Advantages and Disadvantages of XBRL (continue)

The Disadvantages of XBRL

XBRL facilitates near real-time disclosure. The potential to quickly report information in automated ways is a double edged sword. On the one hand, near real-time disclosure improves transparency and sharing of information for a variety of beneficial purposes. On the other hand, near real-time disclosure may emphasize short-term results at the expense of long-term objectives. Some argue that financial information shared in a real-time way may cause undue volatility in stock prices and impulsive decisions by investors, suppliers, customers and business managers.

XBRL increases the potential for error. Many cite the potential for errors and inconsistencies as a major disadvantage. If companies select the wrong tag from a taxonomy (for example the US GAAP Taxonomy or “UGT”) then users of that information would rely on the incorrect information. This is a concern during implementation as companies begin to select  UGT elements for the first time, but the UGT ”tags” chosen by companies will improve over time as XBRL users learn how to select the best UGT elements to represent their information. In addition, the SEC will review XBRL exhibits and make comments where they believe corrections should be made. Since XBRL persists from period to period, electronic reporting accuracy should improve over time.

XBRL may increase information abuse. In an information age where dishonest people are electronically enabled, abuse is bound to occur. As more information becomes electronically companies will need to implement appropriate safeguards to protect their information, including XBRL tagged information.

XBRL taxonomies are extensible. Taxonomies are extensible. In other words, they can be expanded to meet a variety of purposes. One such reason for extending a taxonomy is to add a new taxonomy element that better describes an amount for which there is not a currently available taxonomy element. Extending a taxonomy is perfectly appropriate in some cases such as tagging disclosures required by  a newly effective accounting standard that has not yet been incorporated into the UGT. However, some argue that companies can over use taxonomy extensions thereby rendering (pardon the pun) the resulting instance document less comparable with companies in the same industry. Overuse of taxonomy extensions can be a problem. There are examples of companies utilizing UGT extensions exclusively in their filings with the SEC. Extensions are a necessary part of XBRL use, but use of extensions should be made only when appropriate taxonomy elements are not available.