XML AND XBRL AS TOOLS TO ENABLE E-BUSINESS (STUDY OBJECTIVE 10)
Within the environment of the Internet, intranets, and extranets, two languages have emerged as important tools to enable e-business: XML and XBRL. Both languages have important uses.
XML, short for eXtensible Markup Language, is designed specifically for Web documents. Using XML, designers create customized tags for data that enable the definition, transmission, validation, and interpretation of data between applications and between organizations. XML is a rich language that facilitates the exchange of data between organizations via Web pages.
XBRL, short for eXtensible Business Reporting Language, is an XML-based markup language developed for financial reporting. XBRL provides a standards-based method to prepare, publish, reliably extract, and automatically exchange financial statements. In XBRL, dynamic financial statements can be published and manipulated on websites. The next sections explain the uses of XML and XBRL.
XML IN INTERNET EDI
Chapter 9 described EDI (electronic data interchange) as a method to conduct purchase transactions electronically. Traditional EDI is a technology that companies began to implement in the late 1960s. EDI was especially popular in industries such as rail and road transportation, auto manufacturing, and health care. Over the years, EDI came to be the form of conducting electronic business for large companies. However, two limiting factors have made it difficult for small to medium-size businesses to implement EDI. First, traditional EDI requires establishing very expensive networks such as private leased lines or value added networks (VANs), and small and medium-sized companies in many cases could not justify the cost. Usually, small to medium-sized businesses adopted EDI only when forced to by a large company that they dealt with. For example, if a small company were a supplier to Ford Motor Company, it would have no choice but to implement an EDI system, since Ford conducts purchases only via EDI. The second limiting factor is that traditional EDI in the United States is based on an old document standard (ANSI X.12) that limits the kind of data that can be exchanged via EDI. The ANSI X.12 standard for EDI defines standards for common business documents such as purchase orders and invoices. However, the standard was never intended to cover the more extensive and complex exchange of information, such as shared files or databases, that occurs when two companies collaborate on a project. Given these two limitations, traditional EDI was never widely adopted by small to medium-sized businesses.
The growth of the Internet over the last two decades has provided a powerful and inexpensive alternative to traditional EDI. Internet EDI uses the Internet to transmit business information between companies. Internet EDI is also referred to as EDIINT. There are several advantages to using the Internet or extranets to transmit EDI, compared with private leased lines or VANs. By far the biggest advantage is that the Internet or extranets allow cost-free exchange of data. The companies using the Internet or extranets avoid the cost of leasing private lines and paying fees to VANs. This allows any business, including small and medium-sized businesses, to employ EDI at a relatively low cost.
The Internet EDI method of transmission is a relatively new development, but some companies have implemented it throughout their supply chain. A partial list of companies using Internet EDI extensively includes General Electric, Procter & Gamble, Walmart, Kohl's, and Meijer. Exhibit 14-9 summarizes the advantages of Internet EDI in comparison with traditional EDI employing value added networks.
A value-added network is expensive because a company must pay monthly fees or transaction fees to use the VAN. Internet EDI is much less costly because the Internet network can be used without fees. In addition, the hardware and IT systems necessary to support traditional EDI via a VAN are very complex and expensive. Much computer hardware and software must be dedicated to providing traditional EDI. Internet EDI is much less complex and requires only minimal computer hardware and software. Internet EDI can be operated with only a PC or network of PCs that are Internet connected. This allows the easy adoption of Internet EDI by small and medium-sized businesses.
Traditional EDI is a batch-oriented system that processes transactions in batches. This means there is some delay while transactions are batched, temporarily stored, and then finally transmitted when the batch is complete. Internet EDI operates in a real-time environment, just as B2C commerce is in real time. Because of these problems with EDI, traditional EDI is limited to larger organizations and to the type of data included in standard business documents. The low cost and communication capabilities of the Internet remove those limitations for Internet EDI. All companies in the supply chain are more likely to be able to afford Internet EDI, and they will be able to transmit more types of data than simply standard business documents. The Walmart example at the beginning of this chapter is an example of a company changing from traditional EDI to Internet EDI.
The network of computers connected to the Internet does allow for more types of data to be communicated between business partners. However, the traditional EDI data format of ANSI X.12 would not accommodate more rich data types such as graphics or spreadsheets. Therefore, Internet EDI can be more flexible if a different data format is used to transmit data. The format used in Internet EDI is eXtensible Markup Language, or XML.
Exhibit 14-9 Traditional EDI using VAN versus Internet EDI
Traditional EDI is capable of transmitting many standard business documents between companies, such as purchase orders, invoices, and even payments by electronic funds transfer (EFT). However, given the capabilities of the Internet and extranets for sharing information, this traditional EDI data format is too limited. In addition to business documents, companies may need to transmit or share product descriptions, pictures of products, or even databases of information. Traditional EDI cannot accomplish such sharing of data. Internet EDI does provide the capability of sharing much richer forms of data through the use of XML. XML is a metalanguage, which means that it is a computer language that defines a language. XML is a tagged data format in which each data piece is preceded by a tag that defines the data piece. The same tag then marks the end of that piece of data. Thus, a tag surrounds each piece of data. XML is the standard markup language utilized in Internet EDI.
XML allows businesses to exchange transaction data over the Internet in a rich format. As XML becomes the accepted standard in Internet EDI, it will enable companies to exchange more than standard business documents. Spreadsheets, graphs, and databases could all be exchanged between businesses by the use of XML documents to tag the data and the manner in which the data should be presented. Those who predict the future of the IT environment predict that XML will revolutionize the way in which businesses share data with each other and with customers.
Although EDI through a value-added network or Internet EDI provide significant cost savings and efficiency, it has not led to every company using EDI. There are still businesses that use paper purchase orders or invoices. The number of companies using EDI is on the rise, yet some estimate that up to 35 percent of purchase orders processed in the United States are still paper-based. In addition, some companies still use value-added-networks to facilitate EDI communication rather than Internet EDI.
XBRL FOR FINANCIAL STATEMENT REPORTING
A special variant of XML called eXtensible Business Reporting Language, or XBRL, is predicted to revolutionize business reporting to creditors, stockholders, and government agencies. In 2009, the Securities Exchange Commission (SEC) began requiring companies to provide annual reports and financial statements in XBRL format. The idea behind XBRL is that financial data are tagged in a computer readable format that allows the users to readily obtain, analyze, exchange, and display the information.
XBRL financial statements have two major advantages over paper-based financial statements. Financial statements that are coded in XBRL can easily be used in several formats. They can be printed in paper format, displayed as an HTML Web page, sent electronically to the SEC, and transmitted to banks or regulatory agencies as an XML file. When a financial statement is prepared in XBRL, a computer program such as a Web browser can extract pieces of information from the XBRL file. The underlying financial data can be loaded into spreadsheets or other financial analysis software. This is not possible with an HTML file. For example, while a financial statement in HTML format can be viewed on a website, the computer cannot extract sales. However, a XBRL financial statement would tag the dollar amount of sales with the tag that names that number sales. The computer can then extract specific pieces of data. This capability allows investors and creditors to more easily analyze financial statements, which should result in better investment and credit decisions.
For XBRL to be implemented widely, common standards regarding the tags that identify data must be developed and accounting software vendors must use these tags within the software.