Our previous article was about leveraging technology to make financial reporting smoother, easier, and of better quality. In this article, we turn our attention to another powerful artifact – standards, or more specifically, machine-readable standards – in helping you on your quality mission.
The globally accepted, de facto and open-source standard for communicating business and financial information in a machine-readable format is XBRL or eXtensible Business Reporting Language. And XBRL is, incidentally, the same standard that ESMA has adopted for its ESEF mandate. All EU-listed companies will have to file their annual reports in XBRL going forward.
XBRL works through ‘tagging’ business information in any document to define it for a computer. Tags relevant to each business and transaction type can be found in a taxonomy, which works like a dictionary of tags. Taxonomies are typically published and managed by regulators, providing an easy starting point (and a standard list of concepts) that all companies can use.
One can easily leverage the power of XBRL to ensure greater consistency and accuracy in a financial report
The simple act of converting a PDF report into an XBRL report means that it becomes machine-readable (at least those parts of the report that are tagged). Machine-readability in XBRL means validations can be run on the data to ensure that everything being reported ties in. One can easily leverage the power of XBRL to ensure greater consistency and accuracy in a financial report.
Validations: Inbuilt in the XBRL standard
In the IRIS Research Study, validations are what helped us find errors in the annual reports of several European companies. Two simple categories of errors that we saw across 10% of the reports were: a) Totalling mistakes, and b) the same financial concept being reported with different values at different places in the document.
Remember that for our study we undertook to insert machine-readable tags only in the primary statements – income statement, balance sheet, cash flow, and stockholders’ equity. This is what ESMA requires as part of Phase 1 of the ESEF mandate. If our study had simulated Phase 2 of the ESEF mandate (tagging numbers and text through the entire document to make them machine-readable) you can be sure that the errors flagged would have been much higher.
As a company, you need not wait for the regulator to bring in Phase 2 of the mandate. In fact, as a company, you need not worry whether you are even covered by the mandate. Instead, be proactive.
Several taxonomies are published and available. Pick a taxonomy appropriate to your reporting jurisdiction and use it to ‘tag’ or digitally map your entire report. (If you need to comply with ESMA’s ESEF mandate, use the ESEF taxonomy. That will make your external compliance easier as well). Run your XBRL/ iXBRL document through any XBRL International certified validator – and you will automatically get to see inconsistencies in your financial report. It is an inexpensive way of running a check on your report and addressing any consistency gaps in your final document.
That brings us to the end of a short primer on the globally accepted and de facto machine-readable standard that is XBRL. Our next article will point out some more facets of these standards.
IRIS CARBON®, a cloud-based intuitive platform, is the most trusted name in XBRL compliance. With more than 1.5 mln filers across our XBRL solutions in the US, UK, Europe, South Africa, Malaysia, and India, our footprint is truly global. We bring to the table a wealth of experience that you are sure to benefit from.