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September 2011


By Anik R. Koria
Chartered Accountant
Reading Time 16 mins
The Ministry of Corporate Affairs (MCA) has by its Circular No. 9/2011, dated 31st March, 2011, Circular No. 25/2011, dated 12th May, 2011 and Circular No. 37/2011, dated 7th June, 2011. MCA has mandated certain class of companies to file Balance Sheet and Profit & Loss Account along with Directors’ Report and Auditors’ Report for the year 2010-2011 by using XBRL Taxonomy. In the Phase I of its implementation, the following classes of companies have to file the Financial Statements in XBRL form from the year 2010-2011:

  •  All companies listed in India and their Indian subsidiaries;

  •  All companies having a paid capital of Rs.5 crore and above;

  •  All companies having a turnover of Rs.100 crore and above.

However, banking companies, insurance companies, power companies and NBFCs are exempted for XBRL filing, till further orders. Also, vide its Circular No. 26/2011, dated 18th May, 2011, Circular No. 43/2011, dated 7th July, 2011 and Circular No. 57/2011, dated 28th July, 2011 MCA has made it mandatory that the Financial Statements prepared in the XBRL mode shall be certified by a Chartered Accountant or Company Secretary or Cost Accountant in whole-time practice from the year 2010-2011 onwards. The introduction of XBRL filing and its certification by MCA has opened a new avenue for practice for professionals like us. Therefore, it has become necessary that we gear ourselves up for this upcoming challenge. For this what is necessary is the knowledge about XBRL. Let us discuss about XBRL in great depth in the following paragraphs.

What is XBRL?
XBRL stands for eXtensible Business Reporting Language. It is a language for electronic communication of business and financial data which is revolutionising business reporting around the world. It provides major benefits in the preparation, analysis and communication of business information. It offers cost savings, greater efficiency and improved accuracy and reliability to all those involved in supplying or using financial data. It is one of a family of ‘XML’ languages which is becoming a standard means of communicating information between businesses and on the Internet. XBRL is being developed by an international non-profit consortium of approximately 650 major companies, organisations and government agencies. It is an open standard, free of licence fees. It is already being put to practical use in a number of countries and implementation of XBRL is growing rapidly around the world.

A simple explanation

The idea behind XBRL is simple. Instead of treating financial information as a block of text, as in a standard Internet page or a printed document, it provides an identifying tag for each individual item of data. This is computer-readable. For example, company’s net profit has its own unique tag. The introduction of XBRL tags enables automated processing of business information by computer software, cutting out laborious and costly processes of manual re-entry and comparison. Computers can treat XBRL data ‘intelligently’. They can recognise the information in an XBRL document, select it, analyse it, store it, exchange it with other computers and present it automatically in a variety of ways for users. XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits automatic checking of information.

Companies can use XBRL to save costs and streamline their processes for collecting and reporting financial information. Consumers of financial data, including investors, analysts, financial institutions and regulators, can receive, find, compare and analyse data much more rapidly and efficiently if it is in XBRL format. XBRL can handle data in different languages and accounting standards. It can flexibly be adapted to meet different requirements and uses. Data can be transformed into XBRL by suitable mapping tools or it can be generated in XBRL by appropriate software. How XBRL works? XBRL is a member of the family of languages based on Extensible Markup Language (XML), which is a standard for the electronic exchange of data between businesses and on the Internet.

Under XML, identifying tags are applied to items of data, so that they can be processed efficiently by computer software. XBRL is a powerful and flexible version of XML which has been designed specifically to meet the requirements of business and financial information. It enables unique identifying tags to be applied to items of financial data, such as ‘net profit’. However, these are more than simple identifiers. They provide a range of information about the item, such as whether it is a monetary item, percentage or fraction. XBRL allows labels in any language to be applied to items, as well as accounting references or other subsidiary information. XBRL can show how items are related to one another. It can thus represent how they are calculated. It can also identify whether they fall into particular groupings for organisational or presentation purposes.

Most importantly, XBRL is easily extensible, so companies and other organisations can adapt it to meet a variety of special requirements. The rich and powerful structure of XBRL allows very efficient handling of business data by computer software. It supports all the standard tasks involved in compiling, storing and using business data. Such information can be converted into XBRL by suitable mapping processes or generated in XBRL by software. It can then be searched, selected, exchanged or analysed by computer, or published for ordinary viewing. However, the use of XBRL does not imply an enforced standardisation of financial reporting.

On the contrary, the language is a flexible one which is intended to support all current aspects of reporting in different countries and industries. Its extensible nature means that it can be adjusted to meet particular business requirements even at the individual organisation level.

Differences between XML and XBRL
XML (Extensible Markup Language) uses tags to identify the meaning, context and structure of data. XML is a standard language which is maintained by the World Wide Web Consortium (W3C). It is a complementary format that is platform independent, allowing XML data to be rendered on any device such as a computer, cell phone, PDA or tablet device. It enables rich, structured data to be delivered in a standard, consistent way. XML provides a framework for defining tags (i.e., taxonomy) and the relationship between them (i.e., schema).

XBRL is an XML-based schema that focusses specifically on the requirements of business reporting. XBRL builds upon XML, allowing accountants and regulatory bodies to identify items that are unique to the business reporting environment. The XBRL schema defines how to create XBRL documents and XBRL taxonomies, providing users with a set of business information tags that allows them to identify business information in a consistent way. XBRL is also extensible in that users are able to create their own XBRL taxonomies that define and describe tags unique to a given environment.

Benefits and uses for business
All types of organisations can use XBRL to save costs and improve efficiency in handling business and financial information. Because XBRL is extensible and flexible, it can be adapted to a wide variety of different requirements. All participants in the financial information supply chain can benefit, whether they are preparers, transmitters or users of business data.

By using XBRL, companies and other producers of financial data and business reports can automate the processes of data collection. For example, data from different company divisions with different accounting systems can be assembled quickly, cheaply and efficiently if the sources of information have been upgraded to using XBRL. 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. Small businesses can benefit alongside large ones by standardising and simplifying their assembly and filing of information to the authorities.

Users of data which is received electronically in XBRL, can automate its handling, cutting out time-consuming and costly collation and re-entry of information. Software can also immediately validate the data, highlighting errors and gaps which can immediately be addressed. It can also help in analysing, selecting, and processing the data for re-use. Human effort can switch to higher, more value-added aspects of analysis, review, reporting and decision-making. In this way, investment analysts can save effort, greatly simplify the selection and comparison of data, and deepen their company analysis. Lenders can save costs and speed up their dealings with borrowers. Regulators and government departments can assemble, validate and review data much more efficiently and usefully than they have hitherto been able to do.

In a nutshell, XBRL can be applied to a very wide range of business and financial data. It can handle:

  •     Company internal and external financial reporting.
  •     Business reporting to all types of regulators, including tax and financial authorities, central banks and governments.
  •     Filing of loan reports and applications; credit risk assessments.
  •     Exchange of information between government departments or between other institutions, such as central banks.
  •     Authoritative accounting literature — providing a standard way of describing accounting documents provided by authoritative bodies.
  •     A wide range of other financial and statistical data which needs to be stored, exchanged and analysed.

XBRL in action

Organisations benefitting from XBRL

Various specific types of organisations can benefit from XBRL. They are as follows:

  •     Companies in general;
  •     Regulators;

  •     Stock Exchanges;

  •     Investment analysts;

  •     Loan and credit management departments of banks;

  •     Companies in financial information industry;

  •     Accountants;

  •     Companies in information technology industry.

XBRL taxonomies
XBRL makes the data readable with the help of two documents — the taxonomy and the instance document. Taxonomies are dictionaries that contain the terms used in the financial statements and their corresponding XBRL tags (i.e., electronically readable codes for each item of financial statements). Thus, taxonomies define the elements and their relationships based on the regulatory requirements. Instance document is a file that contains business reporting information and represents a collection of financial facts and reports — specific information using tags from one or more XBRL taxonomies. The instance document is a computer file that contains entity’s data and other entity specific information and is generally not intended to be read by the human eye.

XBRL taxonomies are the reporting-area specific hierarchical dictionaries used by the XBRL community. They define the specific tags that are used for individual items of data (such as ‘Net Profit’), their attributes and their interrelationships. Different taxonomies will be required for different business reporting purposes. Some national jurisdictions may need their own reporting taxonomies to reflect local accounting and

other reporting regulations. Many different organisations, including regulators, specific industries or even companies, may require taxonomies or taxonomy extensions to cover their own specific business reporting needs.

A special taxonomy developed and recommended by XBRL International has also been designed to support collation of detailed, drill-down data focussing on internal reporting within organisations. This is the Global Ledger (GL) taxonomy. The XBRL GL taxonomy allows the representation of anything that is found in a chart of accounts, journal entries or historical transactions, financial and non-financial. It does not require a standardised chart of accounts to gather information, but it can be used to tie legacy charts of accounts and accounting detail to a standardised chart of accounts to improve communications within a business. XBRL GL is reporting-independent, system-independent, permits consolidation of data from multiple departments and provides flexibility overcoming the limitations of other approaches such as Electronic Data Interchange (EDI).

The IASB is developing a taxonomy which reflects IFRS. National XBRL jurisdictions will extend this taxonomy to reflect their particular local implementation of IFRS. Taxonomies will thus be available to enable those reporting under IFRS in different countries to use XBRL, enhancing efficiency and comparability as adoption of IFRS expands around the world.

Taxonomies for Indian companies are developed based on the requirements of:

  •     Schedule VI to the Companies Act, 1956;

  •     Accounting Standards notified under the Companies Act, 1956;

  •     SEBI Listing Agreements.

Taxonomies can be extended to accommodate items/relationship specific to the owner of the information. Taxonomy extension can be in the following forms:

  •     Modification in the existing relationships;

  •     Addition of new elements in the taxonomy;

  •     Combination of above.

It is to be noted that the U.S.A. allows extension of the taxonomies by the users while the U.K. does not allow extension of the taxonomies by the users. Taxonomies issued by the MCA for the Financial Year 2010-2011 cannot be extended/ modified by the users. However, this inconvenience will be removed from the Financial Year 2011-2012 onwards.

Creation of financial statements in XBRL
There are a number of ways to create financial statements in XBRL:

  •     XBRL-aware accounting software products are becoming available which will support the export of data in XBRL form. These tools allow users to map charts of accounts and other structures to XBRL tags.
  •     Statements can be mapped into XBRL using XBRL software tools designed for this purpose.

  •     Data from accounting databases can be extracted in XBRL format. It is not strictly necessary for an accounting software vendor to use XBRL; third party products can achieve the transformation of the data to XBRL.

  •     Applications can transform data in particular formats into XBRL.

XBRL is a format for exchanging information between applications. Therefore each application will store data in whatever form is most effective for its own requirements and import and export information in XBRL format, so that it can be readily imported or exported in turn by other applications. In some applications, for example, the XBRL formatted information being used may be mostly tabular numeric information, hence easily manipulated in a relational database. In other applications, the XBRL information may consist of narrative document-like structures with a lot of text, so that a native XML database may be more appropriate. There is no mandatory relationship between XBRL and any particular database or other processing or storage architecture.

The route which an individual company may take will depend on its requirements and the accounting software and systems it currently uses, among other factors.

Role of Chartered Accountants vis-à-vis XBRL financial statements

After understanding what is XBRL, let us now have a look upon our role as a Chartered Accountant in respect of certification of financial statements in XBRL mode.

The Standards on Audit (SAs) issued by the ICAI apply to an audit of general purpose financial statements. The term general purpose financial statements has been defined in the Preface to the Statements on Accounting Standards, issued by the ICAI as including “Balance Sheet, Statement of Profit and Loss, a Cash Flow Statement (wherever applicable) and statements and explanatory notes which form part thereof, issued for the use of various stakeholders, Governments and their agencies and the public.” In fact, the references to financial statements in the said Preface and the Accounting Standards issued by the ICAI and notified under the Companies Act, 1956, are construed to refer to the general purpose financial statements. Clearly, the XBRL financial statements are out of the purview of the general purpose financial statements as envisaged in the said Preface. The current SAs issued by the ICAI, therefore, do not require the auditor to perform procedures on XBRL data as part of the financial statement audit. Accordingly, the auditor’s report in accordance with these SAs on the financial statements does not cover the process by which XBRL data is tagged or the XBRL data that results from this process, and thus, no assurance is given on the accuracy, consistency and completeness of the XBRL data itself.

Insofar as the SA 720, The Auditor’s Responsibilities relating to Other Information Contained in Audited Financial Statements is concerned, it may be noted that XBRL data does not construe ‘other information’ as envisaged in SA 720, because it is only a machine-readable rendering of the data within the financial statements. Since the filing of this XBRL data is not a discrete document, the requirement of SA 720 to ‘read the other information’ for the purposes of identifying material inconsistencies or material misstatements of fact would not be applicable to XBRL-tagged data.

The Chartered Accountants engaged to certify XBRL financial statements in terms of the aforementioned MCA’s Circulars of 7th July, 2011 and 28th July, 2011, can draw guidance from the principles enunciated in the Guidance Note on Audit Reports and Certificates for Special Purposes, issued by the Institute of Chartered Accountants of India. The Chartered Accountants’ procedures in respect of certification of XBRL financial statements would be as follows:

  •     Completeness — A Chartered Accountant would need to assess whether all the information has been formatted at the required levels as defined by the applicable reporting requirements in the instance document and related files and that only permitted information selected by the entity is included in the XBRL files.

  •     Mapping — A Chartered Accountant needs to examine whether the elements selected are consistent with the meaning of the associated concepts in the source information in accordance with the requirements of the company’s financial reporting framework.

  •     Accuracy — A Chartered Accountant should examine whether the amounts, dates, other attributes (for example, monetary units), and relationships (order and calculations) in the instance document and related files are consis-tent with the source information in accordance with the requirements of the entity’s reporting environment.

  •     Structure — It is essential to structure instance documents and related files in accordance with the requirements to which the entity’s XBRL files are subject.

As the regulatory requirement of certifying the financial statements in XBRL mode has an immediate impact on our profession, the ICAI should issue a Guidance Note on the certification of the financial statements in the XBRL mode, also giving factors to be taken care of while issuing a certificate along with an illustrative format of the certificate to clarify the situation.

To conclude, the usage of XBRL technology will lead to more information exchanges that can be effectively automated by use. XBRL will lead to the best interest of the company or more so for the international business interest globally that warrants the accuracy of all the financial data for the end-users and early collaborative decisions by the companies or those whose interest is involved for acquisition/rights, etc.

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.

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