Monumental Changes in Accounting
Change seems to simply just happen. Malcom McLean, the trucking entrepreneur, revolutionized the cargo industry by introducing metal shipping containers. The barcode transformed inventory management; desktop publishing revolutionized the printing industry, and now Extensible Business Reporting Langue (XBRL) is about to transform the accounting profession.
November 10, 1494 is a significant day in the history of accounting. On this date, Luca Pacioli, a Franciscan monk and mathematics professor, published the first book on double-entry accounting. Friar Pacioli’s book described the financial transaction process used by merchants in Venice during the Italian Renaissance period. His book laid out the basis of the double-entry accounting system still in use today; the source of the beloved debits and credits.
The advent of computerized accounting software marked a dramatic shift away from paper and hand recording of business transactions-the first significant change and a big step in the automation of the accounting process. This shift, after 470 years, automated what had been an extremely labor intensive process by reducing the number of steps; the need for multiple bookkeepers, ledgers, and journals and, ultimately, the overall size and cost of an accounting department. While this automated process brought significant changes, the accounting industry still has not really deviated from the basic system described by Friar Pacioli.
August 1, 2009 is another significant day in the history of accounting. The U.S. Securities and Exchange Commission (SEC) mandated that XBRL format be used for all quarterly reporting. The Electronic Data-Gathering, Analysis, and Retrieval (EDGAR) system website reported there were “no major complaints, though a couple of issues have understandably surfaced for companies filing for the first time in this format.” The use of XBRL represents a significant advancement and further refinement in the automation of accounting. This step in the accounting automation process still leaves Friar Pacioli’s system intact and will ultimately place control of financial reporting in the hands of management, owners, and investors-not just accountants or financial management. XBRL will open the door to imaginative and innovative refinements that empower entrepreneurs who will further define and drive changes in the accounting world.
XBRL is a computer readable format used for data tagging that is more easily understood by comparing it to the UPC labeling used for barcoding of products. Like barcodes, each piece of financial data is tagged and stored in a database for later use. Data mining will then retrieve financial data for use in financial analysis and reporting, opening the way for microscopic or telescopic examination of this information, thus producing the ability to “slice and dice” financial data for utilization in more informative and useful ways. The significance of this kind of change may not be readily apparent to all, but believe me it will have ramifications equal to that of containers on shipping or barcoding on inventory management.
The XBRL bonus for management and owners of all small businesses will be the ability to retrieve real time financial data in a management friendly format. This will eliminate many of the historical financial unknowns plaguing your current decision making process. How many times have you made important business decisions without the benefit of supporting financial information simply because accounting could not get you timely and useful data? We are on the precipice of big changes that will impact us all.
