Despite its many benefits, firms have been slow to adopt XBRL, or eXtensible Business Reporting Language. XBRL is part of a group of information systems languages used for communicating information between businesses and on the Internet. Accounting and Information Systems Associate Professor Steve Sheetz is doing research to learn why.
His research results will not only help regulators and investors but also may be relevant for standards adoption in other areas, including electronic health records.
XBRL ''has been touted by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board as well as accounting and consulting firms as a means to significantly improve the process and reduce the costs of financial reporting, auditing, and securities analysis,'' Sheetz says. These gains come in the form of time savings from re-keying data, the ability to analyze data more efficiently and thoroughly, and greater accuracy of the downloaded data. (See an example of the XBRL code.)
''Adopting standards for electronic communication of accounting information is a critical issue for accounting firms and the companies they service,'' he says, yet ''currently, only 74 companies have chosen to file XBRL-formatted reports with the SEC.'' In December 2008, the SEC voted to require 500 of the largest public companies to begin filing financial reports in XBRL by mid-2009, with remaining companies expected to adopt the standard by 2011. According to the SEC, investors will benefit from the use of XBRL because it will help them scan online financial reports quicker to get the information they seek.
With a $48,000 grant from PricewaterhouseCoopers, Sheetz and two faculty colleagues from the College of Charleston are investigating the factors behind a firm's decision to adopt XBRL. Such information will help explain why adoption has been limited and suggest possible actions for regulators, audit firms, and investors to encourage more participation.
The researchers will develop and test a research model including external pressure, organizational challenges, and innovation-related factors that explain an organization's decision to adopt XBRL. Sheetz says the model is based on two streams of prior research on adoption of complex information systems innovations and information technology standards. ''There's a long tradition of research addressing use of innovations and standards ranging from spreadsheets to systems development methodologies.''
The researchers will collect data for their one-year study through an online survey given to potential XBRL adopters. They will organize adoption factors into three categories: environment, organization, and innovation.
''Environmental factors — such as government, competitive, and trading partner influences — capture those aspects of the wider arena in which the organization operates,'' Sheetz says.
Organizational factors refer to the managerial and personnel resources, the firm's existing technical infrastructure, and the financial resources it has available that may facilitate adoption. Whether the organization has an XBRL champion within the group could be an expected factor of significance.
Innovation factors, he says, would be the characteristics of the technology — such as its complexity — that may affect adoption decisions.
''We expect that our research will benefit accounting and information systems practitioners and academics, including those who teach courses with XBRL assignments and activities,'' Sheetz says.
Theoretical insights from the project — about the characteristics of the innovation, the dimensions of the environment, and the capabilities of the organization — may apply well beyond the context of XBRL, he adds.
''For example, the adoption of comprehensive standards for electronic health records remains elusive despite more than a decade of work,'' Sheetz says. ''We expect that what we learn about using XBRL for accounting transactions may be relevant for the adoption of standards in other domains.''
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