indeed use XBRL on a daily basis. But many of these are early adopters. What can we do to help XBRL get to becoming business as usual? How can we help to close the gap between the promise and the reality of the technology?”

Hoogervost said the IFRS Foundation and the IASB have three XBRL priorities. “First, we must ensure that the IFRS Taxonomy is of the highest quality,” he said. “Second, we must be more sensitive to XBRL requirements throughout the lifecycle of our standard-setting activities. And third, we must work with other members of the XBRL community to unlock the potential of this important technology.”

He noted that over the years, the IASB has invested significant funds and resources in developing a high-quality taxonomy and a few years ago it established two advisory committees—the XBRL Advisory Council and the XBRL Quality Review Team.  He said they would continue to work closely with colleagues at FASB, the Global Reporting Initiative and elsewhere to offer high levels of compatibility between their respective taxonomies.

Hoogervost said the IASB and the IFRS Foundation should ensure that XBRL is deeply integrated into its business-as-usual standard-setting activities. “When the XBRL initiative was established around 10 years ago, the Trustees decided to incubate the program within the Foundation but separate from the IASB,” he explained. “At that time, XBRL was not ready for mainstream use and it was important that the team worked with the XBRL community around the world to help establish critical mass.”

Last year, the IFRS Foundation decided to make the team involved with XBRL activities part of the IASB technical staff. “Early indications show this has been a very positive step,” said Hoogervorst. “XBRL is no longer an afterthought to our standard-setting activities, something to consider as the final standard is about to be published.” XBRL is now part of the normal function of our standard-setting work. 

Hoogervorst urged his audience to work together to help unlock the potential of XBRL.

“I have described many of the benefits of XBRL, but I am also realistic about the challenges ahead of us,” he said. “We must understand what we have done well, and where there is room for improvement. We must work closely with preparers, with regulators, with the accounting profession and others to ensure that our work and initiatives are fully joined up. Most importantly, we must pay particular attention to the needs of the investor community. Investors should be beating down our doors to embrace XBRL, and we need to understand and address any barriers to its use.”