XBRL is a computer language that enables documents to be read and analysed in ways that was previously not possible. Currently, financial statements or other information prepared in Word, Excel or HTML formats can be read but not analysed or processed according to the user’s needs. For example, the word “Revenue” appears in many places in the financial On 31 March 2011, the MCA issued a Circular mandating all listed companies and certain unlisted companies, to file their balance sheet and profit and loss account (financial statements) for the year ended 31 March 2011 onward using an XBRL (eXtensible Business Reporting Language) format.
This Circular marks an important step in ensuring XBRL compliance for financial statements filed by Indian companies, and is part of a series of XBRL initiatives by various regulators.
In the initial phase, the MCA mandate applies to:
• All companies listed in India and their subsidiaries, including overseas subsidiaries
• All companies having a paid up capital of INR 5 crores or above, or a turnover of INR 100 crores or above
The financial statements required to be filed in the XBRL format would be based on the existing Schedule VI of the Indian Companies Act, and the currently prevailing Indian Accounting Standards. Accordingly, XBRL implementation does not change any requirements relating to preparation of manner in which the financial statements will be transmitted to the regulators. A filing deadline of 30 September 2011 has been notified.
Failure to adhere to the timeline may result in imposition of additional filing fees. statements, but if the reader wants to have all “Revenue” references and related information collated in one place, they would need to do so manually.
XBRL enables the user’s computer to “talk” to the financial statements and analyse a lot of such information. Generally management of a company, users of financial statement or regulators would go through a time-consuming process of collation if they want to compare their financial performance with those of peer-group companies. This can be facilitated if all companies are on XBRL. XBRL formatting can be done for financial and non-financial data.
For example:
• Financial statements
• Supplier data
• Customer application forms
• Project information
• Employee data
• Regulatory submissions
• Other Management Information Systems data
The mandatory use of XBRL is thus also an opportunity for Indian companies to determine how XBRL can be optimally used for internal business reporting and analysis. Through this approach, companies can use this regulatory change as a trigger for automating collation and analysis of identified internal data. Our experience indicates that this can result in benefits including cost savings, improvement in the speed of collating and analyzing data, improvement in the reliability and accuracy of data, and an overall improvement in the quality of
information for decision making purposes.
How does data become XBRL compliant
XBRL makes the data machine readable, with the help of two documents – taxonomy and instance document. Taxonomy defines the elements and their relationships based on the regulatory requirements. Using the taxonomy prescribed by the regulators, companies need to map their financial statements, and generate a valid XBRL instance document. This XBRL document thus becomes machine readable and can be automatically be read and analysed by users.
Implications for Indian companies
Companies need to quickly gear-up to this new reporting challenge. Some of the key challenges that companies might encounter as they adopt XBRL reporting are:
• Requirement of training staff to understand XBRL and how it needs to be implemented including matters like timely tagging and validation processes
• The software tool to be used for the purpose of tagging the financial statements
• The first-time efforts for tagging the financial statements correctly to the relevant taxonomies
• Smooth and timely closure of reporting within the prescribed timelines.
