All about XBRL Applicable to Listed Companies and companies having a paid up capital of Rs. 5 Crore and above or a turnover of Rs. 100 crore or above
eXtensible Business Reporting Language (XBRL) is an open technology standard which makes it possible to store business and financial information in a computer-readable format. Many countries and/or financial regulators have approved, or are in the process of implementing, requirements around XBRL as the electronic financial reporting standard. These include the US, Japan, UK, Netherlands, Australia & China to name a few.
On 1 April 2011, the Ministry of Corporate Affairs (MCA) in India posted a circular on its website requiring certain class of companies (Phase 1) to file balance sheets and profit and loss accounts for the year 2010-11 onwards by using XBRL. The financial statements required to be filed in XBRL format will be based upon the taxonomy on XBRL developed for the existing Schedule VI and non-converged accounting standards notified under the Companies (Accounting Standards) Rules, 2006.
As per the circular, the following class of companies will be considered as Phase 1 and will have to file their Financial Statements in XBRL from the year 2010-11:-
i. All companies listed in India and their subsidiaries, including overseas subsidiaries
ii. All companies having a paid up capital of Rs. 5 Crore and above or a turnover of Rs. 100 crore or above
This represents a significant change in the manner in which companies are required to share financial information with regulatory authorities. XBRL will facilitate the transmission of data in electronic form between companies and different regulatory agencies in India, and has the potential to increase comparability and transparency of financial information.
Companies have a short period of time – less than six months – to convert financial statements into the new format, which means that technology solutions need to be put in place very swiftly and finance teams need to swiftly get to grips with the XBRL terminology and taxonomy. Given the short timeframe, initial solutions are likely to be ‘bolt-on’ rather than ‘bottom up’ in nature.
We welcome the MCA’s circular on XBRL, and would look for immediate publication of the taxonomy and further clarification on a number of questions highlighted in this document to enable companies to put in place the necessary technology and processes to produce robust XBRL data.
In this document, we set out an overview of XBRL, why it is being implemented in India, the requirements of the circular, critical issues for companies in planning the production of XBRL data and some points that require further clarification by the MCA. Since these questions can only be conclusively answered by the MCA, companies are advised not to treat our perspectives as authoritative guidance. On critical issues, they should consult the MCA or take legal/ professional advice.
Phase 1 companies have a short time-frame to prepare for XBRL filing of 2010–11 financial statements
XBRL is the financial and operational business reporting offshoot of eXtensible Markup Language (XML), which is a freely licensable, open technology standard (or vocabulary) used to exchange business information electronically. XML is the universally preferred data description language used to describe the storage, manipulation and exchange of data via the internet.
The basis for XBRL is a “tagging” process where each value, item, descriptor, etc., in the exchanged information can be given a unique set of tags to describe it. Using these tags, computer programs can read the data without human intervention. Tags are commonly used to exchange information, such as an account balance. XBRL leverages groups of tags in the form of a taxonomy, or classification system, to describe data for a particular audience.
XBRL is being positioned as the vocabulary of business and financial reporting. It is a way to “bar code” business information contained in general ledgers, income and cash flow statements, balance sheets, as well as text information included within the footnotes and other requirements of business reporting.
XBRL is not:
How XBRL works
Instead of treating financial information as a block of text, XBRL provides a computer-readable tag to identify each individual item of data. Through the attachment of identifying tags to individual pieces of data, a business reporting document becomes “intelligent” data, allowing the exchange of business reporting data by encoding the information in a meaningful way. Computer applications can use the XBRL data to recognize the information in an XBRL document, select it, analyze it, store it, exchange it with other computers and present it in a variety of ways for users.
XBRL tags are defined and maintained in taxonomies which contain meta-data (data about data). Taxonomies are the basis for tagging financial and business information in XBRL. A taxonomy is an electronic classification system of tags defining thousands of business reporting concepts (including text) and their relationships.
The taxonomy provides organization and details for each concept, including the labels, definitions, accounting balance (i.e., debit or credit), presentation and summation information. A taxonomy for India based on the existing, non-converged Accounting Standards and existing Schedule VI to the Companies Act has already been developed by the MCA and we understand that it will be made available shortly.
An instance document is the end result of how a preparer creates XBRL data. It contains report information typically compiled from internal ERP or financial reporting systems that have been “marked up” or tagged in XBRL. Figures 1 and 2 below show the inter-relationships between the various elements of XBRL.
Companies will use the India taxonomy based on non-converged Accounting Standards and existing Schedule VI.
XBRL is extensible (i.e., can be extended) since a preparer can create, define and describe new tags unique to its particular circumstances, while otherwise maintaining the comparability of other information tagged using the standard taxonomy. XBRL was designed to be flexible and is intended to support aspects of electronic financial reporting across countries and industries.
Tagging financial data in XBRL is similar to the use of bar codes. The bar code was created to electronically identify different products. Similar to a bar code, applications that utilize XBRL data can automatically identify each piece of data and specific information about it, such as value, type, currency, date, source and its relationships with other data.
XBRL and the financial and business reporting supply chain
With increased interest in financial reporting “transparency” and the availability of advanced information technology tools, there is a greater focus now on supplying more information on a timely basis to external stakeholders. While the format in which this information needs to be supplied is evolving, there is an increasing need for information to be available in electronic formats.
Business reporting information supplied by one organization is often used as input for the processes of another organization. This process is often referred to as the information supply chain. The financial and business reporting information supply chain (see Figure 3) is a model that describes the information disclosure process, from the start of the transaction within the primary and support processes, to the use of reporting information by stakeholders. Given the changing demand for reporting information and the increasing opportunities in the field of information technology, the existing information supply chain should change substantially as a result of XBRL.
For example, in the “external” part of the information supply chain, once a company has published information, stakeholders, such as analysts and lenders, can use the information to form a picture of business performance during that reporting period. Depending on the interests of the stakeholders, the data supplied can be filtered and analyzed to obtain the desired information. As a result, analysts and lenders should spend less time on processing data and be able to invest more time in detailed and meaningful analyses through XBRL.
What are the benefits of XBRL for India?
The introduction of XBRL in India will increase the ability of different regulatory bodies to use the same electronic data set, without the need for manual re-keying of data or sending hard copies of documents to different bodies. For example, the same financial data with XBRL tagging can be filed with the Ministry of Corporate Affairs to meet Companies Act requirements, shared with SEBI and the BSE/NSE to meet listing requirements, provided to the company’s lending institutions, and uploaded to the company’s website so that shareholders can easily access it. Although there is no explicit mention of taxation in the MCA’s circular, the information may also be used by the direct and indirect tax boards and other regulatory bodies who currently require information in different formats. Once a company has put in place the taxonomy for these different bodies, the process to produce the information becomes more efficient.
Furthermore, companies can benefit from automation of data collection internally, depending on the existing IT systems in place. For example, data from different company divisions with different accounting systems can be assembled quickly, cheaply and efficiently. Once data is gathered in XBRL, different types of reports using varying subsets of the data can be produced with minimum effort. A company 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. Not only can data handling be automated, removing time-consuming, error-prone processes, but the data can be checked by software for accuracy.
Whilst the introduction of XBRL in India may increase efficiency of sharing information with national regulators, it does not by itself help with the goal of achieving convergence of Accounting Standards with International Financial Reporting Standards. The MCA and ICAI’s efforts in this direction continue to be of vital importance to users and preparers.
Potential benefits of XBRL
|Accessibility||Instant user access||Software independent|
|Analysis||More frequent updates||Less effort to use|
What are the learnings from other countries that have implemented XBRL?
Other countries such as the US and UK have already mandated XBRL filing or are in the process of doing so. Companies experienced some challenges in implementing XBRL. For example, inexperienced staff may make simple errors such as selecting different tags for the same item, creating extensions (new tags) when a tag already exists for that item, or tagging an item with the wrong directional sign (debit or credit). All this underlines the importance of trained staff performing the tagging process, having a robust audit trail to document the rationale for tag selection that can be followed in subsequent years, and a strong review process, possibly utilising one of the available software tools to facilitate the review. Some companies opted to obtain additional assurance from their auditors or advisors on the initial XBRL tagging in year one, to give management additional comfort over the correctness and completeness of the XBRL information.
Who is leading the XBRL initiative?
The XBRL movement is being governed by XBRL International; a not-for-profit consortium comprised of several working groups, and governed by a central steering committee comprised of elected members from the established jurisdictions. XBRL International includes approximately 25 established and provisional local jurisdictions, which focus on the progress of XBRL in their region. The steering committee coordinates the working groups and has responsibility for setting technical, financial and operational strategy within the organization. Workgroups have an international and jurisdictional focus. Over 650 entities worldwide are involved in the various XBRL jurisdictional organizations — including public accounting firms, technology companies, governmental entities, academia and other organizations.
India is now an established jurisdiction of XBRL International. A separate company, under Section 25 has been created, to manage the operations of XBRL India. The main objectives of XBRL India are:
Information technology changes
What kind of IT changes will be required in order to produce XBRL information?
There are a number of ways to create financial statements in XBRL:
The route which an individual company may take will depend on internal and external requirements, accounting software and systems it currently uses, organizational structure, the number of subsidiaries that require XBRL data, among its other factors. Companies should carefully assess and consider the various available options before committing to a particular solution strategy.
Is any form of validation or assurance required on the XBRL format submitted information?
The circular does not explicitly require auditor (or any other third party) attestation or validation of the XBRL format information submitted. Clarity on this topic is critical as professional firms would need to prepare themselves internally accordingly as per the requirements of the XBRL standards.
Matters that need further clarification from the MCA
Financial information from which financial year should be considered to determine applicability of XBRL filing?
This issue is not specifically addressed in the circular. In the absence of any further guidance, it may make sense to assess the listing status and paid up capital criteria as at 31/3/2011 (or next balance sheet date) and turnover criteria for the financial year ended on the same date.
Where in doubt, for example a company whose turnover for 2009-10 was greater than Rs. 100 crore but 2010-11 turnover was below the threshold, we would recommend that entities err on the side of caution and prepare the requisite information in XBRL format.
Are subsidiaries, joint ventures & associates of phase 1 companies also required to file their financial statements using XBRL?
As per the circular all subsidiaries, including foreign subsidiaries, of companies listed in India are to file their financial statements using XBRL.
There is no specific mention of XBRL filing requirements for subsidiaries of companies qualifying under the other criteria, i.e. those with a paid up capital of Rs. 5 crore or above or a turnover of Rs. 100 crore or above.
Further the circular does not state any XBRL filing requirements for associates and/or joint ventures of companies covered in Phase 1.
It is suggested that companies obtain clarification from the MCA with regards to filing requirements for their subsidiaries, associates & joint ventures.
What taxonomy should be utilized for XBRL reporting?
The circular requires that the financial statements required to be filed in XBRL format would be based upon the taxonomy on XBRL developed for the existing Schedule VI, as per the existing (non converged) Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006.
The taxonomy has not yet been released by the MCA but is expected to be issued shortly as per the circular.
In particular it should be noted that whilst a revised Schedule VI has recently been released by the MCA, which is applicable for the financial year 2011- 12 onwards, the XBRL taxonomy expected to be released is based on the current Schedule VI. This may result in a revised taxonomy being released for the next reporting period based on the new Schedule VI, resulting in companies effectively having to re-tag all their information as per the new requirements.
Will extensions to the taxonomy for company specific requirements be allowed?
The circular does not explicitly mention as to whether extensions to the base taxonomy may be allowed. We recommend that the MCA provide such guidance when releasing the taxonomy.
What taxonomy will be required for filing of financial statements of overseas subsidary?
The taxonomy is heavily dependent on the definitions and disclosures in Accounting Standards and Schedule VI. There would be additional disclosures required by Accounting Standards over and above those required by Schedule VI. Additionally there would be challenges if the subsidary’s financial statements are not prepared in English language. Companies would require guidelines from the MCA on this.
Do complete financial statements, including disclosures, need to be filed or only the Balance Sheet and Profit & Loss account?
Broadly there are three implementation methodologies with regards to XBRL reporting which are explained as below:
i. Abridged taxonomy: This may require the reporting of only select information, say the profit & loss account and balance sheet numbers, using XBRL format.
ii. Financial only taxonomy: This may require the reporting of all financial related information, including those contained in the notes, using XBRL taxonomy. Non-financial information may be reported in a non-XBRL format.
iii. Complete taxonomy: This would require the tagging of all information using XBRL, and for which, a complete taxonomy would be released.
As can be noted from the above, the level of effort may vary significantly depending on the reporting requirements. The circular itself does not provide much clarity on this issue – however the taxonomy, when released, may provide further insights into the MCA requirements for Phase 1 companies.
When is the XBRL format filing deadline?
As per the circular, companies covered in Phase 1 are permitted to file upto 30 September 2011 without any additional filing fee.
Is XBRL format reporting an additional requirement or a replacement for existing reporting methodology?
The circular does not clarify as to whether, for companies covered in Phase 1, XBRL format reporting is an additional requirement or a replacement for existing reporting methodology. It is suggested that companies obtain further guidance from the MCA on this issue.
What is the XBRL information filing methodology to be followed?
The circular does not provide further guidance as to the filing methodology, i.e. upload process, of the requisite XBRL information. We would expect that the MCA provides further guidance on this important issue.