[IMGCAP(1)]As the SEC’s limited liability provisions on Extensible Business Reporting Language data begin to expire, public companies find themselves looking for answers about how current and future legislation will affect their filings.

Can they leverage their XBRL service provider to assist? Further, can that service provider deliver an integrated reporting process where internal, EDGAR and XBRL reporting are automated and efficient?

Private companies too are beginning to ask about how to leverage XBRL technology. In an economy where investment decisions on allocation of valuable and limited resources are time-sensitive and critical, private companies are looking for cost-effective information technology solutions for business reporting that can help them get better information and quicker.

XBRL as an extensible, open architecture business reporting framework can be leveraged to do just that and at a fraction of the cost of revamping an entire enterprise resource planning system.

In June, the final deadline passed for the remaining group of publicly traded companies to comply with the Security and Exchange Commission’s mandate to furnish financial reports using XBRL.

XBRL is a global, open architecture with a standardized, yet extensible, coding language that allows accountants to tag individual elements of business information into relational databases to more easily see, search, analyze and share that business information.

Since the SEC issued the Interactive Data Mandate in 2009, the focus for companies has been to conquer the learning curve and simply become compliant. But, the rush to comprehend XBRL has led to understandable confusion and some frustration among financial executives and CPAs alike.

While hurdles still remain, understanding where XBRL goes from here presents companies with a number of new opportunities and risks. We know from both the global adoption of XBRL technology and the recent legislative trends, the use of XBRL will only grow. But before businesses can take full advantage of XBRL opportunities, they must first understand the technology, how it works and how it can or will affect their organization. The key considerations can be summed up by the three new “L’s” of XBRL:

Legislation - The SEC mandate ushered in a new era of digital financial reporting for public companies. Now the U.S. government may follow suit. On September 30th, President Obama signed into law the Children and Family Services Innovation and Improvement Act. One of the provisions of this law requires the Department of Health and Human Services to designate a common data reporting standard for reports submitted by states on how they are spending child welfare dollars. XBRL is the only real candidate for this.

An even bigger piece of legislation could be next. The proposed 2011 Digital Accountability and Transparency Act (or DATA Act) currently moving through both houses of Congress could lead to the entire federal budget being tracked and shared with the public online using XBRL. This bill primarily aims for transparency in government spending in much the same way the SEC mandate created transparency in the financial reporting of publicly traded companies. But while transparency is the goal, it has the potential to spur interest and implementation across government entities and public and private businesses.

For CPAs who want to overlook the effect that government adoption could have on the broader marketplace, consider the Internet, which had its roots in government defense contracting. If the federal government is able to implement XBRL effectively, other government agencies and public and private businesses will take note.

Liability – Despite a mandate that is three years old, XBRL is still not without its drawbacks. Using XBRL to tag financial data requires a deep understanding of XBRL specs, the SEC’s Edgar Filer Manual and U.S. GAAP accounting standards. But during its initial implementation phase, many companies relied on filing agencies rather than CPAs to tag their financial documents.

The result was more than 150,000 tagging errors in the first few years of XBRL implementation. So far, the SEC has been fairly lenient in punishing these mistakes, but as more time passes and limited liability provisions lift, they will become a problem for SEC registrants who fail to improve their accuracy.

A number of the errors that businesses have experienced are because of the current “bolt on” approach, which requires manual input of financial information into XBRL. As the industry moves toward “built-in” software that can align XBRL tags as the financial reporting information is entered (or created), many of these errors will be avoided. Still, the watchful eye of CPAs will be required to ensure completeness, mapping, accuracy and structure.

At the point when a private business may be ready to use XBRL, they will need someone that they can trust and hold accountable for guiding them through the process. Because of the knowledge that it requires, it is incumbent upon CPAs to take on this responsibility. At some point, understanding XBRL could become as basic a skill as preparing a tax return, but until that point, CPAs will need to educate themselves and the marketplace on how it works.

Leverage – Businesses and CPAs have only scratched the surface of the opportunities that XBRL presents. Public companies have been too busy focusing on compliance to consider these benefits, and private companies don’t yet understand what XBRL is. CPAs need to educate their clients on what these benefits are, but first they need to make sure they themselves understand XBRL.

Public and private companies alike can leverage XBRL. XBRL can improve business reporting process efficiencies and the ability to effectively manage finances. XBRL offers the possibility of a living, breathing financial document that can be accessed at any time at the push of a button in a virtual environment. Imagine the possibilities for a business to manage, analyze, and maximize its finances with this level of timeliness, visibility and control.

In addition to offering users a deeper understanding of business processes, XBRL has the ability to increase efficiency and cut costs. It can be an asset to smaller businesses as well as larger ones because it is a freely available, open-source technology. While there are costs associated with implementation and training, they are relatively minimal when compared to long-term savings in both time and money.

Despite all of these benefits, very few companies have realized XBRL’s full potential. For publically traded companies, leveraging this technology is the logical next step as they are already required to use it. For government and private companies, the leap to XBRL use may take some forward thinking, but is well worth exploring.

CPAs stand to benefit from XBRL as the speed with which they receive and process information will increase, allowing them to better serve clients across a broad array of industries. Further distancing themselves from the stereotypical role of “bean counters,” accountants will be able to spend more time analyzing information, providing strategic advice, and ultimately driving greater value for their businesses or customers. The future of XBRL is now and understanding these three L’s will help businesses, government and CPAs embrace it.

John Swirsding, CPA, is a senior manager at ParenteBeard in Philadelphia.

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