XBRL – The Future Of Financial/Business Reporting

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What is XBRL?

XBRL is eXtensible Business Reporting Language for electronic communication and reporting of financial data around the world. It provides a XML based platform being followed by corporates globally that helps in formulation and analysis of financial reporting and allied areas. It’s popularity and widespread use is catching like fire in forest.

XBRL International is a consortium of over 650 members and counting. Members include leading organizations from all over the world.

It is a landmark in the history of financial reporting. It does not change what is to be reported but changes the way of reporting.

Importance of XBRL

XBRL is not just important because it has been made a statutory requirement by many countries, but it has colossal relevance in terms of changing the Fortune of Financial Reporting.

Following points will underline the importance of XBRL –

  1. It will digitalize business reporting, hence making it more transparent.
  2. Used to communicate between businesses and users of financial information
  3. Better information, benchmarking, and more frequent review of a client’s financial performance benefits banker and customer alike
  4. Better Investment options can be chosen with adoption of XBRL
  5. XBRL will determine the future of input, process and output of financial information

XBRL

Benefit of using XBRL

XBRL benefits comparability by helping in identifying data which is genuinely alike and distinguishing Information which is not comparable. Computers can easily process such Information and populate both pre-defined and customized reports.

How does XBRL function?

XBRL makes the data readable with the help of 2 documents – Taxonomy and Instance Document

1. Taxonomy

It contains concept and defines framework with respect to regulatory requirement can be considered as an electronic dictionary for business and financial terms

2. Instance Document

Using the taxonomy framed, companies map (mapping is corresponding matching of concepts of company to those of regulatory framework) their reports and generate an Instance document

Applicability of XBRL in USA

The Securities Exchange Commission has mandated the use of XBRL and all public companies must file in XBRL format in the following manner

  1. Companies with worldwide public float greater than $5 billion to comply starting with period ending June 2009
  2. All other large accelerated filers to comply starting with period ending June 2010
  3. All other Public Companies comply with period ending June 2011.

Applicability of XBRL in India

MCA has made applicability of XBRL mandatory for companies falling under Phase I of implementation, such companies will now have to mandatorily file Balance Sheet and Profit & Loss A/c under sub section (1) of section 220 of companies act, 1956 using XBRL taxonomy with effect from 1st April 2011

Companies falling under Phase I are –

a)     All listed companies and their subsidiaries (foreign subsidiaries included)

b)     All companies having paid up capital of Rs. 5 crore & above or Turnover of Rs. 100 Crore and above

Advantages of using XBRL

The new saga in the world of accounting has loads of advantages some, inter-alia, are –

  1. Automation of work
  2. Cost Reduction
  3. Improved Data Accuracy
  4. Adaptation to all countries Accounting Standards
  5. More Reliable and Fast
  6. Making financial statements more useful
  7. Ease of Comparability of Data

Thus, it can be said that the XBRL technology leads to more information exchanges that can be effectively automated by use. This one standard approach warrants the accuracy of all Financial Data for the end users and early collaborative decisions for the companies.

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Bhavnoor Singh Bhatia This is a Guest Post by CA Bhavnoor Singh Bhatia who can be contacted at [email protected]

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Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and loves to help people with their Tax Queries.