Regulatory authorities around the world have adopted rules requiring companies to provide their financial reporting in a structured data, machine-readable format i.e. eXtensible business reporting language (XBRL).
The vision of XBRL filing is that the format would enable investors and analysts to capture and analyse information more effectively, as well as help companies automate their financial report filings with the Regulators. Eventually, both preparer and investor costs would be reduced through the use of XBRL.
Unfortunately, XBRL has not achieved its true potential for either investors or companies. One of the main reason is that Companies see XBRL Filing as a compliance burden and a cost center.
In order to achieve the true potential of XBRL Filing – Five key principles are necessary to maximize benefits from XBRL, which includes increased efficiency, transparency, comparability, and timeliness in the delivery of financial information to all parties.
1. The core taxonomy should be predefined by regulators in accordance with the current financial reporting standards, generally accepted accounting principles (GAAP) and other regulatory disclosure and reporting requirements.
2. Taxonomy extensibility should maintain uniformity to compare the structured data as defined by GAAP and other regulatory requirements. Company-specific extensions should be allowed for such information which does not fit into any of the concepts within the standard taxonomy. If a tag does not exist, an extension should be allowed but within a well-defined framework so that no extension corrupts other financial statement relationships.
3. Ultimately, Companies should deliver required financial reports to regulators using the established XBRL framework as defined by GAAP and other regulations.
4. XBRL-tagged information should be made accessible to the general public. Regulators need to provide an application that transforms the XBRL-tagged report from a machine-readable format to a human-readable format. The implementation of iXBRL (in-line XBRL) is preferred as it provides a means of viewing the XBRL filing itself in a human-readable, understandable, and familiar format. iXBRL allows for the inclusion of XBRL tags within ordinary, human-readable XHTML documents. It eliminates the need of separate application to convert the XBRL-tagged report.
5. Regulators should keep a check on the XBRL framework and Taxonomy to make sure it is updated timely in accordance with the current changes made to the accounting standards and regulatory requirements in XBRL Filing. It is also necessary that regulators make regularly scheduled reviews of the custom extensions to determine the need to add new common items to the core taxonomy.
Companies has faced many challenges in XBRL implementation. In the US, the quality of the information provided in the reports is the biggest challenge. One of the reasons for this is the lack of adherence to these five principles — especially regarding the use of extensions. We urge companies and regulators to take heed of these principles to address the challenges in the implementation of XBRL.
Watch What Investors and Analysts Can Do with Structured Data
The XBRL-tagged Structured data is useful to the investment industry. With the availability of Structured data, Investors and Analysts can not only research a greater number of companies but can also take a closer deep look of the companies in which they already interested or following, which in turn, provides better and effective investment making decisions. It makes the process much easier for investors to retrieve and analyse this data. Greater efficiency with higher-quality investment decisions is a win for capital markets.
In March 2016, XBRL US has held a webinar in partnership with CFA Institute: “Financial Fundamentals Analysis — What Analysts Can Do with Structured Data.” During the webinar Emil Efthimides, global regulatory monitor for Bloomberg, shared insights into how that firm is using XBRL-tagged information from several different countries.
In January 2018 webinar, CFA Institute addressed the issue faced in context of the cost that the companies of all sizes in preparing and filing their financial information in a structured data i.e. XBRL Filing. The webinar shows measures to be taken to reduce the cost burden so that all parties – preparers, regulators and users – can avail the benefits of the Structured Data. It also provides the way in which investors and analysts can use and adapt the new technologies to improve and enhance its analytical process.