XBRL - Sorry, Not The New Shirt Size!
In 1998, Charles Hoffman, a Certified Public Accountant from Tacoma, USA investigated using XML for the electronic reporting of financial information. He began developing prototypes of financial statements and audit schedules using XML. His experimentation went ahead and the American Institute of Certified Public Accountants (AICPA) got involved in putting together - XBRL! Thus was born eXtensible Business Reporting Language or XBRL, as it is called.
What is XBRL
As the language for the electronic communication of business and financial data, it has transformed business-reporting and compliance-tracking globally. It is open-source and is royalty-free. It has evolved through collaboration between accountants and technologists.
The XML properties of XBRL make the information machine-readable. That makes it 4th IR compatible, for the current era of AI & ML. The addition of business rules to XML creates XBRL, creating an information-set that is more easily deciphered. XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits automatic checking of information.
XBRL is being used in over 100 countries including China, Korea, Japan, the US. In India, RBI uses XBRL (all banks file their reports using that format). The Ministry of Corporate Affairs as well as SEBI adopted early on, and ensured that all compliance filings of companies are on XBRL. In fact, the MCA is very positive about XBRL and has this on its website :
“XBRL is set to become the standard way of recording, storing and transmitting business financial information. It is capable of use throughout the world, whatever the language of the country concerned, for a wide variety of business purposes. It will deliver major cost savings and gains in efficiency, improving processes in companies, governments and other organisations.”
But beyond this, most of the other public organisations and departments have been slow to pick up adoption &/or utilisation of XBRL. The benefits of XBRL could be far and beyond the conventional data reporting and associated regulatory-supervision !
Searching for the proverbial-needle
Both the regulators and investors alike want to find something that others don’t see easily. And they want to see it first and to still have the time to act on such a discovery. XBRL could be that magnet that finds your needle-in-the-haystack ! XBRL is designed for human augmentation, not human replacement.
If the regulators can trust that the data has not been compromised-with, in the journey from transactional system to reporting, they can focus on the data itself.
Globally regulators have increasingly been looking to big-data-sets (including structured financial data, payment transactions, unstructured granular data including from the internet) and analytics to provide new insights, enhance quality of their risk-assessments and forecasts. Regulators have always had to get used to the newer waves of technology-shift and to fine-tune their regulations in sync with market mechanisms.
Also, the implementation of XBRL can help the decision makers like regulators / Boards of companies see the information tabled before it with greater clarity, knowing fully well that if there is a footprint anywhere that is “out of place”, it will be visible. A range of people, including analysts, credit risk agencies, investors and regulators, use XBRL to more easily analyse data within and across different companies. With the implementation of XBRL, you can’t hide, the trail will show up somewhere on the radar.
What XBRL is & not
XBRL is an information standard, it is not a new accounting concept. It is a reporting format and works with existing accounting concepts. Adopting XBRL into your organisation’s core technology framework is easier and not expensive; probably a reason why not many IT firms offer this !
The software to create XBRL documents is what is referred to as publishing software; to read XBRL documents one would need a rendering tool.
XBRL is not just about financial reporting & compliance. Any company across any sector can use XBRL internally to improve their MIS and to improve decision-making. In short, wherever information is exchanged, XBRL can be used ! The potential benefits of XBRL for internal MIS are huge. From government expenditure tracking to tracking land records, from health records to trade documents, from granular loan information to tax or GST filing, XBRL has applications everywhere.
Many companies that use high-governance as a yardstick, have begun to reap benefits of internal consolidation using XBRL. Many others have found merit in an integrated XBRL-IFRS strategy.
Systemic-Stability that XBRL can offer India
A PAN (Permanent Account Number) is a unique identifier issued to all entities identifiable under the Indian Income Tax Act, 1961. All financial transactions and such-reporting are made with PAN as a critical identifier.
If all financial regulators and governmental authorities as CBDT, registration offices, use XBRL as unique and common data format, the ability to track monies & asset-ownership becomes easier and it can also help in data granularity. With this, regulatory supervision can be preventive and not just about policing.
Since rules-based supervision is easy to handle with XBRL, it makes it simpler for real-time tracking of various aspects including financial markets, money-movement and end-use fund monitoring. It could allow for timely-intervention to preserve system integrity at the first sign of a crisis. Improved effectiveness of policy making through targeted-intervention can be done. These would complement human decision-making and not replace it !
XBRL-based analysis can also improve better credit access with improved decisioning-capability. And with improved collections efficiency, cost of credit can come down over a point in time. If structured well as an industry norm, it can help the insurance-sector track the solvency margins, risk management updates and any potential capital requirement in real time.
This would also solve for the global investors’ ask for better transparency & governance standards in the Indian markets. As well as offering a glide-path for a much-improved ease-of-doing-business. There could be many more use-cases that each of the regulators / ministries might ideate to solve for their challenges and constraints.
The Government of India could do well in adopting XBRL as the national data reporting standard.
For a better tomorrow. And we can bet our (hopefully clean) shirt on it !
