In today’s digital age, it is more important than ever that accountants understand the techniques used to transmit financial information across the world.
One such technique is called eXtensible Business Reporting Language (XBRL). Since its inception in 2003, XBRL has grown rapidly with the rise of electronic financial information.
In 2018, the SEC adopted a phased timeline to transition companies to comply with Inline XBRL (IXBRL) requirements between 2019 and 2021.1 We are just now seeing the effects of IXBRL as filers release their 2019 and 2020 financial information to the SEC.
In the following sections, I give an overview of XBRL along with an example of an XBRL filing. I look at the changes brought by IXBRL and finish with my take on why accountants should care about XBRL.
Table of Contents
What is XBRL?
XBRL is a markup language that is used to authoritatively define financial information.2 XBRL provides context for computers to analyze reported financial information.
Say Company ABC reported $10,000 of accounts receivable in its 2019 Form 10-K. Computers have no idea what the $10,000 represents unless additional information such as account classification, currency, company name, and time period is defined.
Prior to the adoption of IXBRL, the SEC required companies to file financial information such as a Form 10-K in both an XBRL and HTML format. The XBRL format is read by computers while the HTML format is read by humans.
XBRL relies on taxonomies to define financial information. A taxonomy is essentially a dictionary containing a collection of elements that define reported financial data.
Taxonomies are published and maintained by authoritative bodies. The SEC requires companies to use the US GAAP Financial Reporting Taxonomy which is maintained by the FASB.
The usage of taxonomies standardizes financial data reported to the SEC. Companies will often report unique pieces of financial data that is not included within a taxonomy. When this occurs, companies can create their own taxonomy with elements that define the unique financial information reported.
In order to create an XBRL document, accountants must “tag” each reported piece of financial information with an element from the applicable taxonomy. Accountants use software to facilitate data tagging, such as the XBRL software provided by Workiva.
Elements have different attributes that help define the reported financial information. Some element attributes include balance type, period type, and documentation.
The balance type attribute indicates whether the element has a normal debit or credit balance.
The period type attribute indicates whether the element measures a specific point in time (balance sheet accounts) or a duration of time (income statement accounts).
The documentation attribute defines what financial concept the element is meant to represent.3
After each piece of financial information is tagged, a computer readable XBRL “instance document” is created and filed with the SEC. In the next section, I take a closer look at a real instance document filed by Nvidia Corporation (NVDA).
A Closer Look at XBRL
NVDA filed an instance document relating to its fiscal year 2018 Form 10-K. This instance document contains tags for every piece of financial information in the Form 10-K. NVDA reported $144 million of depreciation expense for FY 2018. Here is the tag that corresponds to this disclosure:
This tag contains a lot of information to help computers understand what the $144 million of depreciation expense represents. Let us break down what each phrase means within the tag:
us-gaap: Depreciation
The tag is enclosed by the phrase: us-gaap: Depreciation. This is perhaps the most important piece of information because it tells us the specific taxonomy and element that pertains to the $144 million of depreciation expense.
In this case, the depreciation element from the US GAAP Financial Reporting Taxonomy is used. The US GAAP Taxonomy can be accessed here:
https://www.fasb.org/cs/Satellite?c=Page&cid=1176173898403&pagename=FASB%2FPage%2FSectionPage
If we look at the depreciation element within the Taxonomy, we gain valuable information from its attributes. More importantly, computers gain valuable information about the $144 million of depreciation expense. Here are the balance type, period type, and documentation attributes:
Balance Type:
| Balance | debit |
Period Type:
| Period Type | duration |
Documentation:
| Documentation | en-US | The amount of expense recognized in the current period that reflects the allocation of the cost of tangible assets over the assets’ useful lives. Includes production and non-production related depreciation. |
contextRef = “FD2018Q4YTD”
The context reference gives computers more information related to the $144 million of depreciation expense. FD2018Q4YTD is the unique ID of the context and is defined in a context identifier tag found within the instance document:
This additional information provides NVDA’s unique 10-digit SEC identification number and the 2018 fiscal year start and end dates.
decimals = “-6”
This phrase expresses the degree to which the reported financial information has been rounded.4 The $144 million of reported depreciation expense has been rounded to millions. It is displayed in the tag as 144000000.
What if NVDA had reported $143.5 million of depreciation expense? Due to this 6-digit rounding, the tag would still show 144000000.
id = “Fact-2FBC7252D42A3B0E9694B482F2BFEC30”
This long jargon is simply the unique identifier for the tag. Every tag must have a unique ID.
unitRef = “usd”
This reference gives information on what type of unit the depreciation expense is measured in. The reference points to the unique ID, usd, which is defined in a unit identifier tag of the instance document.
In this case, the $144 million of depreciation expense is measured in US dollars. The measurement is recognized by ISO 4217, which is a currency standard published by the International Organization for Standardization.5
144000000
This is equal to the depreciation amount that NVDA reported in its FY 2018 Form 10-K. Here is how NVDA reported it within the Form 10-K:
This number has been “tagged” with the phrases described above so that computers have the context necessary to understand financial reporting data.
What is IXBRL?
The SEC is slowly phasing out the requirement that companies file a separate XBRL and HTML document of reported financial statement information.
By the end of 2021, all companies will be required to file IXBRL documents. IXBRL combines XBRL and HTML so that humans and computers can read the same document. This is accomplished by embedding the XBRL language into the HTML language.6
IXBRL gives users the ability to hover over financial data to view tagged information that was previously provided for computers within an XBRL instance document.7
Let us look at NVDA’s FY 2020 Form 10-K and hover over the $144 million depreciation amount reported for FY 2018.
Within the popup box, there is a wealth of formatted information that was previously found only in the indecipherable instance document.
For example, we can see the reported depreciation is tagged with the depreciation element found within the US GAAP Taxonomy. We also see that the reported depreciation is measured in US dollars.
IXBRL is beneficial because it reduces the cost of filing financial information. Companies no longer need to file separate XBRL and HTML documents. Investors benefit from the increased disclosures provided by IXBRL without needing prior knowledge of how XBRL works.
Carl’s Take
Alright, the key question – why does any of this matter to accountants?
XBRL is only going to grow as companies throw away paper documents in favor of exchanging financial data electronically. Millions of investors and analysts rely on electronic financial data without giving a second thought on whether that data is authentic. XBRL serves as an important gatekeeper for ensuring the authenticity of financial data.
You may be thinking that only technical professionals deal with XBRL. Wrong.
The most important step in creating an XBRL document is the tagging process. Accountants have the key responsibility in matching up a reported piece of financial information with the correct element in the applicable taxonomy.
If accountants fail to accurately complete this step, XBRL would be useless. For instance, what if a mediocre accountant accidentally tags NVDA’s depreciation expense to an amortization element? This would completely ruin the authenticity of the financial data.
Accountants have the most intimate knowledge of a company’s financial statement accounts. This knowledge combined with an understanding of XBRL should only increase an accountant’s marketability in the age of digital information.
Sources
- SEC, https://www.sec.gov/structureddata/osd-inline-xbrl.html.
- XBRL.org, https://www.xbrl.org/the-standard/what/an-introduction-to-xbrl/.
- xbrl.us, https://xbrl.us/wp-content/uploads/2015/03/PreparersGuide.pdf.
- xbrl.us, https://xbrl.us/wp-content/uploads/2015/03/PreparersGuide.pdf.
- iso.org, https://www.iso.org/iso-4217-currency-codes.html.
- SEC, https://www.sec.gov/structureddata/osd-inline-xbrl.html.
- SEC, https://www.sec.gov/structureddata/osd-inline-xbrl.html.