The XBRL computer language is rapidly becoming the de facto global standard for sharing financial information.
It took 14 years to carve a place for itself in the world of business but today, more companies than ever are talking about the financial reporting phenomenon called XBRL. As its adoption rate accelerates among regulators, analysts and enterprises worldwide, South African businesses are joining the discussion about what XBRL is, what it will mean to them and what they need to do about it right now.
According to the Deloitte 2012 CFO Survey, only 3% of South African companies voluntarily implemented the standard in 2012. A further 9% will consider doing so in 2013. The main reason reported by 60% of CFOs for the slow uptake is a lack of information. Not enough is known about XBRL to make an informed decision about the prudence or necessity of embracing it.
Like every ‘overnight success’, XBRL is not new. Back in 1998, Charles Hoffman, a certified public accountant (CPA) from Washington, USA, created a method for labelling financial data (called “tagging”) so it could be read and processed by computer systems. Since then, XBRL International, an independent, non-profit body of accountants and companies, has worked tirelessly to make it the global standard for exchanging financial information.
What is XBRL?
XBRL stands for eXtensible Business Reporting Language. It is a global standard for exchanging business information, based on XML (eXtensible Mark-up Language), which is used to encode financial documents in a format that both humans and computers are able to read and analyse. Many countries are putting XBRL to practical use, with the numbers of implementations growing rapidly around the world.
What problems does XBRL solve?
Companies traditionally transmit their financial information in a printed or electronic format (such as PDF). The recipients either read the information or, if wanting to use computer assisted analysis or electronic storage, manually transfer the data from the document into their systems. Of course, this process is time-consuming, laborious and prone to error. When processing information from hundreds of companies, the task becomes highly impractical. Often information might be discarded in favour of expediency.
XBRL removes the need for manual input, as XBRL-enabled software can read XBRL-tagged data and import the information directly. So data can be passed between disparate computer systems with human intervention needed only in the case of exceptions. The resulting efficiency reduces the cost of communicating and maintaining financial data, while improving its usability, integrity and compliance. In addition, if XBRL is used as the standard, data can be retransmitted without specially transforming it to other formats required by further recipients.
What are the advantages of XBRL?
Because XBRL-tagged financial reports can be read by computers, software can be used to validate them for accuracy, making them more reliable, compliant and auditable. This can be done with little effort by both the issuer and recipients. Being XML-based, XBRL inherits various methods for searching, querying and analysing data, meaning that companies and their stakeholders will be able to analyse financials more effectively. A fundamental feature of XBRL is that it is fully internationalised. In other words, documents created in one country can be viewed in another language by recipients at a different geographic location. This is because XBRL provides online dictionaries of its tags and common terminology in all major languages.
These can be invoked automatically when a document is displayed by software. An XBRL document can be used across international boundaries with no loss of meaning. In a world in which companies routinely communicate with global partners, investors and stakeholders, XBRL provides a common platform for reviewing standardised information. Companies can also gain worldwide access to the financials of their foreign divisions as often as required. Furthermore, XBRL helps companies to improve compliance to standards.
Once tagged, financials will remain compliant to the chosen standard (e.g. IFRS), without constant auditing for compliance, as often needed with printed reports. Apart from the benefits afforded to companies, XBRL is growing in popularity among consumers of financial data, such as regulators, analysts and financial institutions which can achieve greater productivity and offer improved services because of the standard.
For example, in the USA, the Securities Exchange Commission (SEC) finalized implementation of its XBRL-based submissions system in 2009, requiring all listed US companies to provided financial information in XBRL format. The project aims to empower investor analysis while reducing the burden of capturing and maintaining thousands of submissions.
Also, in the UK, Her Majesty’s Revenue and Customs (HMRC) implemented its system for receiving XBRL submissions for company tax two years ago. Again, the goal was to alleviate the effort of data capture, but also to improve turnaround of collections and provide analysis for auditors seeking out non-compliant businesses. Locally, the JSE offers an online portal that allows listed companies to voluntarily submit their financials in XBRL. This makes it easier for investors to analyse and compare stocks and make informed investment decisions. In the long run, this will benefit companies seeking capital, as their potential becomes more immediately apparent to investors.
What is the future of XBRL in South Africa?
XBRL SA, the South African jurisdiction of XBRL International, was formed in 2005 to promote and advance the use of XBRL in the country. Currently, the body is working with the Companies and Intellectual Property Commission (CIPC) to develop the systems, skills and local standards that will adequately address the nation’s unique accounting and legislative requirements. These organisations envision having a fully mandated standard in place by December 2015, which would make the submission of financials in XBRL mandatory for all registered companies. It is expected that a successful outcome would encourage the rapid adoption of the standard by other regulators as well as organisations in the private sector.
So what do South African companies have to do to prepare themselves for XBRL?
In the examples of the SEC and HRMC mentioned above, companies were given three years and two years respectively to become completely XBRL compliant. They were also afforded leeway for mistakes made in their initial submissions, with the HRMC still only issuing penalties as a last resort. In the same way, South African firms, as well as their financial consultants, could expect a period of adjustment to allow them to sharpen their XBRL skills and correctly implement the standard.
However, as XBRL implementation becomes more imminent than optional, local companies need to educate themselves about its requirements and what resources are available to them. Since XBRL is a computer dependant format, it makes sense to identify suitable XBRL-enabled software packages up front, otherwise using XBRL can be a time consuming and costly process. Internationally, software packages like CaseWare are already automating the tagging process, to ease the way to migrating to XBRL.