Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation The Green Eye Shades Come Off
Written by Bob Schneider Posted October 9, 2006
The current impetus to adopt XBRL is improved financial reporting. The extraordinary advantages of interactive data for government agencies, stock exchanges, and other regulatory bodies are encouraging them to adopt XBRL for their reporting requirements. In their effort to implement XBRL as a data standard, they should be supported by a host of financial statement users — ranging from security analysts to small investors — who will enjoy the benefits of real-time reports and easy data manipulation that XBRL offers.
But the potential of XBRL extends far beyond financial reporting. The flexibility of XBRL-enabled data makes it similarly desirable for everyday use throughout the organization in areas like manufacturing, procurement, and human resources. The reach of XBRL beyond the financial realm will be strongly supported by crucial business needs.
One such need is internal control. Sarbanes-Oxley (SOX) now requires that management state in its annual report its responsibility for maintaining an adequate system of internal control. According to the definition provided by the COSO framework, which the SEC suggests for SOX compliance, internal control encompasses the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.
While SOX specifically limits internal control to financial reporting, for independent auditors the line isn’t so easily drawn. For practicing CPAs, all three parts of the COSO definition are vital to their attest function. Absent a sound system of internal control that includes all three definitions, auditors would have to review a stunning number of transactions to ensure the integrity of financial statements. By necessity, internal controls need to be implemented on a companywide basis, and they are greatly facilitated by the easy interchange of data that XBRL offers.
Another trend that leans heavily toward XBRL adoption is the increasing integration of business activities among different companies and business entities. These associations range from supplier relationships to tie-ups and, at the top of the integration scale, to mergers and acquisitions. The ability to exchange data is a key ingredient in combining business activities. As businesses push to optimize efficiency, there is a need for a data standard that makes the exchange of information easy and seamless. While remaining vigilant about the security exposure such openness entails, companies will be eager to adopt XBRL because of the advantages it affords in data interchange.
Moreover, as globalization proceeds, companies want to be able to optimize their use of resources both human and nonhuman — wherever they are located. Thus XBRL fulfills the need for a data medium that clears the barriers presented by different tongues and business cultures.
The full-scale implementation of XBRL as a universal data standard remains several years away. But the spread of interactive data to everyday business activities is inevitable.