XBRL: Coming of Age?

Extensible business reporting language offers major benefits, but only a handful of companies are implementing it. That may change soon.

Even technologies that sound particularly appealing can take a long time to catch on if there's no mandate or urgency behind them. Take extensible business reporting language (XBRL). Since it emerged five years ago, XBRL has been touted for enhancing the Internet-based exchange of financial information, improving reporting quality while lowering reporting costs and establishing more precise communication with external stakeholders.

Still, misconceptions persist about exactly what it is. XBRL is a standards-based method for preparing, publishing, exchanging and analyzing financial information. It tags financial information to a data dictionary (taxonomy) so that it can be assimilated into one standard language format. When all data is in a standard format, a more efficient exchange of financial information can take place. For example, when an XBRL-enabled application extracts a number tagged in XBRL as "gross sales" from another XBRL-enabled system, that application automatically recognizes the term strictly defined in the financial taxonomy.

Internally, this tool lets companies automate -- and therefore streamline and accelerate -- the collection and reporting of data; it increases data transparency, enhances data quality, and reduces errors; and it makes real-time operational information available to business managers. Externally, XBRL can make it easier for third parties such as banks, investors, analysts, auditors, credit companies, competitors and regulatory bodies such as the SEC to find and analyze companies' financial information.

There are plenty of things XBRL isn't. It's not a software product, nor is it something that users need to attach to their accounting software. XBRL doesn't change accounting standards; it enhances the usability of those standards. It's designed to be integrated into business software products and will likely become embedded in more and more of those systems as its popularity increases.

Support for XBRL is subdued. The American Institute of Certified Public Accountants (AICPA) has championed XBRL, and in April, the Institute of Management Accountants voiced its backing of the format. Right now, however, some business software vendors question whether incorporating XBRL into their current offerings will generate revenue. In short, XBRL continues to simmer. There are signs, though, that it could eventually heat up to a boil in the mainstream business community.