XBRL : a road map to the adoption of a new reporting model

 

Beginning in 2010, Italian companies must file their annual financial statements to the Italian Chambers of Commerce in an XBRL format. Under the provisions of the Italian civil code, more than 850.000 companies are subject to this mandatory deposit of their balance sheets. This is the main reason why this year, the 20th XBRL International Conference has been scheduled in Italy at the Sheraton Conference centre in Rome, on April 20-22.
As a welcome to the event, this edition of the MUSING newsletter is dedicated to emphasize the benefits that interactive XBRL reporting can bring in terms of transparency and efficiency of communications among market players, regulators and businesses around the world and to outline a practical roadmap to XBRL adoption.
eXtensible Business Reporting Language (XBRL) is an XML-based,  royalty-free, open standard that serves the members of the financial information supply chain with a common platform for business reporting. It is principally used for preparing, publishing, exchanging and analysing financial statements, thus facilitating reporting and making it easier for companies to render data in a user-friendly manner that is disclosed under the existing accounting standards and is valued by investors and regulators.

 

How XBRL Affects Business Reporting

XBRL improves the processes of preparing, analysing and publishing the information in business reports, by defining how the numbers and facts inside a financial statement and related reports relate to one another. More specifically, XBRL affects business reporting in the following ways:
1) It permits the automatic exchange and reliable extraction of financial information across all software formats and technologies, although it does not guarantee the correctness and completeness of the data for making informed decisions
2) It eliminates proprietary accounting system dump formats and manual consolidation and reporting
3)  It lowers a company's cost to prepare and distribute its financial statements, e.g., printed financial statements or other specialized reporting formats such as credit reports and loan documents
4) It allows for more efficient data collection and lowers operating costs associated with custom data feeds and reduced errors
5) It leverages efficiencies of the Internet as today's primary source of financial information
6) Companies that prepare business reports and financial statements can increase efficiency and accuracy in the preparation of reports and statements as they are created one time and published as printed reports or on web sites, or submitted as regulatory filings
7) Analysts, investors and regulators benefit from new possibilities in automated analysis and more frequent release of information
8)  IT consultants can discover new opportunities that result from XBRL adoption, in particular for data and application integration.

 

How XBRL Works

Technology required for XBRL-enabled data resides in the middle of IT infrastructure. Back-end relational databases and front-end applications, such as Excel, can be utilised for exploiting XBRL. The key components in XBRL are:
Specifications - the technical specification is a document that describes, in technical terms, how a financial statement is created to the XBRL specification. XBRL allows software vendors, programmers and end users who adopt it as a specification to access business reporting information.
Taxonomies - XBRL taxonomy is a standard description and classification system for the contents of accounting reports; it can be regarded as extensions of XML schema and it uses XML data tags to describe financial information. Taxonomies are the rules for defining these tags. They can be IFRS rules or business rules that are specific to the industry in which organisations operate. Taxonomies lay down the content and structure of various reports created and maintained by an organisation. Information producers take their accounting information from their accounting system, and code it in a standard manner as described by the taxonomy. For example, an electronic annual report would contain financial statements, auditors' reports and notes, all coded and identified in XBRL. The instance document can be read directly by computer programs or end users or, more likely, coupled with a style sheet to produce a printed annual report, user-friendly web page or a Pdf file. Creating a common XBRL taxonomy to be used internally within the organisation gives a single point of reference, expressed in a standardised format and usable by every software application that interacts with or uses the financial information.
Instance documents - an instance document is an XML file that contains business reporting information as XBRL elements, and represents a collection of financial facts using tags from one or more taxonomies. Examples of instance documents include a file containing the figures from a company earnings release, and a file containing a large number of ledger transactions pertaining to bills receivable and the details of bad and doubtful collections.

 

Road Map to adoption

The following steps may be taken to adopt XBRL:
1. Check with the vendors of the current financial application/software about whether their future versions will support XBRL documents.
2. Carry out an internal survey to identify which business reporting areas might benefit from XBRL.
3. Identify the tools and services necessary to analyse, transform, route and store XML information, which is key to information exchange infrastructure. Selected tools should ensure smooth transition to XBRL without affecting the current business environment. The tools should facilitate conversion of non-XML data in a text, PDF or Word file to XML.
4. Validate the data extracted from databases with taxonomies and specific business rules. The best solution is to ensure that XBRL-tagged data are kept separate from RDBMS functionality, so that the underlying data are pristine.
5. Map multiple information sources into that taxonomy so that all of them produce data that can be used easily in a variety of applications.
6. Set up a pilot "data hub" where the XBRL documents from many sources are stored and are accessible to multiple applications.
7. Establish a peer-to-peer information exchange where XBRL documents are published on individual web sites and pulled directly into desktop applications, such as spreadsheets and databases.
8. Use the extracted data and map them into the agreed-upon categories as intended. Control the way the information is imported into analytics or other software applications that interpret and display the results, eliminating error-prone interpretation and undesirable delays.
9. Incorporate encryption and digital signatures to XBRL data
10. Store XBRL instances and XML documents, such as link bases and style format, in a server.
11. Retrieve XBRL instances for dynamic publishing.

 

Conclusion

Research has established that capital markets reward firms that communicate their financial performance clearly by offering them a lower long-term cost of capital. This clear, concise and correct information can be provided by XBRL. As a language, it has the potential to become the universal language of business reporting, and early adopters will realise their greatest benefits as it becomes more widely accepted and used in the financial information supply chain. It is strategically sensible for them to advocate wider use of XBRL among their business information suppliers and users, and to collaborate with others to develop and improve published XBRL taxonomies. Hence, the MUSING consortium, which is a member of XBRL international since 2008, welcomes the 20th XBRL International Conference and hopes it can definitely raise the awareness of policy makers, decision takers and data users to XBRL as a lingua franca which enhances exchange and better understanding of business and financial communications.

As a contribution to the event the MUSING project developed a value added analytical tool that leverages XBRL - italian taxonomy (16 february 2009 release) - to  support SME’s self-assessment activities and compare financial performance measures among peers and competitors. The tool can be downloaded from the "Tutorials" section of the MUSING web site.

Area of interest	Financial Risk management