|Q I hear a lot about the benefits of XBRL re-usability. What does this mean in practice?|
|A XBRL is a technical specification optimized to represent business and accounting data. This means that the same syntax and the same semantic model can be used to represent very different types of information – such as financial statements, tax returns, invoices, inventory, fixed assets, trial balances, payroll information, Key Performance Indicators (KPI), sustainability data, just to make a few examples. These different types of information are used in very different processes, by businesses and organizations as well as regulators, Governments and the market in general (analysts and investors). Being able to use the same format to represent and share such a diverse range of data for equally diverse purposes surely suggests that re-usability is a key feature of XBRL, both within a single organization and when information is shared across different organizations.But what are the practical benefits of the re-usability of a standardized data model?Software applications that “understand” the XBRL specification and the key semantics embedded into XBRL taxonomies can work consistently with XBRL data, no matter what the data represents. They can be developed and deployed without any knowledge of the specific type of data that they will process, or the specific kind of reports that they will produce. They can be used to support any process where data that can be represented with XBRL participates – and this, as discussed above, means that they have a very broad applicability.This is a very different model for developing software applications than the traditional one, which is based on developing an application-specific, proprietary data model first, and then create software code that works with that data model, and with that data model only. Applications that truly leverage the XBRL standardized data model (as opposed to just being able to convert an Excel or Word report to XBRL) are highly flexible and re-usable and therefore their ROI is significant.The benefits are very practical. In a traditional, proprietary software model, if you need to add a report, or a control, or some other data processing capability to your software package your choices are:
Obviously these solutions are (or may be) effective for the immediate purpose, but are not re-usable – the next report, control or data-processing capability will pose the same issues and require a similar solution.
In a standardized, data driven model – the kind of model that XBRL enables –and limiting the example to the creation of an additional internal report, the report is represented with a XBRL taxonomy, either leveraging a taxonomy that already exists or developing one for the purpose. The data required to populate the report is mapped to the taxonomy from any existing accounting software or data repository – and again, the mappings may be already available in whole or in part if the taxonomy is publicly available, or if not they can easily be developed internally. The mappings are also standardized and represented with XBRL using XBRL Global Ledger (XBRL GL). The software necessary to create the report and process the mappings is either open source/free or very inexpensive, because it is not specialized for a specific purpose and it does not conform to the logic of a proprietary application. The know-how and the tools used for the first internal XBRL implementation are broadly re-usable and will provide significant value over time. In fact, the organization that chooses to move along this path is not looking at purchasing a new software package or replacing an existing one – rather, it is acquiring the knowledge and the tools necessary to make the various components of the existing information system meet the requirements better.
With the necessary software in place and sufficient know-how on how to design XBRL taxonomies and how to use XBRL GL, businesses and organizations acquire flexibility and the capability to adapt their information system to their actual requirements in an efficient and cost-effective way, which is re-usable over and over again for very different data-related processes and activities. Best practices and lessons learned in other similar deployments are also highly re-usable. Needless to say, if the organization is subject to a XBRL mandate it may already possess relevant know-how and software tools that can be leveraged internally for benefits that go way beyond regulatory compliance.
I will close with a note of self-promotion – if you would like to read more about the possibilities offered by this approach, have a look at iphix’s Three Easy Steps.
XBRL FAQ: What are the practical benefits of the re-usability of XBRL?
If you have a XBRL question that you think is of general interest, just contact me or send me a direct tweet at @iphixbrl. I will answer it as an XBRL FAQ.