XBRL for effective financial reporting

K. P. Shashidharan | Updated on: Jul 03, 2011

The Ministry of Corporate Affairs (MCA) decided on June 7, 2011 that all listed companies, including their Indian subsidiaries but excluding the overseas subsidiaries, companies having a paid up capital of more than Rs 5 crore or above, or turnover of Rs 100 crore or above are required to file their financial statements for the year 2010-11 onwards using XBRL – the ‘extensible business reporting language.

In the first phase, banking, insurance, power, and non-banking financial companies (NBFC) are exempted. This is a landmark decision as far as change in the format of in financial reporting of companies is concerned which may affect approximately 90,000 companies in the first round. The MCA had sought the views of the corporates before issuing the final notification in July.

XBRL is a open royalty-free, software developed through collaboration between accountants and technologists from all over the world, constituting XBRL International with more than 650 members. Based on XML, the language incorporates many accounting and analytical software tools and applications.

It provides an internationally accepted, standardised electronic platform for comparing, analysing and reviewing business data and financial performance of companies. The format assists to access financial and non-financial information like supplier data, customer application forms, project data, employee information, regulatory submissions, and Management Information System on the company.

XBRL provides business data on machine readable XML format with the help of Taxonomy and Instance Document. Taxonomy defines the elements and their interrelationship as per the regulatory requirements. Using the taxonomy prescribed by the regulators, companies need to map their reports, and generate a valid XBRL Instance Document. The process of mapping means matching the concepts as reported by the company to the corresponding element in the taxonomy. Besides assigning XBRL tag from taxonomy, information like unit of measurement, period of data, and scale of reporting etc. needs to be included in the instance Document. Once the taxonomy is determined in compliance with applicable regulations, the companies are required to generate valid XBRL Instance Document.

Benefits of XBRL

XBRL taxonomies help expeditious preparation of financial statements - balance sheet, profit and loss account, cash flow statement, and related non financial information like disclosures made in notes to accounts and additional disclosures mandated by company law. XBRL can be customised to Ind-AS, the IFRS congruent accounting standards when they become operative, conforming to the Company Law and Securities and Exchange Board of India regulations. It can easily absorb, adopt and customise changes in the law and help IFRS implementation.

SEBI is in the process of adopting XBRL. Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) have already offered a unified XBRL-enabled platform called ‘corpfiling system' for to electronically file their disclosures giving instant access to the investors. XBRL taxonomy for the banks has been finalised; and for insurance sector and NBFCs, taxonomy is going to be developed shortly. SEBI, the Ministry of Finance and other ministries are also preparing for the transition.

The Ministry of Corporate Affairs wants the corporates to use XBRL without waiting for the draft Companies Bill with the new Schedule VI comes into effect or implementation of Ind-Accounting Standards. XBRL India Web site was launched in 2009 by ICAI. The Ministry is currently working on hosting the taxonomy of XBRL to enable the companies to comply its decision. XBRL India is arranging various training programmes across the country to make the transition smooth. ICAI is providing necessary impetus for the XBRL transformation.

XBRL can facilitate implementation of the Reserve Bank of India's initiative to strengthen bank's risk management systems, capacity building, data submission its reliability, accuracy and timeliness. The RBI is currently using varying technology maturity levels across the banks and has adopted XBRL for bank regulatory reporting. It will facilitate comparison, analysis, sharing of data, review, updation, better credit risk assessment, diversification of credit to sectors like SMEs, microfinance institutions etc. RBI has introduced online returns filing system (ORFS) for important statutory returns. Banks have developed XML based reporting systems from their core banking solutions

Challenges ahead

Companies are required to gear up for implementation of financial reporting in XBRL format. Staff may need adequate training in the software for timely tagging the financial statements correctly to the relevant taxonomies, validation, enabling compliance with the new regulation within the stipulated timeframe.

The strength of XBRL as a language for business communication is its extensibility, flexibility in application and customization. The very hall mark of it can become its weakness too unless and until reliable and applicable taxonomy is adopted after proper mapping the interrelationships of different elements in the taxonomy and ensuring that different software being used conform to the approved taxonomy by ensuring effective and accurate validation controls before accepting the XBRL converted financial statement in XML Instance Document. To make the process smooth and successful, it needs coordinated approach among the government agencies, corporates, regulatory authorities, stock exchanges, accountants, technologists and XBRL professionals and adequately trained and skilled workforce who can perform the task assigned.

(The author is A Director General, CAG Office)

Published on July 03, 2011
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