XBRL Taxonomies

Industry needs to master the new tool for reporting financial statements and understand its implications

On March 31, 2011, the Ministry of Corporate Affairs (MCA) issued a circular mandating all listed companies and certain unlisted companies to file their balance sheets and profit and loss accounts (financial statements) for the year ended March 31, 2011, onward using an eXtensible Business Reporting Language (XBRL) format.

This circular is a significant step for the country’s move towards adopting XBRL and is part of a series of important regulatory initiatives. In the initial phase, the MCA mandate applies to all companies listed in India and their subsidiaries, including overseas subsidiaries, all companies having a paid-up capital of Rs. 5 crore and above, or a turnover of Rs. 100 crore and above.

The MCA is also expected to issue further clarification on matters such as issuance of a taxonomy to be used by companies, implementation of validation procedures for companies to check accuracy of XBRL reports filed, whether MCA will introduce a portal to directly report information in a pre-determined XBRL compliant format and whether the complete set of financial statements (including schedules and notes to accounts) or only the balance sheet and profit and loss account are required to be filed in XBRL.

What is XBRL? XBRL is a computer language that enables documents to be read electronically. For example, financial and other reports in Microsoft Word and Excel, HTML, etc, cannot be automatically identified or retrieved for computerised analysis or further processing. XBRL solves this problem by ‘tagging’ individual items, which makes documents machine-readable. For example, several sets of financial statements could be tagged to a common dictionary of terms (taxonomy).

Once tagged, all information can be analysed automatically, saving significant time in collecting such financial information. XBRL thus allows transparent filing of financial statements and provides reliable information to investors and regulators — such as ROC, SEBI, RBI and stock exchanges – facilitating improved monitoring. Similarly, XBRL is also beneficial in non-financial statement uses since it is capable of encoding any information. For example, a Company’s management can use XBRL to collect and analyse information relating to supplier data, customer application forms, project information, employee data and MIS data.

Not only the producers of such information but even users can automate data handling, cutting out time-consuming and costly collation and re-entry of information. Globally, XBRL has been a highly successful platform for regulatory reporting. For example, the introduction of XBRL for banking regulation in the US has been a major success. More than 8,000 banks have been filing quarterly call reports in XBRL since October 2005. Banking regulators on the Federal Financial Institutions Examination Council (FFIEC) say its XBRL system has provided major benefits in efficiency, data validation and speed.

The number of errors that stood at a staggering 18,000, viz 1,000 basic arithmetic errors (like the sum of the individual component not cross-tying with the overall total) and 17,000 errors in business rules (like the check for the opening balance not exceeding the ending balance), were all ironed out effectively, thus improving the quality of data immensely. Among the other indirect benefits, XBRL also helped in reducing the processing cost and time, bringing consistency and providing flexibility.

In the above case, the processing cost that stood at $65 million over a period of 10 years came down to $39 million, the processing time came down from 60-75 days to 2 days, the data was now stored at a single location and automation provided for greater flexibility. Some other XBRL success stories include those at the National Bank of Belgium, the Bank of Japan, the Bank of Spain and the Tokyo Stock Exchange, among many others. Moreover, countries such as China, Israel, Japan, US, Singapore, South Korea, Italy and Belgium have already mandated XBRL-based filing of financial statements.

For example, the US has already mandated XBRL based filing for all listed companies, in a time-bound manner. In India, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) have already adopted an XBRL based reporting system under a unified electronic platform popularly known as the CorpFiling system. As per the XBRL World Wide Adoption Survey, April 2010, the top 100 companies in India are using CorpFiling to submit their disclosures to the two exchanges.

The Securities and Exchange Board of India (SEBI) also facilitates filing of specified information by listed companies through XBRL-enabled technology like the Corporate Filing and Dissemination System (CFDS) and the soon-to-be introduced SEBI Unified Platform for Electronic Reporting-Dissemination (SUPER-D). Similarly, the RBI is already getting several capital adequacy submissions in XBRL and plans to substantially reduce the number of forms through use of XBRL. Indian companies affected by the MCA’s circular need to work through the XBRL conversion process in a time-bound manner.

Factors to consider include identifying the XBRL software to be used, training resources on XBRL and its intricacies, navigating complex accounting literature and mapping them to the XBRL taxonomies, and embedding them into the regular reporting cycle. Hence, it is essential for companies to start early to ensure accurate and timely reporting under XBRL. Overall, however, XBRL is an information revolution that will benefit all stakeholders. Companies will find it well worth their time to understand its benefits.

Source: Economic Times

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