Has XBRL had a positive impact on different participants in the capital markets?

Has XBRL had a positive impact on different participants in the capital markets?


XBRL is a revolutionary new reporting language that has changed the face of financial reporting since its introduction in 1998. The technology of the language provides many benefits to all types of participants such as speed, accuracy and efficiency of data transfer and submission; it also reduces costs for participants’ thus increasing profitability. However, trying to please all participants rarely work when new technology is introduced. This paper investigates whether XBRL has had a positive impact of participants namely investors, regulators and assurance companies, and businesses. To investigate this topic, the background of XBRL is vital to be understood; how its creation came about, how it works. The benefits, costs and drawbacks of each participant group shall be analysed including the impact of agency problems and transaction costs on investors, the implementation of the technology for regulators and assurers, looking particularly at the SEC and HMRC, and how the effects can affect the preparer, the businesses. Other issues that shall be addressed will include the extensions of XBRL to XARL and iXBRL, the problem of security over the internet being resolved with the use of digital signatures. This will allow a conclusion of whether or not XBRL has added more benefits than drawbacks to the named participants within the global economy.

1. Introduction

1.1 Background to XBRL

XBRL (eXtensible Business Reporting Language) is a data standard developed to improve the methods used to communicate financial data. In order to assess XBRL, it is necessary to first discuss XML (Extensible Markup Language). XML is a mark-up language - A format that allows computers to represent textual data. XML was designed as a solution to many management problems and is able to meet requirements for information management such as transparency to participants and the ability to save data in a desired format. XML is also able to retrieve data and information, as well as being able to provide some kind of output through printing or in DVD format. (Cohen, 2005) XML is the foundation of XBRL and is essentially a set of rules used to encode documents electronically. XML was developed to address the limitations of HTML (Hyper Text Markup Language), the first language to allow for the creation of structured web pages. Its creation in 1998 (Chan, Francia, Arthur, Porter & Mattie, 2008) met a growing business need to find a solution for increased data accessibility to large numbers of participants, in particular through the internet. Compared to HTML, XML is a much stricter language which requires greater accuracy in its representation. Benefits of XML include identification content using tagging, databasing and a more rigid structure as it must follow a set of standardisation regulations. This means that any relationships between different parts of financial statements are verified by XML. (Data Conversion Laboratory Inc, 2010). It has been used as a base to create new languages such as XBRL. When introduced, XML was highly revolutionary. Indeed Microsoft’s Chief Executive Officer, Steve Ballmer said: “You could say we’ve put 100 percent of our resources into it. We’ve taken an approach that incorporates XML into everything we do. I’d say we’re betting the company on XML” (As cited in Festervand & Harmon, 2001). It is, however, important to assert that XML is not a replacement language for HTML but more of an extension of it and one which saw the creation of eXtended HTML (XHTML).

Prior to XML and XBRL, a significant development in the digital age of financial reporting was the Electronic Data Gathering, Analysis and Retrieval System (EDGAR). EDGAR’s capabilities include automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission (SEC). Its main purpose is to increase efficiency in the filing of forms and also to reduce the time taken to analyse the information. (SEC, 2010)

XBRL’s purpose is to serve as “an electronic format for simplifying the flow of financial statements, performance reports, accounting records and other financial information between software programs” (Deshmukh, 2006). Its prime use is in the financial sector to create “standardised and customisable digital representations of financial statements, tax returns and other detailed and summarised business reports and data extracts.” (Cohen, Schiavina & Servais, 2005, 2:4: p.368) In essence, XBRL is “an electronic format for simplifying the flow of financial statements, performance reports, accounting records and other financial information between software programs” (Deshmukh, 2006) The language uses data tags which are similar to barcodes and each disclosure item within businesses reports is assigned one of these tags. Each tag is unique and can only be read electronically by taxonomies. Taxonomies are essentially dictionaries or barcode readers that associate the XBRL tags with terms used in financial statements and other business reports. They define the content of the document such as definitions, relationships between concepts or they can supply calculations to express relationships. For example, taxonomies can identify relationships between financial terms such as cash and cash equivalent but it can also relate these terms to business rules such as “the beginning balance of cash and cash equivalents plus the net changes in cash must equal the ending balance of cash and cash equivalents” (Boritz & No, 2004).

Once taxonomies are made, XBRL instance documents are created. These are actual descriptions of the financial facts. This could be anything from Current Liabilities alone to entire Annual Reports and Balance Sheets. The creation of these instance documents uses accounting software which maps data to the taxonomy to create the document. This document can be transformed into a report which can be output in a number of different formats such as PDF or Excel

The above diagram illustrates how XBRL taxonomies are collated along with financial data to create an instance document. The diagram shows multiple instance documents grouped to form an entire financial report which can be transformed into different formats.

1.2 Choice of Participants

The participants of XBRL span across the business reporting supply chain It can be seen from the diagram below that XBRL is vital, affecting a large number of participants across multiple departments diagram

Cohen, Schiavina & Servais (2005).

Since its creation, XBRL has paved the way for business information to be easily stored and transmitted across the internet; its existence has undoubtedly changed the thinking of businesses across the globe. The effect of XBRL may be global, but the impact it has had across the globe, and in turn the reaction it has received has not been uniform; this essay seeks to investigate and analyse the positive and negative impacts of this data standard. The groups of participants that will be assessed during this discussion are (a) investors (b) regulators and (c) businesses; it is the author’s conclusion that they are the groups that are most affected by the new technology of XBRL. Within the assessment of businesses, further investigation into the oil and gas industry will be carried out to apply some of the benefits and costs into an actual business industry. Throughout this analysis it must be borne in mind that whilst the benefits derived from the development of this reporting language are important, the idea of change can be a concept to which parts of the financial sector are not amenable.

The participants identified above have been selected for consideration, not only because of the increased effect of XBRL on them, but also following examination of the diagrams above and an analysis of how many companies are backed and funded. The first set of participants is the investors. Investors provide backing and funding for companies adopting the new technology but, more importantly, they will benefit from the technology. Indeed, when the SEC were introducing their 2008 mandate (as explained in section 3) they commissioned a report prior to the implementation to assess how XBRL would benefit investors (Malhotra & Garritt, 2004).

The second set of participants to be considered is regulators. It is clear from the diagram that regulators exert influence over important parts of the business supply chain. Thus it is important to consider how regulators are affected by XBRL and its increasing familiarity. From a regulator’s perspective, particularly in the aftermath of the banking crisis an agreed format of reporting is highly valuable. It can be seen as a cost effective approach to improve financial reporting, with the concomitant effect that regulation is made easier and more effective.

Clearly, businesses play a huge role in the adoption and implementation of XBRL. Their selection is not solely due to their wide spread participation across the supply chain but also as a major player within this new technology market, they will be greatly impacted should any new regulations regarding the use of the reporting language be introduced. Businesses are the preparers of the reports using XBRL so, at least structurally, would have a bigger change since the extra preparation task would take place.

Selecting a cost effective format, if XBRL proves to be so, will have a significant positive impact for the investors, regulators and companies. As an extension, investors directly related to XBRL companies would have to be considered as it is their technology that is creating this great change in the digital accounting world. Indeed, it is by analysing the impact of XBRL on these participants that conclusions can be drawn as to whether it has created more benefits than drawbacks.

2. Impact on Investors

Shareholders are those who purchase equity in a company with the aim of achieving some sort of financial gain whether it be in the short or long term (Oktemgil, Lecture Notes, 2009).

Investors analyse risks and benefits of any project before providing any financial backing. The analysis of the investor and XBRL requires consideration of multiple views. XBRL could lead to “value-increasing innovations in a business” (Pinsker & Li, 2008) which in turn would drive up share prices. The new reporting language would increase business efficiency or improve its core capabilities. New markets could also be created with the aid of XBRL which, on one hand, could lead to increased investments and greater profits. However, new technologies mean greater complexity within a business environment making it more difficult for investors to predict market conditions.

2.1 Benefits for Investors

Investors have experienced a number of changes resulting from this new interactive data format. The amount of financial information that investors have at their disposal has increased as well as the detail of the information and the speed at which this is received. (Robinson, 2006)

The amount and detail of this information has broadened due to the tagging aspect that is core to the XBRL technology. Instant tagging of data means that a more comprehensive database can be created not only by large corporations such as Bloomberg but even by individual investors who could create their own database. The database would be completely automated eliminating the need for manual entry thus improving time-efficiency and saving costs. XBRL also allows for footnotes and supplementary tables to be added to the core information again increasing the detail.

The automation of the system also means that the time between data being filed and produced in a report format would also be sufficiently reduced again saving costs Souza, Ramesh & Shen (2005), an unpublished 2004 report which showed that the average time for one large data aggregator to make financial data available to investors was 10.8 days. Using digital reporting through XBRL, this time can be reduced to less than a 24 hours. A consequence of XBRL has been the issue of real-time reporting. Real-time reporting is a major advantage for an investor in any sense. The quicker the investors receive information regarding a company or a market, the quicker they can make crucial decisions. In an ever changing market, sometimes the time period in which decisions can be made is extremely narrow so speed but also accuracy are of the essence. By using real-time reporting, investors can get the speed they desire.

XBRL also allows information from different countries in different languages to be standardised and translated so the end user can analyse it. This closes any barriers created due to language and allows international investment to be carried out more efficiently. (SEC: http://www.sec.gov/rules/final/2009/33-9002.pdf, 2010)

Analysts are constantly using historical financial information of corporations to ensure that forecasts regarding a company’s future are well-informed. This allows them to recommend whether they should buy or sell company stocks. XBRL provides aggregation in the financial sector of many types of information so on that basis it would be favourable to investors to have the technology.

Data aggregators act as a central store, or filers, of financial information. By using a standardised method of filing, XBRL, companies could disclose more information including footnotes which could also be formatted in the same manner hence making this information more useable to investors. The costs would also be reduced due to this automation and internal and external information could be integrated.

Data aggregators also act as vendors to investors providing interactive data, a decrease in the costs of data aggregation would allow vendors to provide cheaper subscriptions to their data. As a result, a decrease in the costs of data aggregation would ultimately facilitate smaller investors to have a greater impact in the market place as the gap between levels of information across the range of investors would be narrowed.

Another advantage of using this standardised method, in particular for the filers and aggregators, is that it reduces human error as there is no manual entry of data. Though there is no error, there is some discrepancy due to companies being allowed to choose their own tags or create new ones. This can result in an inability to interpret information as companies could decide what information they wish to provide. (SEC: http://www.sec.gov/rules/final/2009/33-9002.pdf, 2010)

Investing in smaller companies is another area that has benefited due to the introduction of XBRL. Automating the information means that smaller companies can have their financial information reported in these databases. Prior to XBRL, they may have lacked this information which would consequently lead to financial analysts being reluctant to assess the company. The increased amount of information would lead to investors having greater knowledge regarding these smaller firms and therefore being more confident in making a potential investment and ultimately more willing to invest in them. The information provided may not be complete as more complex software may be required but a definite increase in exposure would be seen by smaller companies leading to a reduction in financing costs and consequently an increase in profits. (SEC: http://www.sec.gov/rules/final/2009/33-9002.pdf, 2010) XBRL would allow investors to have more information at any one time aiding their decision-making.

XBRL is also highly flexible and would aid mergers and acquisitions as information can be integrated using common taxonomies. The integration would be entirely automated eliminating any human error that occurs through manual data entry. The flipside to this flexibility is that any takeover attempts could also occur more easily for the same reasons; fewer technological barriers would be in place to prevent such an occurrence.

A study carried out by Ahmadpour and Bodaghi, 2010, looked at the effects of XBRL on financial transparency. The study involved providing sixty non-professional financial statement participants with a scenario regarding a particular company. All the participants were given a PDF file with the company data in it. However, forty of the participants were given an XBRL-based search facilitator within their file. These forty participants were randomly assigned from the original sixty and of the forty participants, twenty-one chose to use the search facilitator to make their investment decision. The results showed that the participants who used the search engine that was based on XBRL were more likely to acquire information from the footnotes thus making a more informed decision. In addition, the participants were able to integrate the relevant information making it easier to understand and analyse. Utilising the search facilitator made the financial statements more transparent leading to better investment decisions. A similar study was carried out by Arnold, Bedard, Phillips and Sutton in 2009 looking at the impact of tagging qualitative financial information on investor decision making. This study used 219 professional and 119 non-professional investors as voluntary participants. They were all given financial information regarding a company’s accounts from the last five years which included an auditor’s report. However, some of the information files had information that had been tagged using XBRL taxonomies. It was found that the tagged information led to much more effective decision making, particularly amongst the professional investors who could adopt the new method with ease.

These two studies exemplify the manner in which XBRL can improve efficiency for investors and increase the availability of the information. The benefits were apparent; investors could see the benefits of using the search-facilitating technology with regards to decision making. It also showed how professional investors could adopt the new technology which would mean lower learning costs would be involved. This strengthens a major benefit of XBRL which is that it does lead to better decision making and a more efficient working habit.

2.2 Agency Costs

The agency theory describes the relationship between agents and principals and their differing views. “A contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent”.(Jensen and Meckling (1976:6)) Within a company, the agents are the managers and the principals are shareholders or owners of the firm. The principals delegate the day-to-day running of the firm to the agents and trust that they will run it with the company’s best interest in mind. The principals provide the capital and the agents manage it to provide them with the best return. However, sometimes, agents run the company with only their own interests in mind. For example, they may not enter into risky ventures because this would affect their profits in the short term which would have a negative effect on their bonuses. This kind of issue can lead to a conflict of interests within a firm which in turn can lead to inefficiency and cause agency costs to arise. Not an ideal outcome when it is borne in mind that sometimes, principals enter into contracts with agents for the very purpose of ensuring efficiency. (Heitmann & Ohling, 2005)

Agency costs occur when the agent has more information about the company and how it is performing than the principal. To rectify this issue principals spend money to obtain information so they can monitor how an agent is working. The principal will aim to obtain an assurance report to verify accuracy of the company’s information. XBRL allows information to be provided easily and efficiently, saving costs and time. The amount of information available is increased along with the quality. (Heitmann & Ohling, 2005)

2.3 Transaction Costs

Transaction cost economics is the economics behind costs incurred when making an economic exchange. For example, when buying and selling stock, one must pay a fee to the stockbroker. When firms attempt to lower their transaction cost they change its structure. This may be changing contracts to enter into to minimise extra costs. Transaction costs occur when principals monitor their agents so using assurance, these transaction costs can be reduced. It stands that if costs of independent assurance of business information are lower then so will the monitoring costs. (Heitmann & Ohling, 2005)

2.4 Costs to Investors

From a financial perspective, the principal cost involved in this process is the implementation of XBRL itself which would involve costs supplementary to actually making the data available. Also, there would be a cost of learning for the investors so training costs would be involved.

Table 1. Estimated direct costs of submitting interactive data-formatted financial statements and other information.

First submission with block-text footnotes & schedules

Subsequent submission with block-text footnotes & schedules

First submission with detailed footnotes & schedules

Subsequent submission with detailed footnotes & schedules

Preparation face financials





Preparation footnotes





Preparation schedules





Software and filing agent services





Web site posting





Total cost





Upper bound





(SEC: http://www.sec.gov/rules/final/2009/33-9002.pdf, 2010)

The table above provides estimates for the costs of using the automated data system. It is based on questionnaire responses from 22 issuers that have participated in the voluntary program. These responses provided detail on the projected costs of preparing the face financials and for purchasing software or related filing agent services. The estimated total cost reported in Table 1 reflects expenditures on interactive data-related software, consulting or filing agent services used, and the market rate for all internal labour hours spent (including training) to prepare, review and submit the first interactive data format information face financial statements.

It is apparent that investors are able to gain a number of advantages by utilising the XBRL-based system. The main area is that it can provide more information about a wider number of firms in greater detail which aids their investment decisions. The costs involved within the system are the initial implementation start up costs along with the learning costs. However, as can be seen from the table above, the costs of submitting the information reduce over time until they are at a fixed rate. Data analysts are able to compare financial statements of companies to give them almost instant detail on its performance and financial position. Furthermore, XBRL drastically reduces the amount of labour required within processing and risk assessment. This reduces time and increased company efficiency and performance.

3. Impact on Regulators & Assurers

3.1 About Financial Regulators & Assurers

Financial regulators are members of an official body that are given power to control the financial services industry. Within the UK, the regulator is the Financial Services Authority (FSA) which is “an independent non-governmental body, given statutory powers by the Financial Services and Markets Act 2000.” (FSA Website) The body ensures that firms are complying with their regulatory requirements. Linked closely with the FSA is Her Majesty’s Revenue and Customs (HMRC) which is a body that collects and administers taxes.

The recent banking crisis has placed a great deal of pressure on regulatory authorities and reports of the root cause being a lack of regulation are abundant. The Depression in the 1930s saw similar effects and stricter regulation was needed. The advantage of XBRL within a regulatory setting is that it provides standardisation of the international business reporting standards. Information regarding the financial matters of public companies can easily be transmitted around the world and organised in an easy to handle and read manner Regulators are able to access this information within minutes should they wish to investigate a company. Furthermore, there are no language barriers to speak of so even international situations can be resolved. (Roohani, 2003)

3.2 The SEC Mandate

The U.S. Securities and Exchange Commission (SEC) exist to; “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” (SEC, 2010) This Commission was created after the Wall Street Crash in 1929. The crash led to a well-documented loss in investor confidence as well as reluctance from banks to lend money. To restore public faith in the market, congress passed the Securities Act 1933.

This series of legislation was introduced for two principal reasons: Firstly, ”companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing,” and secondly, “people who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors' interests first.” (http://www.sec.gov/about/whatwedo.shtml, 2010)

Today, the SEC’s roles are to interpret securities laws, issue and amend rules, oversee the inspection of securities firms, brokers, investment advisers, and ratings agencies; oversee private regulatory organizations in the securities, accounting, and auditing fields; and coordinate U.S. securities regulation with federal, state, and foreign authorities. (SEC, 2010)

In 2008, the SEC issued a mandate requiring large operating companies to report financial information in an interactive data format. This was specifically to be XBRL. The mandate came after an assessment was carried out in 2004 looking at how XBRL could benefit investors. This was carried out by the Chairman at that time, William Donaldson utilising staff from the Corporate Finance and Investment Management Divisions. (http://www.sec.gov/spotlight/xbrl/oid-history.shtml, 2010). A voluntary program was established in 2007 before the mandate followed a year later.

3.3 The HMRC

Her Majesty’s Revenue and Customs (HMRC) is the equivalent body of the SEC in the United Kingdom. It has mandated that all business tax returns must be submitted electronically within the next year. “Filing on paper will not be acceptable after 2011 and, from this date onwards, companies will also be required to make their Corporation Tax (CT) and related payments electronically” (ICAEW & KPMG,p.1). Though the date for the change to electronic reporting has yet to arrive, the HMRC has already make changes to prepare for the new system. To aid the adoption of XBRL, an extension of XBRL has been developed, namely iXBRL. This extension of XBRL was introduced to address the problem of readability for participants. XBRL allows computer software to easily “communicate, exchange, read, process and analyse financial information” (ICAEW & KPMG, 2010, p.2). However, people cannot carry out these same functions without aid. iXBRL overcomes this by combining HTML and XBRL. This gives participants the detail of XBRL but the readability of HTML and files can be opened using a web browser and amended where necessary.

The implications this major change will have on organisations will be great. Firms will need to ensure tags are correctly assigned, reviewed and tested. This must be done individually so initially this process will be costly. Professional services firms have recognised that companies will require help with the shift to XBRL based systems; KPMG, one of the big four financial services firms, are offering: “short term approach: KPMG’s XBRL Mapping Engine [XME] which allows prepared statutory accounts to be converted into XBRL. Long term approach: implementing automated preparation of statutory accounts, including XBRL tagging” (KPMG, 2009).

XBRL has had a major impact on the assurance and auditing services. Assurance increases the quality of information and is used to improve the reliability of financial statements so they are trusted by investors and other stakeholders.

Another country where XBRL has caused great change is Australia. A report created by the XBRL organisation in Australia entitled “Business Plan 2008-2010” highlights how Australia plans to “promote the development and adoption of the XBRL standard in Australia” (XBRL Australia, 2007: p.2). The Australian regulator, Australian Taxation Office (ATO) will implement an XBRL Filing project by 30th June 2010 (XBRL Australia, 2007: p.4).

3.4 Benefits & Costs for Regulators & Assurers

XBRL can strengthen current assurance because it can not only provide assurance on financial statements but also on more specific aggregated data. This is called data level assurance (Cohen et al., 2003) which is a form of assurance that looks at specific items and the data each item holds thus providing more detail to the information for principals. When creating an XBRL document, the preparation is usually conducted on an automated level. Due to this extra step, internal controls are established to ensure accuracy as observation and inspection of the tagging system are required.

The internet provides an easy route for information regarding a company to be distributed and communicated across a large spectrum at a low cost. The result of this cost reduction is that more detailed reports may be disclosed by businesses providing greater assurance about their financial data. This, along with the speed at which the information can be received, can reduce the information asymmetry that occurs between agents and principals. Information asymmetry is a “Conditionin which at least somerelevantinformationis known to some but not allpartiesinvolved. Information asymmetrycausesmarkets to become inefficient, since all themarketparticipants do not haveaccessto the information theyneedfor theirdecision making processes” (InvestorWords, 2010) .

The internet and its benefits of speed can undermine the integrity of the work. Information with high integrity would be considered to be precise and complete. Due to the vast expanse of the internet, with such a wealth of information and limited organisation of it, there is no guarantee that the information is accurate... “rather than being a highly controlled element of a tightly defined physical document, the auditor’s report becomes part of the chaotic morass of information that characterizes the web” (Debreceny & Gray,1999) Information that is assured could mix with non-assured information and because the internet is constantly changing, the information could change as well without the user’s knowledge. One method to reduce this problem is to use legal signatures. This is a form of technology which provides assurance on a document and this would also improve the confidentiality of information. Legal signatures are “A mark or sign made by an individual on an instrument or document to signify knowledge, approval, acceptance, or obligation” (Legal Dictionary, 2010).

These issues mentioned can all be solved using XBRL. Boritz and No, 2003 developed eXtensible Assurance Reporting Language (XARL), an extension of XBRL which provides assurance using Web-based technology. This is based on XML and can be automatically created over the Internet. The preparer is required to obtain a XBRL taxonomy which is encrypted and sent to a specific destination. This gives rise to an XARL taxonomy which acts as a “template that defines the assurance tags and describes how assurance data is interrelated” (Boritz & No, 2003). An instance document is made that is signed at the destination as verification allowing the end user to reveal the document.

As with investors, the business world moves at a tremendous pace – it is no exaggeration to say that deals can be done and undone within seconds.

The diagram below shows the incremental benefits and costs of continuous reporting for firms with initial low-complexity or high-complexity information and communication technology (ICT) infrastructures. Over time the incremental cost will exceed the benefit as the information moves to real-time reporting.


Assurance has changed greatly thanks to XBRL was introduced; the creation of XARL allowed the internet to be used as a safe and secure way to transport financial information from companies to assurance providers and participants. Documents can be created and manipulated with ease and the information can be deemed as reliable due to the security surrounding XARL. This all increases the original problem of using the Internet, the information integrity and whether or not participants can guarantee the true and fair view that the information aims to provide. Some issues with XARL could include development or updating assurance standards due to the demand for continuous reporting and aiming to reduce the costs for the assurance provider to allow XARL to become a predominate technological tool within the digital accounting age. (Roohani, 2003)

XBRL also impacts continuous data assurance by standardising “the exchanges of base level accounting data, such as “debit Accounts Receivable $200, credit Sales $200,”’ (McGuire, Okesson & Watson, 2006: p.45). This allows auditors to import large amounts of accounting data from their clients to their own proprietary software and the technology platform of the client will not affect this. The implementation of XBRL could occur using either third-party software allowing companies to map their own data to the taxonomies or using a company’s own accounting software providing that it is XBRL compatible (McGuire, Okesson & Watson, 2006: p.45).

XBRL could also be used in real-time reporting; there are five fundamental elements of real-time reporting:

1. Reliable systems

2. A common method of disseminating information (such as XBRL)

3. Industry-specific financial and nonfinancial data

4. Corporate accountability

5. Understandable disclosures.

(McGuire, Okesson & Watson, 2006: p.46)

The use of XBRL is important for real-time reporting but an important issue to consider is that companies within capital markets attempt to resist full disclosure. This could be overcome due to the need of full transparency to experience a lower cost of capital.

Having considered XBRL’s impact on investors, regulators and assurance companies, the author now seeks to investigate its impact on businesses.

4. Impact on Businesses

4.1 Benefits & Costs for Businesses

The main aim of any business is to make a profit and to increase its market share, with the crucial aim of looking after the shareholders’ best interests. The use of XBRL for businesses of a business can have positive and negative effects.

XBRL could lead to a new market of outsourced accounting. This is due to management reluctance to undergo complex training courses for XBRL, considering it easier and more cost efficient to outsource the work. It would allow a common format to support client information thus increasing the efficiencies. Countries such as India and China could be used for many of these functions similar to many call-centres currently in use today. The low costs coupled with the high levels of available labour would make this an attractive proposition for businesses to improve profitability of the business. (Weber, 2003) Increased outsourcing means increased costs. However, should businesses not outsource their work, they would have to spend money on the learning costs associated with XBRL.

Large businesses that deal internationally would see the benefit of XBRL as it would remove any linguistic barriers between countries. The nature of XBRL means that information is translated into many languages; this process is instant and would save time and money particularly for international companies. (Weber, 2003)

The drawbacks of XBRL centralise around the costs behind the new method of reporting. Initially, companies would incur high costs to implement the system; these would include training and installation costs. More pressure would be applied from investors and regulators to move businesses towards real time reporting instead of periodic reporting. For investors, this would reduce agency costs (mentioned earlier). This would add more pressure on managers as they would be closely monitored by shareholders thanks to the new XBRL system. In the long term, costs should be reduced as the system will allow compliance with regulations to be carried out more efficiently. Further, audits and assurance processes would become standardised and financial information could be transmitted over long distances with speed, accuracy and integrity (Weber, 2003). Recently, Gordon Brown has established a £30 million institute to put “the UK at the cutting edge of research on the semantic web” (Gordon Brown, silicon.com, 2010). The aim is to get Britain into a semantic web which has been regarded as the next stage of creation and storage of information on the web.

Currently, XBRL is linked to companies within this industry in two ways. The first is in the development of taxonomy for oil and gas whilst the second project is in the development for taxonomies for supplemental information on Oil and Gas Exploration as required by FAS 69. There are ten disclosures for the industry: These include:

* Capitalized [SIC] Costs related to Oil and Gas Producing Activities.

* Costs Incurred in the Acquisition, Exploration, and Development of Oil and Gas Property.

* Results of Oil and Gas Producing Activities.

* Proved Oil and Gas reserve Quantities.

* Standardized [SIC] Measure of Discounted Net Cash Flows.

Capozzoli, E. (2007)

In order for potential advantages to be realised from XBRL, sufficient training is required to learn about the process of creating instance documents as explained earlier. However, within this particular industry, further knowledge is required outside of XBRL, in the regular business activities and also the disclosures required. Disclosures were highly complicated; many companies present their financial information differently. For example, looking at disclosure number one, capitalised costs; some companies presented the information according to region whereas others would follow the FRS rules. This results in lack of uniformity which goes against the main benefit of XBRL, which is standardisation. To ensure the benefits can be utilised, the same method of presentation must be used. Since the SEC mandate, all companies are required to standardise the information. This made development of the taxonomy a much simpler task and shows that if XBRL is widely adopted, it can add structure and flexibility to defined elements of financial disclosure. Structure has been created through the mandate thus creating consistency between companies and time periods. Flexibility has been created because the information provided is what is specified under FAS 69. (Mahon T, Capozzoli E, (2008).

5. Conclusion

This investigation has shown that XBRL has provided the digital age with a revolutionary piece of technology to change the way financial data is communicated. It has impacted participants from across the global economy and this essay has highlighted investors, regulators, assurance companies and businesses as key groups that have been affected.

The prime benefits of XBRL are speed, efficiency, security and standardisation. The speed of transmitting data is extremely high because all the data is automated. Manual data has been eliminated which reduces errors and also increases the speed of obtaining a financial report. It has also improved efficiency, meaning that these benefits combine to aid all participants within the economy. The internet of course increases the speed at which data is transmitted because it can be sent instantly. The main problem associated with the internet is the issue of security. Without protecting the information sent across the internet, information can be disclosed and may not be trusted. This reduces the integrity of the information: is it accurate and true and fair? Standardisation is a major benefit; using XBRL information can be regulated across the world which would not only make sharing information a lot easier, but also reduces language barriers around the world.

The main drawback of XBRL is the initial cost of implementation which can affect a business. Attendant training costs of employees to use XBRL must also be factored into the considerations. The implementation cost is heightened by pressure from investors and regulators on businesses to introduce the system. The reason behind this is that XBRL will provide them with more information and more detailed information about businesses which allows them to monitor the performance of the businesses.

6. Essay Limitations

Should this investigation be extended, the future of XBRL could be considered. The question of what the future holds for participants of this reporting language is one that is important particularly with new regulations being introduced in the aftermath of the global recession and the banking crisis. XBRL has allowed closer monitoring of managers which can improve business profitability by reducing the agency issues. An important future development that may become prominent is the issue of increased outsourced accounting work related to XBRL. This may increase for a short period as participants and managers attempt to grasp this technology. However, in the long term it is important that managers learn about the details of XBRL to ensure they can utilise its benefits.

A further investigation would be to follow up on the impact of the 2011 HMRC mandate would have on UK based companies. Once the mandate comes into force next year, all companies will be required to report their financial information electronically as well as the payment of their corporation tax. An assessment of how companies have altered their structures to accommodate rules could be made. In addition to this, a detailed comparison with US based companies and how they have adapted to the SEC mandate could be investigated along with the differences in the methods of implementation by the HMRC in the UK and the SEC in the US.


· Ahmadpour A., Bodaghi A. (2010). The Effects of XBRL on Financial Transparency. International Journal of Information Science and Management.

· Alles M. (2009). Will XBRL Improve Corporate Governance? A Framework for Enhancing Governance Decision Making Using Interactive Data.

· Arnold V, Bedard J, Phillips J, Sutton S. (2009). Impact of Tagging Qualitative Financial Information on Investor decision making: Implications of XBRL.

· Bonson E (2002). The role of XBRL in Europe. The International Journal of Digital Accounting Research, 1:2.

· Boritz, J, Gyun No, W. (2004). Business Reporting with XML: XBRL Extensible Business Reporting Language. University of Waterloo Vol 3, pp. 863-885.

· Burnett, R. Friedman, M. Murth, U. (2006). Financial Reports: Why You Need XBRL. Willy Journal of Corporate Accounting & Finance.

· Campbell, R. (2009). The Advantages of XBRL. Available at: http://www.ehow.com/about_5066285_advantages-xbrl.html [Accessed January 2010]

· Capozzoli, E. (2007). The Impact of XBRL on the Oil and Gas Industry. Oil IT Journal.

· Chan, Hung C., Francia, Arthur J., Porter, Mattie C. (2008). Into the Future: XBRL and Financial Reporting. Proceedings of ASBBS, 15:1.

· Cohen E, Schiavina T, Servais O (2005). XBRL: The standardised business language for 21st century reporting and governance. International Journal of Disclosure and Governance 2:4; p. 368.

· Data Conversion Laboratory Inc. (2010). Tell me again...Why should I care about XML? Available at: http://www.dclab.com/xmlbenefits_p1.asp [Accessed October 2009]

· Debreceny, R. & Gray, G.L. (1999). Financial Reporting on the Internet and the External Audit. The European Accounting Review, 8(2), 335-350.

· Deshmukh (2006). Digital Accounting: The Effects of the Internet and ERP on Accounting. IRM Press.

· Ernst & Young (2010). What is XBRL? Available at: http://www.ey.com/GL/en/Services/Assurance/Accounting-and-Financial-Reporting/Assurance-XBRL-Web-Enabled-Business-Reporting [Accessed October 2009]

· Festervand, T A, Harmon, S K (2001). Do marketing students need to speak XML? The Journal of Database Marketing. 9:1, pp. 16-23(8).

· Financial Services Authority (2010). About the FSA. Available at: http://www.fsa.gov.uk/Pages/About/index.shtml [Accessed January 2010]

· Foroughi A, Mcguire B, Keakulah M, Lytle J (2001). XBRL: The future of online financial data. National Public Accountant. 46:4, p.49.

· Garthwaite C (2000). The language of risk: Why the future of risk reporting is spelled XBRL. ABI/INFORM Global, 8, 4.

· Grosu V., Hlaciuc E., Iancu E., Petris R., Socoliuc M. (2010) The Role of the XBRL Standard in Optimizing the Financial Reporting. Journal of Computing, 2:2.

· Heitmann, S., Ohling, A. (2005) Audit of the Future – An Analysis of the Impact of XBRL on Audit and Assurance. International Accounting Master Theisis no 2005:23.

· IAASB (2010). XBRL: The emerging landscape. International Federation of Accountants.

· ICAEW & KPMG (2010). Demystifying XBRL, pp. 1-3.

· Investor Words. (2010) Security Definition. Available at: http://www.investorwords.com/4446/security.html. [Accessed November 2009]

· Jensen, M.C., Meckling, W. (1976).Theory of the Firm:Managerial Behavior, Agency Costs and Ownership Structure, 3(4), pp. 305-360.

· Jones A, Willis M (2003). The challenge of XBRL: business reporting for the investor. ABI/INFORM Global 11, 3.

· KPMG (2009). XBRL filing – Are you ready? Available at: http://www.kpmg.co.uk/pubs/137860_XBRL_Brieifing_Sheet_WEB_accessible.pdf [Accessed March 2010]

· Legal Dictionary. (2010) Signature Definition. Available at: http://legal- dictionary.thefreedictionary.com/signature [Accessed February 2010]

· Ma X, Chen G (2007). The Impact of Information Technology on Financial Reporting. Journal of Asian Social Science

· Mahon T, Capozzoli E, (2008). Oil and Gas Financial Reporting Using the USGAAP

XBRL Taxonomy. Oil IT Journal contributed

· Malhotra R, Garritt F. (2004) Extensible Business Reporting Language: The future of e commerce driven accounting. International Journal of Business, 9(1).

· Mcguire B, Okesson, S.J & Watson, L.A. (2006) Second wave benefits of XBRL. International Journal of Strategic Finance.

· Oktemgil, M (2009) Lecture Notes.

· Pinsker R, Li S (2008). Costs and benefits of XBRL adoption: early evidence. Communications of the ACM, 51:3.

· PriceWaterhouseCoopers (2004-10). How XBRL Web services impacts regulatory assessments. Available at: http://www.pwc.com/gx/en/xbrl/how-web-services-impact-regulatory-assessments.jhtml [Accessed January 2010]

· Robinson, K (2006). XBRL: Financial Reporting for the New Millenium. Available at: http://digitalambience.org/Documents/xbrl.pdf [Accessed November 2009]

· Roohani, S.J. (2003). XML, XBRL and the future of business and business reporting. PriceWaterhouseCoopers LLP.

· Roohani, S.J. (2003). Trust and Data Assurances in Capital Markets: The Role of Technology Solutions. PriceWaterhouseCoopers LLP.

· SEC (2010). What We Do. Available at: http://www.sec.gov/about/whatwedo.shtml [Accessed January 2010]

· SEC (2010). Interactive Data to Improve Financial Reporting. Available at: http://www.sec.gov/rules/final/2009/33-9002.pdf [Accessed January 2010]

· SEC (2010). Office of Interactive Disclosure: History. Available at: http://www.sec.gov/spotlight/xbrl/oid-history.shtml [Accessed January 2010]

· Silicon (2010). Gordon Brown spends £30m to plug Britain into semantic web. Available at: http://www.silicon.com/management/public-sector/2010/03/22/gordon-brown-spends-30m-to-plug-britain-into-semantic-web-39745620/ [Accessed March 2010]

Please be aware that the free essay that you were just reading was not written by us. This essay, and all of the others available to view on the website, were provided to us by students in exchange for services that we offer. This relationship helps our students to get an even better deal while also contributing to the biggest free essay resource in the UK!