Most people who are in touch with corporate reporting have heard about XBRL already – but only a few actually know what it is all about, how to handle it and what purpose it fulfils. And will XBRL really be the future of digital reporting?
What is XBRL?
XBRL is the abbreviation for “eXtensible Business Reporting Language” and is a technical standard developed with the goal to change the way how financial data is communicated. By using unique tags to identify each piece of information, it makes data easier to analyse, compile and share. Because of these unique tags, XBRL is often referred to as “bar codes for reporting”. All the available tags are summarised in a taxonomy which will typically correspond to a particular accounting standard (e.g. IFRS). Technically the taxonomy is an XML scheme. This predefined set of tags allows compliant software to process and interpret the information correctly. XBRL is extensible. This means that new tags can be added to the taxonomy to cover new regulations or meet specific reporting requirements to make XBRL somewhat future-proof. By using XBRL, instead of having multiple sources for different targets when handing over financial data (like a PDF, Excel, HTML or simple Text files) there is just one single standardised source: the tagged XBRL document. XBRL files aren’t meant to be read and consumed by humans. They are designed for machines and require specialised software to be processed. This lack of human-readability is the point where iXBRL comes into play. iXBRL means inline XBRL. The tagged data is embedded in the code in an HTML document (thus inline), making it human-readable as well as machine-readable. It is the marriage between the XML based XBRL data and a regular HTML website and can be opened with any standard web browser. Apart from the human readability, the biggest advantage of iXBRL is that non-tagged information is still visible. You can put the information into a broader context instead of just showing the tagged information. Design-wise the report can reflect your corporate design and follow your styleguide. By the way: (i)XBRL is not restricted to financial reports. You can tag documents for ad-hoc announcements, press releases or even non-financial information.
Why is this relevant?
Since 2013, the ESMA is pushing for a European single electronic format (ESEF) to comply with the EU transparency directive with the aim to ensure transparency of information for investors. As a result – starting in 2020, stock-listed companies in the EU need to file their IFRS financial statements in the iXBRL-format with their authorities. These new regulations affect about 5,300 companies all across Europe. To make the entry into the world of XBRL easier, for now only the company main financial statements need to be marked up in detail whereas the notes can be tagged as a block.
Who is the target audience?
So, will all users of an annual report make use of XBRL in the future? The answer is: No. Most of the stakeholder groups such as employees, partners, private shareholders, suppliers and the public sphere are unlikely to benefit directly from XBRL. They will continue to use the Annual Report as before. Big XBRL beneficiaries, on the other hand, are regulators and governments. They aim for standardisation and transparency to simplify and optimise their processes. Similar is true for data providers. They can use the performance and risk information to create automated comparisons and ratings. Analysts and investors may use it for an easier comparison of potential investments. Companies themselves can exchange standardised data to evaluate and manage risks.
How does the tagging work?
Tagging is the process of applying a unique element (the tag) within the taxonomy to the data in order to create the instance document. Four levels of tagging are present in XBRL:
- Level 1 – Block tag. A Note is tagged as a whole block altogether.
- Level 2 – Policy text block. Each accounting policy is tagged as a single block of text.
- Level 3 – Table text block. Each table of data in the Notes is tagged separately as a whole including related text.
- Level 4 – The most granular one: Each number, amount or percentage requires tagging whether presented in a table or within the footnote narrative.
To be able to do this, you need a specialised software or plugins to your existing accounting software, disclosure management tool or editorial system. XBRL has a strong impact on the accounting process and is a financial accounting expertise. Corporates usually use a consultancy to fulfil the legal requirements in the first years until the required know-how is build up internally and all processes are adapted.
Impact on online reports.
So how will XBRL impact the future of digital reporting? We can’t predict the future nor do we have a clear answer yet – but there are some possible scenarios: Scenario A: iXBRL is a regulatory document and will be prepared early in the implementation process by the accountants. It might be published together with the online report as a downloadable file but exist in parallel to fulfil the legal requirements. The existence of XBRL is dominated by the need to file it with the authorities. Scenario B: iXBRL files are prepared and tagged in parallel during the production process of the annual report and then implemented as iXBRL in the content of the annual report. Scenario C: Thinking about having the online version as the single source of truth for all channels of information, the XBRL tags are applied directly in the online report and the XBRL document is extracted from there and filed with the authorities.