XBRL (extensible Business Reporting Language), the technical standard, which was developed 20 years ago with the goal of improving processing of financial data, is now mandatory in more than 70 countries and considered useful by more than 130 regulators. However, its potential in financial communications has not yet been fully discovered. In this interview,* Prof. Monika Kovarova-Simecek, Academic Director Economic and Financial Communications at the St. Pölten University of Applied Sciences, reveals some thought-provoking facts about the future of XBRL.
* More innovative thoughts and ideas on this topic will be presented at the DRC on September 17+18. Sign up for the event now.
How important is XBRL for the future of digital reporting?
The digitisation of reporting and the implementation of XBRL as a standard format can be considered rather as an evolutionary development than a revolutionary act. XBRL technology has existed for 20 years. During this (long) time, XBRL was introduced as a mandatory format in around 100 countries. We can say that XBRL has prevailed after all and we can assume that nothing will change about that in near future.
The key question, however, is what role will XBRL play in reporting in the future? Will it remain a format used to comply with legal requirements and thus perceived as a marginal phenomenon? Or will the legally triggered implementation of XBRL lead to reporting processes being rethought and redesigned and the digital logic – and thus XBRL as its central component – being brought into focus?
What challenges might companies face in the process of implementing XBRL?
The implementation of a new technology such as XBRL is not just a project, but rather a change process that makes us rethink reporting as a whole. The implementation of the new standard challenges anchored logics, lived cultures and processes, and established organizational structures.
How can XBRL be integrated into digital reports?
There are several approaches, but from the process perspective the most efficient way would be ‘xbrl first’. This means that financial data would be tagged in the first step to be available in XBRL format and be, as such, integrated into an online report. The online report, in turn, would be the basis for a print version. From today’s perspective, this seems to be the most radical approach. This path is technically feasible, yet not conceivable for many companies. It remains to be seen whether efficiency will prevail over the tried and tested, even if less useful.
What do you think should companies know about XBRL?
Without XBRL, there will be no truly digital processing of financial data, no automation of reporting processes, no AI in financial contexts. Wanting digitisation without digital formats is wanting light without electricity, cables and light switches.
What can the DRC participants learn in your talk for their own professional life?
Based on my experience and studies that we have conducted on the subject so far, it seems important to promote a holistic understanding of XBRL that goes beyond the technical or legal aspects, and to shed light on XBRL as part of digital transformation in financial reporting. This approach raises completely different questions which I have not yet seen approached or resolved in numerous companies. What are the application areas of XBRL? What might be the benefits, which problems might rise at the same time? How to handle the implementation of XBRL? What is the best strategy?