The American Institute of CPAs has joined with the Big Five and several technology companies to develop Internet-based program code that promises to revolutionize financial reporting.
The XFRML Consortium is developing “XML-based financial reporting markup language,” also known as XFRML, a programming language that formats financial reports for transport across the Internet and viewing on browser-equipped computers. The tool is a derivation, or “specification” of extended markup language, which is fast supplanting HTML as the language for Web-based documents.
The group’s members expect their language to evolve into “the digital language of business,” by first establishing itself as the business community’s standard for preparing financial reports, and publishing, exchanging and analyzing the reports’ information over the Internet. At the same time, it will make the delivery of that information more rapid and less expensive than ever dreamed of, they say.
While HTML has allowed for financial statements to be posted on and downloaded from the Net, XFRML will allow investors, lenders and others to download very detailed information from the statements, such as depreciation expenses for a specific time period. It will also allow for the downloading of detailed groupings of information, such as all of a certain year’s depreciation expenses reported by all companies in the same industry.
“Accounting is the language of business, and XFRML will make it easier to share information expressed in that language by permitting computer applications to understand our vocabulary,” said AICPA chief executive Barry Melancon.
Moreover, the consortium’s members say that XFRML will enable the accounting industry and financial officers to realize the Internet’s full potential. “Everyone’s talking about information moving seven times faster on the Internet, and now we have the capability to make our financial data take advantage of that speed,” said Wayne Harding, vice president of Great Plains Software, a prominent consortium member.
While the consortium expects to have a functional language available by next March, at which time it may kick off a nationwide marketing campaign, it has developed a prototype that is being used by Great Plains to present its 1998 financial results on its Web site, www.greatplains.com/xml.
The statements initially targeted for use with XFRML include balance sheets, income statements, statements of equity, statements of cash flow, notes to the financial statements and the accountant’s report.
The remaining consortium members are: financial report software developer FrX Corp.; Internet-based financial information distributors FreeEDGAR.com Inc.; Interleaf Inc., a developer of XML-based technology; and the Woodburn Group, a CPA/tech consulting firm based in Minneapolis.
Along with providing easier access to financial information, XFRML theoretically will also provide for easier delivery by formatting information so that it automatically meets regulators’ reporting requirements. The consortium says that XFRML means that information entered once can be “rendered” as a printed financial statement, a Web site document or a specialized report.
The consortium expects XFRML to ultimately become the delivery language for many reports that are the bread and butter of many CPA firms, including IRS tax returns and the Securities and Exchange Commission’s 10Qs and 10Ks
CPAs themselves are expected to be key players in getting the business community – particularly their publicly traded clients – to adopt XFRML. A formal strategy has not yet been decided, but the Big Five will likely set a model that smaller CPA firms will follow in leading clients to make XFRML the standard for all businesses.
As lead member of the consortium, the AICPA owns the XFRML license. Its information technology group leader, Louis Matherne, has indicated that the institute will issue individual licenses for free, in the interests of getting XFRML adopted on a wide scale.
The consortium will be meeting in the coming months to further define development of the language and to hash out plans for its delivery. Still to be determined are the CPAs’ exact roles in making the technology known to their clients and the sectors to whom the message will be targeted.
The consortium is the latest of dozens of industry groups around the world that are developing Internet-based delivery languages specific to their industries by working from XML expansions of HTML.
While HTML tells browsers how to display type and images, XML has taken things a step further by also describing the nature of the content and indexing it so that users can retrieve very specific information. Industry-specific applications of XML drill down even further by indexing and allowing for the retrieval of details – in XFRML, that means details from within financial statements.
Other vertical players with XML initiatives include the insurance industry, which is creating XML standards for policy information, and the Newspaper Association of America, which is creating standards for classified advertising data.
One major hurdle and fear for the XFRML Consortium is the potential for other players to develop an XML specification for financial reports. If competing financial reporting specifications are created, it could splinter business users and ultimately dilute the power of the initiative.
“What will make this work is everyone using the same specification,” said Matherne. “The real power of this will be how it’s used – [as well as] the broad acceptance of XFRML as a common language.”
PricewaterhouseCoopers, an XFRML Consortium member, is already working with investment banker JP Morgan on creating an XML specification related to the investment industry. However, that is not a direct threat to XFRML, according to consortium members.
One apparent drawback to the XFRML Consortium’s efforts has been its inability to attract vendors of enterprise business software applications. For example, enterprise vendor SAP has already established itself as a leader in developing vertical XML specifications.
Matherne said that he hopes that the enterprise vendors, such as SAP and Oracle, will connect with XFRML as it gains more momentum. “The enterprise vendors are not a population we are ignoring by any stretch,” he said.
Consortium member Microsoft operates a forum for XML development initiatives, known as BizTalk, which already includes most of the enterprise software community. Microsoft accounting market manager Christy Reichhelm heartily praised the XFRML effort and said that it will likely become better known to the enterprise vendors though BizTalk.
“It’s a great move on the AICPA’s part, saying we can make some real changes in the industry and make life easier for a lot of people,” she said.
Fellow consortium member FrX Software, the Denver-based report writer technology developer, held off on its Internet development efforts until XML became more established. A soon-to-be-released update of its Visual Financial Reporting software product features the ability for reports generated from general ledgers to automatically format in XML for delivery over the Internet.
“We skipped HTML and waited for XML, and now XFRML is taking things even further and is better for business,” said Robert Blake, an FrX product manager. “A lot of people are waiting for XFRML to get a full green light because it opens the door for lots more.”