Trend: Standardized information formats make transparency possible and reduce compliance costs.
Robert G. Eccles, Liv Watson, and Mike Willis describe XBRL (Extensible Business Reporting Language) in the Harvard Business Review article Breakthrough Ideas for 2007. (Isn't this a better idea than SOX?) Excerpts below.
When the U.S. Securities and Exchange Commission last September announced a $54 million project to accelerate the implementation of XBRL, a new information standard for financial and business reporting, the event hardly seemed like a landmark for companies. The advantage for investors—an enhanced ability to electronically download, analyze, and compare company information submitted to the SEC—got top billing. The SEC chairman, Christopher Cox, briefly noted that adopting the new standard—which is voluntary for SEC filings, at least for now—would also make it easier and less costly for companies to comply with his agency’s requirements. But that’s just the beginning.
What has largely been overlooked is that XBRL (Extensible Business Reporting Language) will make it much easier to generate, validate, aggregate, and analyze business and financial information, which in turn will improve the quality, timeliness, completeness, and comparability of the information that companies use to make decisions. The new language will allow them to strengthen and ensure the reliability of their internal controls, thereby lowering the cost of maintaining these pervasively manual compliance processes. It will make ERP (enterprise resource planning) systems much more flexible and easier to upgrade or change, dramatically cutting the investments needed to maintain these beasts. And by significantly reducing the amount of effort needed to change and integrate business reporting systems, XBRL will make digesting acquisitions, shedding businesses, reorganizing, and adding new products and business units far less difficult.
XBRL is an open-source standard that was developed by an international public consortium of nearly 500 organizations from 27 countries, including companies, investors, analysts, auditors, regulators, and aggregators of financial data, such as Standard & Poor’s. (For more background, see www.xbrl.org, the standard’s official Web site.)