by February 10, 2005 0 comments

Listed companies have to adhere to the accounting standards of their respective countries. The financial statements such as balance sheets, cash flow statements are prepared in HTML, Excel and PDF formats and there is no common standard for such reporting. The reports so generated are utilized for internal purposes as well as by external agencies. As different reports are prepared in different applications to suit different needs, retrieving it becomes difficult.

Consider a listed Indian company, which has to submit its financial reports to regulatory bodies. The Company Law Board might ask for monthly reports while financial institutions may ask for yearly ones. Meeting these needs is tedious and time consuming given the applications they are made in. Also the regulatory bodies take long to go through such formats and the final processes get delayed. 

Such issues can be resolved with XBRL. It standardizes the financial reporting format as well as defines how and where exactly data should be represented. 

Direct Hit!
Applies to: Banks, FIIs, Listed companies
USP: Free standard that enables easy reporting of financial statements

XBRL is not just another accounting standard or protocol. It’s an XML-based standard, current version ‘2.1’ that provides a unique tag for each financial element or item. In short, reports are prepared in a common standard while style sheets enable it to be easily displayed in different formats (yearly, monthly, etc). The reports are stored centrally and can be accessed by anyone. It’s been developed and is being managed by XBRL International, which has over 200 companies as its members. XBRL standard is royalty free. Here we discuss the key components of XBRL-instance documents and taxonomy.

Instance documents 
Instance document is a file based on the XBRL standard or specification and tied to taxonomy. Finance-related business concepts are represented by facts (or an ‘item’) in the XBRL instance document. Each fact has a value. For instance, ‘earning per share’ is a business concept and the instance document will have a value for it. Facts can be simple or complex. A simple fact is not related to other business concepts. For example, ‘stock closing price’ is a simple fact. Inter-related business concepts are grouped as ‘tuples’. Items can also refer to a context. A context describes aspects such as time period and reporting options. So the context for ‘earning per share’ could be ‘year 1999-2000’ and ‘quarterly report’. 

Different taxonomy is created depending upon the purposes and country. For instance, a country might have taxonomy for financial reporting while another country might have it for insurance or banking sector. 

XBRL organizes your financial data in a pre-defined format (left) so that it can easily be viewed through a Web browser (right)

Taxonomy comprises the description or vocabulary of business concepts, their syntax and how calculation (procedure) for financial aspect is done. XML schema is used to describe the vocabulary. Metadata describes relations between business concepts, using XLink. The XBRL instance documents can optionally refer XLink linkbases to get additional information about the business concept. There are five different linkbases grouped into three categories (Relation, Label and Reference).

The Relation link consists of calculation, presentation and definition links. Label and Reference relate business concepts to metadata. Label is used to name business concepts with text string. For instance, the label ‘profit in quarter III’ can be used to describe the profit item in taxonomy. Multiple labels can be given to a business concept. The Reference link gives reference to documentation for business concepts. It also relates one business concept to another. For eg, the concept ‘profit before tax’ is calculated from the concept of ‘profit after tax’ and ‘tax’ since profit before tax equals profit after tax less the tax paid. 

The relationship between these three business concepts is stored in the calculation link. Definition link gives the relationship between the business concepts. Presentation link defines business concepts from a presentation point of view. For eg, in report ‘profit after tax’ concept should be shown as PAT. 

XBRL acceptance 
If a country wants to shift its mandatory reporting to XBRL, a taxonomy based on its standards has to be prepared. Currently only few countries (USA, Canada, Australia, Germany) have taxonomy frameworks for their respective accounting standards or sector. 

XBRL standard based financial report is stored at a single location 

For instance, the US has GAAP (Generally Accepted Accounting Standard)-Commercial and Industrial, GAAP-Insurance taxonomy, Germany has AP Commercial and Industrial taxonomy. UK financial service regulator is adopting XBRL, while Inland Revenue is launching a pilot project for corporate tax filing in

XBRL reporting
There are a number of software, which create instance documents based on particular taxonomy. The software allows mapping of business concepts to XBRL tags. Edgar online allows companies to submit the financial report in any format and make it available in the XBRL standard. This is a paid service and is being widely used in the US. Companies such as Microsoft and Reuters are already using XBRL for financial reporting.

Indian reporting standards 
India has well defined Accounting Standards framed by the Institute of Chartered Analysts but no XBRL-based taxonomy. And to do this, the Department of Company Affairs has to create taxonomy along with other regulatory authorities such as the Company Law Board and the Registrar of companies.

Lastly, XBRL gives a common standard for financial reporting where one report is prepared and distributed to different regulatory authorities. For instance data from different company divisions, which follow different accounting standards can be gathered quickly and can be related with XBRL. So software will ensure that error free report is prepared. Software or tools have to be created for different taxonomy and updated with changes in regulation, which is complex. XBRL does not ensure that companies report correct financial numbers. The report users have to ensure themselves that they have correct data and information. 

Sushil Oswal

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