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Chapter 5
Exercise 5.3
Assume that you are the manager of the Accounting Department at Fitter, which still does
not have an ERP system. What changes must you make in your accounting practices to get
the company in compliance with the Sarbanes-Oxley Act? Write a proposal to your
manager outlining your plan to be ready for the additional amount of reporting necessary.
For this exercise, assume that Fitter does not have an ERP system in place.
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TRENDS IN FINANCIAL REPORTING—XBRL
The finance departments of most corporations are under pressure from a variety of
sources. The financial crisis of 2008 along with the global recession has affected almost all
companies. Profit margins are being squeezed, market volatility has brought increased
risk, and new government regulations are more numerous and complex. As noted
previously, ERP software can help companies effectively handle challenges such as
complying with Sarbanes Oxley regulations. Another regulation, put forth by the SEC in
2009, is the Interactive Data to Improve Financial Reporting rule, which requires the
gradual implementation of XBRL tags in financial reporting documents.
Extensible Business Reporting Language (XBRL) is a standards-based language for
the electronic communication of business and financial data. XBRL is a subset of
Extensible Markup Language (XML), the new programming language of the Internet. XML
uses tags that define the data contained within them. Similar to data types assigned to
records in a database, XML tags apply specific meaning to the data within a Web page.
XML-coded data can go directly from a Web page into a database without having to pass
through middleware or, worse yet, be rekeyed into the system. This reduces the chance of
errors. In comparison, most current Internet pages are written in Hypertext Markup
Language (HTML). HTML specifies only how your data will look (by assigning text styles,
coloring, placement of graphics, and so on) when viewed through a browser. XML changes
that data into information with meaning and usefulness. For financial reporting, XBRL
provides an identifying, computer-readable tag for each item of financial data. For
instance, “company net profit” has its own unique XBRL tag.
Apart from new regulations, there are other reasons why XBRL is becoming prevalent.
Reports written in XBRL are processed faster because the imbedded tags directly relate to
a database, and XBRL financial reports can more easily be validated electronically and
then compared to other reports. More importantly, investors and other interested parties
are concerned with transparency in reporting. To assess the risk of a given investment,
the investor must understand the financial aspects of the investment. If a report is
obscure or hiding information, then the risk is not easily assessed. XBRL results in more
transparency of reporting.
XBRL is controlled by a nonprofit group of 600 international companies and other
organizations, including governmental agencies. The group is responsible for creating and
standardizing these financial tags. In addition to the SEC, entities such as the U.S. Federal
Deposit Insurance Corporation (FDIC), which provides deposit insurance guaranteeing the
safety of deposits in member banks, and Her Majesty’s Revenue & Customs (the United
Kingdom’s customs and tax-collection departments), are beginning to require the use of
XBRL tags.
ERP systems can accept data in XML and XBRL format. For example, SAP’s Business
Objects XBRL Publishing tool allows users to avoid complex tags and simply use a drag-
and-drop system for categorizing financial data.

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