|
What
is XBRL?
Authored By:
Vivek Iyer
IIM Indore – Batch of 2008
Mail : p06viveki@iimidr.ac.in
XBRL, or the eXtensible Business Reporting Language
is a new language and technology for the representation and transmission of
business and financial data. It is an XML (eXtensible Markup Language) based
standard governed by XBRL International Incorporated, a non-profit consortium
of 450 organisations, regulators, government agencies and software companies.
Members of XBRL International include companies like IBM, Microsoft, Morgan
Stanley and Deloitte & Touche. XBRL has evolved in response to the need for
a standardized computer representation of financial and business data, which
can be used globally. Experts believe that it will soon become the de-facto
standard for corporate reporting.
The philosophy behind XBRL
is to create a world-wide standard for the preparation and dissemination of
financial statements that can be read automatically by
computers. The aim is to avoid the repeated re-keying, re-formatting and
translation of financial data from one format to another. Hitherto, each provider of financial
information has chosen its own format to present the data to users. For
example, the Economic Times publishes financial data of companies in a way that
is different from the way that ICICI-Direct, an online brokerage does. Further,
there are also differences between the formats used by companies in the way
they prepare their financial statements. Each user of this information would
have to re-key this data into its own database in order to be able to use it.
 Figure 1: The Business Information
Supply Chain. Source: www.xbrl.org
XBRL resolves this problem by creating a single
globally accepted format for the representation of this
information. All parties, regardless of whether they are generators or users of
the content, agree upon and use the same format. This can help companies and
individuals save thousands of man-hours
presently wasted in re-keying and re-formatting financial information.
How it Works
XBRL is a version of XML specially defined for the
requirements of business and financial information. Each item of financial data
has been given a unique tag which serves to identify it. These tags also
contain other information about the data item, like its data type (currency,
date or number).
Figure
2: How XBRL works
The key aspect of XBRL is
described in Fig 2. In the present system of transmission of financial
information, to transfer an item like ‘profit’, the transmitter would send the
figure representing the amount of profit, say Rs 500,000. The receiver would be
set up in order to receive the figure and interpret the value received as the
amount of ‘profit’.
This imposes a lot of
rigidity in the way information can be transmitted. For example, if the
receiver is expecting to receive the ‘profit’ and the transmitter sends the
value of ‘sales’, then it could lead to errors. It also imposes restrictions on
the order in which the items can be transmitted. For example, there might be a
restriction that the value of ‘sales’ must be sent before the value of ‘profit’.
XBRL solves this problem
by tagging each value transmitted with an identifier and instructions on how
the receiver must process that value. This simple innovation, from XML, makes
the communication of financial information much easier. It makes it very easy
to write a software which can read a
XBRL formatted financial statement and present the most significant information
to the user.
Benefits
XBRL enables companies to save time and money to
manually prepare and avoiding manual tasks like entering financial data into
computer databases. It helps to eliminate the possibility of errors that can
creep in when manual processes like entering data repeatedly are required. It
allows them to focus on the analysis of data and decision making, rather on the
collection of data. Companies will also
be able to eliminate the effort required to prepare financial statements in
different formats for different agencies. Banks and financial institutions will
be able to save costs by cutting down on the time taken to process information
and to track financial performance of their customers.
Financial analysts are likely to benefit from the use
of XBRL. Software tools built on top of the XBRL framework enable financial
analysts to undertake comparative analyses of companies instantly. Investors
will benefit as XBRL will enable the customization of financial information to
suit their specific requirements. For instance software capable of downloading
XBRL formatted information and instantly presenting all the relevant financial
ratios will become available to help investors to make wise decisions.
Indranil Chakraborty,
Executive Director, PricewaterhouseCoopers (PwC) says, “XBRL is
platform-neutral - it is the same whatever type of computer or software you are
using. It allows all recipients of financial information provided in the XBRL
format to analyse and use precisely categorised information instantly, with no
need to re-key or convert to other formats. XBRL reduces the need for human
intervention when moving financial and business reporting information from one
system to another or one organisation to another.”
CasE Study – Tokyo Stock
Exchange
The Tokyo Stock Exchange (TSE) is the second largest stock exchanges in
the world in terms of monetary valueand accounts for more
than 90% of the shares traded on all Japanese markets. It has been attempting
to improve the process of disclosures and regulatory filings for companies to
boost the efficiency of the market. It identified XBRL as a key technology in achieving
this goal by incorporating XBRL into TDnet, its disclosure network. The TSE has
been conducting a pilot project using XBRL to collect preliminary summaries of
companies’ financial results. The TSE plans to introduce XBRL for full
financial statements for all listed companies by 2008. All companies will be
required to file their reports using XBRL. This information will then be
disseminated publicly by the exchange
Figure 3 : XBRL Implementation at
the TSE. Source: www.xbrl.org
The TSE says: "The
implementation of XBRL is expected to provide investors, financial
institutions, listed companies, and competent supervising agencies and
securities exchanges both inside and outside Japan access to highly transparent
financial information on a timely and speedy basis."
The India Connection
XBRL has not yet made a major impact on financial and
business reporting in India, but moves are afoot to bring the country at par
with developments in the rest of the world. The impetus for the adoption of this
technology in the country is likely to come from two sources: pressure from
regulators and the need for intra-company reporting of information. In January
2007, The Institute of Chartered Accountants of India (ICAI) said that it would
soon constitute a committee of regulators like the Reserve Bank of India, the
National Stock Exchange (NSE) and the Securities and Exchange Board of India
(SEBI), to promote XBRL in India.
Satyam Computers became
the first Indian participant in the XBRL International Consortium in 2005. It
has been working to help promote the technology in India and has been taking a
leadership role in the area of financial reporting. Infosys Technologies, which
is traded on the NASDAQ exchange in the US, has already set a trend for Indian
companies by voluntarily filing its financial reports to the US Securities and
Exchange Commission (SEC) in XBRL format.
What’s in it for you?
Going forward, XBRL is
likely to emerge as the global standard for reporting of financial and business
information. Major stock exchanges are likely to make it mandatory for
companies to file disclosures and financial reports in XBRL format, in order to
enable the easy dissemination of such information to financial analysts and the
investor community at large. For software companies, XBRL presents a huge and
lucrative new market. They can capitalize on the huge demand for software to
support the preparation, creation and analysis of XBRL data.
XBRL will have a pervasive presence in
all aspects of business. It is important to build an awareness of the
technology, as one is almost certain to encounter it in one’s professional
life. More information about XBRL is available at www.xbrl.org.
| 