You are on page 1of 17

XBRL: FUTURE OF FINANCIAL BUSINESS

What is XBRL?
XBRL stands for eXtensible Business Reporting

Language. It is an open standard, free of license fees. XBRL is a language for the electronic communication of business and financial data. XBRL is being developed by an international nonprofit consortium of approximately 450 major companies, organizations and government agencies. Government, businesses and business organizations working together to exploit a new technology tool to improve business capacity and profitability.

How does XBRL work?


XBRL has been likened to a bar code for financial

statements. An electronically readable tag is put on each element which provides additional context. Tagging is done using standardized taxonomies. XBRL is an XML (Extensible Markup Language) based information format for business reporting that provides a methodology for companies to tag (or "mark-up") financial documents.

Tagged data element


If the tag is applied to the gross margin line of the

income statement, a tool enabled to read XBRL would tell you the line item is gross margin, how it is defined, what the balance is, what period it covers, what currency it is in, how accurate it is and what period it covers. The electronic tags applied are standardized and are contained in taxonomies. Taxonomies are like dictionaries used by XBRL.

An example to understand XBRL


ABC Limited is required to file the following returns:
o Annual Financial Statements o Tax Returns

o Returns to the Registrar of Companies

All these returns have some elements which are

common. If these elements could be tagged and kept in a database, a mere re-arrangement of such elements could facilitate generation of different reports.

An example of marked up data

Evolution of XBRL
Internet became a success as a conduit for e-

commerce, e-mail HTML language (Hypertext Markup Language) became the de-facto language to make static web pages. Problem arose when transaction data had to be shared real-time instead of creating on-line brochures. XBRL is a standard evolved out of the extension of XML(eXtensible Markup Language).

Global Developments in XBRL


Recently US have mandated XBRL vide its final rule

to all large public companies and also to other accelerated filers in a phased manner. This mandatory mass implementation of XBRL would bring to light the benefits of interactive data. Stock exchanges in China, Japan, Singapore and South Korea all mandate XBRL data. Japans Financial Services Agency required all public companies to submit financial statements in XBRL format beginning this year. Latin America, Chile, Colombia, Argentina, Mexico, Brazil, Ecuador, Venezuela have also initiated XBRL initiatives.

Developments of XBRL in India


October 2008 the Reserve Bank of India (RBI)

launched Basel II, an XBRL reporting system to be used by commercial banks for all major filings. In October 2008 XBRL India, under the leadership of the ICAI, published the final version of the General Purpose Financial Reporting XBRL Taxonomy for Commercial and Industrial Companies (C&I). In early 2009 XBRL India has received a provisional jurisdiction status. Recently ICAI group on XBRL has finalised the Draft General purpose financial reporting XBRL Taxonomy for commercial & Industrial Companies.

Developments of XBRL in India


The SEBI has introduced Clause 52 in the Equity

listing Agreement requiring Listing Companies to file information through exchange only through Corporate Filing Dissemination System (CFDS) The E- Governance project, MCA-21 was introduced in the year 2006 to enable all companies & their professionals to file their online to ROC

XBRL DYNAMIC TOOL OF FINANCIAL REPORTING


XBRL offers manifold advantages for internal

reporting as well, thus facilitating better management of corporate performance. An Organisation can bridge external Statutory reporting systems and Internal Management reporting. This can provide real time financial & management information that also can be disseminated internally to any user at any level of organisation.

Benefits of XBRL
Professional analysts spend considerable time

gathering information and re-keying it into proprietary models. Re-keying of financial data for analytical purpose can be eliminated. HOW? Different subsets of data tagged in XBRL can be used for different types of analysis. Data can be retrieved electronically in a matter of seconds with additional context. Data collection can be automated offering cost savings, greater efficiency and improved accuracy.

Why is XBRL the future?


Worldwide regulators are realizing the potential

of savings in compliance costs by migrating from paper based systems to internet based filings. XBRL being the only XML based freely available standard format for business information is the natural choice. Surveys and projects in the recent past have proven that huge cost and time savings together with high level of data accuracy is ensured through XBRL. XBRL will not be restricted to only financial statements, its potential is to link all Standard Business Reporting requirements for each country to minimize compliance costs

What XBRL Is Not?


Not an Accounting Standard
Not a Chart of Accounts Not a GAAP Translator Not a transaction level Protocol

Common misconceptions on Cost


Resistance to adoption of XBRL often takes the form of cost or resource concerns
However neither of these should be a valid

concern as the only cost involved after developing the taxonomy should be out of pocket cost for a tagging software. Benefits received from reduction in filing cost and increased accuracy can overshadow these cost aspects.

OPPORTUNITIES FOR CHARTERED ACCOUNTANTS


Financial Statement preparation
Mergers and Acquisitions Compliance

Standard setting
Investment & Credit Analysis

XBRL is revolutionary but has to become a de facto industry standard with a critical mass using its technology before the financial services sector can experience the full benefits.

You might also like