One has heard that many companies file financial statements such as profit and loss, balance sheet, cash flow statement in a computer readable format. These are called XBRL, and it stands for XBRL stands for eXtensible Business Reporting Language.
As you know, both in India and in many countries, the electronic medium of doing business and furnishing information is revolutionising the way businesses can be conducted including the processes and reporting needs.
Again, businesses in India are required to file their Financial Statements with the Regulatory Authorities such as Ministry of Company Affairs, Income Tax, etc. These statements are filed either physically or in a ‘pdf’ format which does not allow easy analysis of information by various stakeholders such as lenders, regulators, investors, etc. as they need to re-key the financial information in a format suitable to them to conduct the analysis, which can be painful! Imagine, if the financial statements are filed in such a way that the need to re-key financial data for analytical and other purposes can be eliminated. Does this not sound good? This is what the XBRL does.
XBRL is based on XML (eXtensible Markup Language), which is a standard for the electronic exchange of data between businesses and uploading to the internet, hence makes it computer readable.
XBRL is, hence, a language for the electronic communication of business and financial data to the authorities and increases the usability of financial statement information.
Okay, so what aspects of financial statements can be filed in XBRL format?
XBRL filing includes the balance sheet and its schedules, profit and loss account and its schedules, cash-flow statement, notes to accounts, directors report, auditor’s report, including certain specific information on subsidiary companies, joint ventures and related party transactions.
Well, that seems quite a lot…does it also change the data?
Oh, not at all. XBRL is simply a language for information. It mainly reflects data reported under different standards in an accurate manner, given the checks and balances, and does not change them.
What benefits does such electronic filing provide?
Well, to start with, it promotes paperless reporting, and thus is in line with the green initiatives being promoted the world over.
Further, with full adoption of XBRL, companies can automate data collection. For instance, data from various divisions of a company having different accounting systems can be assembled quickly, cheaply and efficiently.
As you can appreciate, computers can process this information and populate both pre-defined and customised reports.
So, once data is gathered in XBRL, different types of reports using varying subsets of the data can be produced with minimum effort. A company’s finance division, for example, could quickly and reliably generate internal management reports, financial statements for publication, tax and other regulatory filings, as well as credit reports for lenders. Thus, they are able to concentrate effort on analysis.
Who will benefit?
As XBRL meets the requirements of regulators, lenders and others consumers of financial information, who are increasingly demanding reporting in XBRL, all participants in the financial information chain benefit, whether they are preparers, transmitters or users of business data.
To reiterate, not only can data handling be automated, besides removing time-consuming and error-prone processes, but the data can also be checked by software for accuracy; hence, this adds credibility besides the benefits.
How do companies create statements in XBRL?
There are a number of ways to create financial statements in XBRL. XBRL-‘aware’ accounting software products are becoming available which will support the export of data in XBRL form. Statements can be mapped into XBRL using XBRL software tools designed for this purpose and data from accounting databases can be extracted in XBRL format.
The approach a company may take will depend on the accounting software used and systems it currently uses, among other factors and requirements.
Are there uses for XBRL other than the conversion of financial statements?
XBRL can be applied to a wide range of business and financial data such as:
> Filing of loan reports and applications; credit risk assessments.
> Exchange of information between government departments or across other institutions, such as central banks.
> Other reporting needs with regulators, including tax and financial authorities.
Who started or founded XBRL?
You will find this interesting to note that XBRL can be traced as early as 1998; it started as a process of collaboration between accountants and technologists from all over the world. So, it is a global non-profit international consortium of over 600 public and private organisations which is called as XBRL International. They work together to support the collection, sharing and use of structured data for data reporting and analysis.
Is there a charge by this consortium whenever we convert statements to XBRL format?
XBRL is open, royalty-free software. So, simply put, there are no charges!
What is the situation in India?
XBRL is not new to India. It was implemented as early as 2010. A separate company called XBRL-India, was created in 2010 to promote and encourage the adoption of XBRL as the standard for electronic business reporting format in India.
The Ministry of Corporate Affairs decided in 2010 that certain companies need to file their balance sheet and profit and loss account from the year 2010-2011 using XBRL. So, as said, XBRL is not a new-found situation for us.
Please note that India has been an established jurisdiction of XBRL International, which is a matter of pride.
To sum up, XBRL is the standard way of recording, storing and transmitting business financial information and is used widely throughout the world.
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