Accounting a Digital Revolution Pioneer (Roger Dorsey Commentary)

The digital revolution continues to transform all areas of business, and the accounting sector is no exception. Indeed, in an important sense accounting is on the very cutting edge of that revolution. The XBRL language for the exchange of business information, the idea for which was conceived by CPA Charlie Hoffman in the 1990s, is increasingly crucial to the flow of accounting and financial data in the global economy.

XBRL stands for Extensible Business Reporting Language. It is a computer-readable language similar in some ways to the HyperText Markup Language, or HTML, which underlies the websites on which we rely daily.

However, while HTML is designed to structure the presentation and appearance of data — for example, the layout and formatting of a balance sheet published on the Web — it does nothing to actually convey information about the meaning of that data in a way that computer systems can interpret.

XBRL, on the other hand, is designed to allow actual meaning about financial statement data (i.e., “metadata”) to be conveyed in a computer-readable way. When financial data is “tagged” using the concepts defined in an XBRL dictionary (referred to as a “taxonomy”), it becomes possible for it to be queried in an interactive way by regulators, investors and other users of data.

Financial data reported using XBRL is also readable independent of proprietary systems. It can free a business from being forced to use multiple proprietary “point solutions” (such as spreadsheet files) for its data. Such point solutions often require extensive rekeying of data as it is moved from system to system, which is costly and inefficient. XBRL creates a global standard for meaningful financial data to be exchanged around the world in a cost-reducing and value-adding manner.

XBRL has already profoundly affected accounting in several ways: 1) the SEC now mandates that filings from public companies be submitted using XBRL; 2) several countries, including the United Kingdom, have begun mandating corporate tax reporting using XBRL; and 3) the Digital Accountability & Transparency Act (DATA Act), currently moving its way through Congress, would mandate the use of open standards such as XBRL in the reporting of all government financial data.

Recently, some in the corporate accounting community have expressed frustration and resistance to XBRL. Companies have spent much money and time to comply with regulatory mandates by tagging their financial information, but the promised benefits have been slow to arise. In addition, errors have inevitably crept into the initial XBRL filings with the SEC, triggering a backlash against the XBRL mandate as overly burdensome and overhyped.

Such bumps in the road are to be expected. This is the pattern with any new technology. After the dot-com crash in 2000, many dismissed the Internet as a viable general business platform. But Web 2.0, the interactive and collaborative Web of today that superseded the static Web of the 1990s, was incubating in the midst of the crash.

Similarly, Web 3.0 (the “Semantic Web,” as the inventor of the World Wide Web, Sir Tim Berners-Lee, calls it) is still in early days. When the Semantic Web comes to fruition, our experience of searching the Web will be transformed. The computer will be able to “understand” and respond to more complex requests made of data on the Web, far beyond the basic search algorithms of today. XBRL is a key component of this emerging Semantic Web.

Though XBRL has been around for more than a decade, only now is a repository of XBRL-tagged data attaining critical mass. Accounting, through its early adoption of this semantic standard, is defying its stodgy reputation and is actually at the forefront of the next Web revolution. Accounting and finance professionals should persist through the inevitable early obstacles because the ultimate payoff in efficiency and data analytics will be well worth it.

These are exciting times in the interaction of business and technology. Our students are learning about this digital revolution so that they are equipped to contribute to this transformation. My colleague in the University of Arkansas at Little Rock’s Accounting Department, Stephanie Farewell, is a nationally recognized expert in XBRL, and the chair of our new Business Information Systems Department, Robert Mitchell, is leading the creation of a new curriculum in data analytics.

Roger Dorsey is a CPA and has a doctorate of law and a master’s in taxation law. He is an instructor in the Department of Accounting in the College of Business at the University of Arkansas at Little Rock.