XBRL: a technology standard to reduce time, cut costs, and enable better analysis for tax preparers - eXtensible Business Reporting Language

Tax Executive, The, Jan, 2001 by Louis Matherne, Zachary Coffin

Introduction

One of the unrealized benefits of the Internet is the ability to automate business reporting functions. "Straight-through processing" and aggregation of data for business reports will increase market efficiency and lower costs and risks for companies. As is the case with transactional electronic commerce, "e-reporting" requires a set of technology standards with which participants can exchange data electronically, both internally and externally. XBRL, or "eXtensible Business Reporting Language," is such a standard for the reporting and exchange of business information, including tax filings.

In 1999, the American Institute of Certified Public Accountants (AICPA) initiated a project that has grown into XBRL.org, a nonprofit international consortium of tax, accounting, consulting, technology, and financial services companies from around the world. Members include all of the "Big Five" tax and accounting firms, the accounting institutes in ten countries, such leading companies as Fidelity, General Electric, IBM, Microsoft, SAP, PeopleSoft, and more than 80 others totaling $2.5 trillion dollars in market capitalization. All these organizations have come together to form a standard to publish, retrieve, and analyze business information across any technology, quickly, cost-effectively, and virtually error-free. (Detailed information about XBRL can be found at the organization's Internet site, www.xbrl.org.)

In the case of tax reporting, combinations of manual and partially automated systems are necessary today to consolidate data, and organizations face renewed challenges whenever they need to report in a new jurisdiction or implement new tax reporting requirements. They spend a long time creating tax exhibits, which then have to be recreated whenever someone changes the tiniest detail. Major corporations spend extraordinary amounts of time creating tax reports with desktop publishing tools, word processors, spreadsheets, and templates that are supposed to ensure compliance with myriad requirements affecting tax filings and reports. As is the case with other business functions, there are strong pressures to determine and report one's taxes more efficiently. Corporations using XBRL can work with their tax data more quickly, less expensively, and more effectively.

The Case for Standards

Increasingly, companies are filing taxes using electronic networks both to reconcile and settle tax transactions with internal tax reporting systems and to select, execute, and process reports for external recipients. The benefits of such automation are considerable -- lower transaction costs, lower potential for failed filings and human error, and less reliance on manual data input. More recently, companies have begun to automate their internal tax reporting and filing processes, using electronic networks.

By and large, however, the use of automated systems is isolated. Communication between companies and government agencies is still often effected via fax or electronic communication between incompatible systems. It is sent by the company using one technology to another company that uses another; it therefore requires the recipient to manually re-key the data for its system. The full benefits of automation will be seen only where there is straight-through processing of tax reports or filings within and between company operations, with little or no manual intervention between execution and filing. XBRL can make straight-through processing a reality for all parties involved in the tax filing process. XBRL for tax filings can help corporate tax departments obtain data and process information for reports across olden-incompatible legacy systems. This could save companies significant time and money in preparing tax reports.

Straight-through processing requires the automated and error-free electronic transmission of tax report details between technologies (hardware and software). This can be achieved only if parties "speak the same language." In other words, it requires common message standards for tax transactions within a company and the aggregation of this information into tax filings and reports.

Paper-based standards in the tax profession have existed for decades and still are widely used. But with these standards, most corporate tax filings and reports are still printed and sent by mail or fax, and they are based on manually inputting data into different internal and external information systems -- often many times. And, of course, each point of data input engenders transaction costs and increases the potential for input errors, failed filings, and inaccurate reports.

Streamlined automation made possible by XBRL is likely to have a greater effect on tax filings and reports than on most other business reporting (e.g., financial statements). First, in principle, virtually all tax documents can be delivered entirely in digital form; and second, development of an electronic standard format for tax documents is a relatively simple process because standards already exist in the world of paper tax forms.