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XBRL – CONNECTING THE DOTS

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eXtensible Business Reporting Language (“XBRL”) is changing the way in which the business world communicates financial information. By updating the way business and financial data is transferred and reported globally, XBRL is revolutionary in this process.

XBRL is being developed by an international non-profit consortium of approximately 500 major companies, organisations and government agencies around the world. It is an open standard, free of licence fees. It is already being put to practical use in a number of countries and implementations of XBRL are growing rapidly around the world.

What is XBRL?

XBRL is an electronic language that can be thought of as a barcode for business data. Much as cash registers read barcodes, your computer reads XBRL-coded documents and extracts information. This obviously means that your financial information has to be ‘tagged’ in XBRL format to enable XBRL software to read your financial data. It’s fast, accurate, and enables you to gather data from many different sources.

The XBRL revolution will drive financial reporting away from being paper based to being mere data. Data can then be rendered (converted) into a humanly readable format, so that you and I can still understand and interpret it. See diagram 1 below.

Diagram 1

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  • XBRL is a barcode for business reporting facts
  • De facto electronic standard for preparation, exchange and consumption of business information
  • Digital technology standard used to express a wide range of disclosures including:
    • IFRS-, US GAAP-, UK GAAP – financial statements, etc.
    • Internal management information,
    • Sustainability reporting,
    • Regulatory returns,
    • Statistical reports, and
    • Credit filings.

How does XBRL work?

The concept behind XBRL is quite simple. Financial information is usually treated or presented as a block of text, whether it is on a standard internet page or in a printed document (for example, an annual report). Instead of treating financial information in this way, XBRL provides an identifying tag for each individual item of data. For example, “profit for the year” will have its own unique tag. A list of tags is referred to as a taxonomy, or in other words a “dictionary”.

Around the world numerous taxonomies have been developed and include the XBRL Taxonomy for G3 (Sustainability reporting taxonomy released by the Global Reporting Initiative (GRI)), the International Financial Reporting Standards (IFRS) Taxonomy and the Unites States Generally Accepted Accounting Practice (US GAAP) Taxonomy, to name but a few. Furthermore, there is nothing stopping you from creating your own “dictionary” that will meet your own reporting requirements. Currently the 2008 IFRS Taxonomy contains approximately 2700 tags and is up-to-date with the IFRS 2008 Bound Volume released by the International Accounting Standards Board (“IASB”) on 1 March 2008. The US GAAP taxonomy contains approximately 13 500 tags.

Global adoption

Herewith just a few…

  • In November 2007, the Accounting and Corporate Regulatory Authority (ACRA) in Singapore issued a requirement for Companies that filed Annual Returns on or after 1 November 2007, to use XBRL reporting, provided their reporting period ended after 30 April 2007.
  • Israel public companies began reporting in XBRL in January 2008.
  • In March 2008, Japan’s Financial Service Agency launched a new Electronic Disclosure for Investors NETwork (EDINET). This system will facilitate the submission and retrieval of XBRL filed documents that are mandated for the first fiscal quarter ending June 2008.
  • In May 2008, the United States Securities and Exchange Commission (SEC) issued a rule proposal for filers to file in XBRL format (see further details below).
  • The New Zealand government has initiated a cross government XBRL project ultimately to encompass broad government and regulatory filing, leveraging XBRL.
  • There are a number of initiatives underway in France that will accelerate the adoption of XBRL. France has formally become the 22nd member jurisdiction of the XBRL Global Consortium.
  • Australia has made great strides in its standard business reporting project, consolidating all governmental reporting to a single XBRL taxonomy and supporting infrastructure. The Australian Federal Treasurer announced in August, 2007, a “$208 million funding for the Standard Business Reporting (SBR) project over the next 3 years”.

What does all of this mean for my organisation?

On 14 May 2008, the SEC approved the issuing of a rule proposal that, if enacted in its current form, will require domestic and foreign issuers that use US GAAP, and eventually those that use IFRS, to submit/file their primary financial statements, notes to the financial statements and schedules in XBRL format to EDGAR.

But what if I am not a SEC filer?

In South Africa, the development and drive for adoption is done by XBRL SA, a not-for-profit organisation, which currently has about 25 members and is growing. These members include large corporate organisations, audit firms, regulators and accounting software vendors. The main purpose of this organisation is to create awareness within the South African market, while the members contribute to the development of taxonomies relevant specifically to South African reporting requirements (i.e. JSE listings requirements, Companies Act Fourth Schedule disclosure requirements, etc.).

It is expected that the road to adoption in South Africa will follow a similar route as that of the US, which started with a voluntary filing program and later mandated the use of XBRL as a format for filing purposes.

Even if your organisation is not yet required to file with the SEC (or any other regulator for that matter), XBRL can still bring great benefits, if implemented correctly.

A broken process:

Diagram 2

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As illustrated in figure 1, many organisations use Microsoft Word and Excel to prepare monthly and annual financial statement reports. These files are very complex, difficult to maintain and prone to error. Reports contain links between different Excel files and, for some of the inputs, data has to be entered manually into the appropriate spreadsheets. Then linked data has to be refreshed and unlinked data has to be copied and pasted into its final format in Word. And this process has to be started from scratch in every new period. It requires manually intensive work to maintain the integrity of these files, which becomes very time-consuming.

In order to create your business reports, you have to copy and paste Excel data into Word. Furthermore, only about 40 – 50% of the information in your annual and interim financial statements comes from the trial balance, and the rest comes from those other sources (spreadsheets, etc.). And to make matters worse, the knowledge of maintaining and updating these files sits with a limited number of individuals within the organisation.

And all of this only to get your financial information to the market two or three months after your financial year-end.

Risks to CFOs:

  • Increasingly complex compliance regulations;
  • More tight filing deadlines;
  • Pervasive use of complex spreadsheets in the finance department;
  • Expanding disclosure in interim and annual reports;
  • More people involved in preparing these reports; and
  • CFO retains accountability for these external financial reports.

Will XBRL solve this “spreadsheet nightmare” for me?

No. But the implementation of XBRL makes organisations re-look their current financial reporting process. The reason being that with XBRL comes automation and in order to assign appropriate tags to data, the financial information in your current application systems needs to be granular enough for the tagging process to be effective.

There are solutions available in the market that can automate the whole financial reporting process (like the reporting process explained above). Furthermore, there is nothing stopping you from creating your own taxonomy that will meet your own reporting requirements. An automated solution reduces the risk of errors because once data is validated in the system it dynamically rolls variables over every month. Automation further means a reduction in the reporting cycle time, while improving data integrity. The automated solution can source data from a database, accounting systems, Excel spreadsheets, etc., and eliminates the manual copying and pasting of data.

Furthermore, the software has XBRL embedded in it. This means that your pre-defined tags are attached to the data sitting inside the database, which enables you to export your financial information in XBRL format. This will enable you to send the XBRL data to those that require it (i.e. regulators, investors, analysts, etc.) and organisations can make the XBRL files available on their corporate website.

What benefits will true automated financial reporting and XBRL bring?

XBRL offers a series of advantages to everybody interested in capital market data. The following table illustrates the many advantages of XBRL: see table 1 below.

Table 1

BenefitPreparersInvestorsAnalysts
Increase in quality and consistency of data (accuracy)1XXX
Higher profitability and efficient production process2XX
Easy to compare published information3XXX
Easy handling due to standardisation and automation3XXX
Faster availability of data3XXX
Easy access to relevant capital market data3,5XXX
Centralisation of delivery and request of data3XXX
Cost savings in preparation, production and distribution (reusing data)4X

 

  1. More reliable analysis and exchange of financial information, because your computer application accesses data directly. The possibility of human error is therefore reduced.
  2. XBRL gives you the power to manage systematically and check data. Information is monitored in real time, enhancing validation.
  3. You can sit at your desk and collect information in-house or from the other side of the world. This increases productivity and you can file regulatory reports more easily. Investor Relations (IR) web-pages will become more interactive, as most IR sites are static.
  4. XBRL-tagged reports allow organisations to share and reuse data in business reports, both internally and externally. Applications take advantage of XBRL tags to process information for further reporting and analysis.
  5. XBRL taxonomies (dictionaries, i.e. the IFRS taxonomy) enable your computer to read any document. If you speak Chinese, you can collect and reassemble data from documents written in Finnish if they are XBRL-tagged.

Conclusion

XBRL results in organisations re-assessing their current financial reporting process in order to do things smarter and faster. Global adoption is spreading like a wild veld-fire and it’s only a matter of time before South Africa follows the same road. It has been said that no software currently exists in the market and that skills are limited. This is not entirely true. Why not start educating yourself now and be one of the first…?

Theodore de Jager CA(SA), BCom (Hons), MCom (Taxation), is a Manager in Accounting and Auditing Technical, and is also part of the team heading up XBRL at Deloitte.