How regulators around the world are tapping the potential of XBRL

XBRL (eXtensible Business Reporting Language) has changed the way corporations and governments/regulators around the world handle business data. This XML-based markup language has simplified the automation of exchanging financial information; consequently helping to achieve financial interoperability between entities and governments.

But XBRL did not come with an implementation guide. Depending on the geography, scope, and purpose, the implementation had to be tailored and all stakeholders experienced a massive learning curve. In this article, we will explore how regulators in the United States and Europe implemented XBRL in their respective geographies, the challenges they faced and how far along they are in their XBRL journey.

How regulators around the world are tapping the potential of XBRL

The Securities and Exchange Commission (SEC) XBRL implementation

The SEC’s XBRL implementation had three major objectives: substantiation of financial documents for transparency, timely submission to increase accountability and improved quality of information for data analysis. It also had its work cut out because the scope of its XBRL initiative was the largest in the world. But this implementation was necessary to improve the policy making for the entire economy.

Inception: 2008

Approx. number of entities: 17,000

The Challenges

    • Massive number of entities and multiplicity of industries: There are more than 17,000 publicly traded companies that range from retail to technology that report their 10Ks and Qs to the SEC. Every entity had a specific format and the range of their report differed based on their revenue. For many entities, this transition meant administrative and financial adjustments that affected their reporting process.
    • Maturation of software support: XBRL was a relatively new concept to financial printers and software service providers. This made it difficult for them to provide readily available software solutions that incorporated US GAAP taxonomy. This made it quite difficult for entities to understand the technical aspects of XBRL and sustain the quality of their reports.

The SEC Approach

    • Phase-in method: The SEC understood that filers would not be able to prepare their entire report in XBRL in the first attempt. So it planned the transition in 3 phases. In the first phase, Large Accelerated Filers tagged their Primary Financial Statement in XBRL followed by accelerated filers in the second phase and small reporting companies came on-board in the third. In the first year, all filers tagged only their PFS, but in their second year of the mandate, financial report would also be ‘detail tagged’ and ‘block tagged’.
    • An extensible taxonomy: Considering the scope and diversity of entities filing to the SEC, it was unlikely that the 12,126 elements of the US GAAP Taxonomy would cover every single element in the report. So, the SEC allowed companies to create their own custom tags in the event they were not able to find what they needed in the taxonomy.
    • Collaborative effort: The SEC was undeniably at the helm of XBRL implementation; however, it could not have pulled this off alone. The SEC collaborated with solution providers, companies, industry bodies and XBRL U.S. to refine and enhance the taxonomy to be as inclusive as possible. Also, despite the reluctance of entities they cooperated to ensure the success of XBRL in the US.

The Result

    • It may have taken a few years but the SEC has reached closer to its objectives than ever before. They have achieved increased transparency and created a massive structured database that would have been impossible otherwise.

The HM Revenue and Customs iXBRL implementation

The HMRC was well ahead of the rest of Europe when it came to adopting iXBRL. It wanted to enable automated analysis and handling of all financial data that came to it in the form of annual accounts and corporation tax reports. The HMRC also wanted to remove inconsistencies in data and remove scope for any human error making iXBRL a natural solution.

Inception: 2011

Approx. number of entities: 1.9 million

The Challenges

    • Massive number of entities and multiplicity of industries: HMRC is the tax, payments and customs authority that pays for the UK’s public services and regulates every single of the 1.9 million companies operating in the UK. The UK’s iXBRL programme was the largest in the world considering the number of reports filed.
    • Implementation problems and costs: The HMRC had to account for the range of reports it would receive. From complex reports from large organisations to simple reports from small companies, the HMRC had to cover all its bases. Also, some companies filed under UK GAAP standards while some filed under the International Financial Reporting Standards (IFRS). Depending on which principle was applied, there is a significant difference in format and presentation.

The HMRC approach

    • Innovative UK GAAP taxonomy design: Besides ensuring only around 15 mandatory tags and avoidance of company-specific taxonomy extensions requirement for UK XBRL filings, there are three aspects of the UK taxonomy that made ready for 9 million entities.
        1. The presentation view of the taxonomy was based directly on the structure of a normal set of accounts, making itself familiar to anyone accustomed to reporting in the UK. The presentation view was also designed with the intent to make it easy for users to locate and identify tags.
        2. A ‘data-centric’ approach for defining and using dimensions. The taxonomy fully defined the relationship between line item tags and dimensions. The taxonomy design also ensured that each line item tag is connected to all the dimensions that are appropriate for it. This enabled the HMRC to provide a general structure of line item tags and dimensions which would work across all companies, regardless of whatever individual financial tables they may create.
        3. Comprehensive tagging was the HMRC’s solution to tackle company specific data and information. Analysis items for company-specific data and non-standard dimension tags played a very vital role to allow companies to tag information that couldn’t be tagged otherwise.
    • Soft landing approach: The HMRC introduces a two-year transitional ‘soft landing’ period to give companies time to adopt iXBRL programme. This interim period ended on March 2013. Soft landing approach was necessary considering the number of entities that had to transition to XBRL.
    • Joint filing with Companies House: The UK business register, Companies House upgraded all its systems to handle XBRL filings in 2011. It also began to publish all iXBRL reports it received free-of-charge for the benefit of investors, financial institutions and the public.

The Result

    • The HMRC has been quite successful in its iXBRL journey so far. Considering the massive number of entities involved, the soft landing approach was a good way to proceed with implementation. The action of the Companies House to publish XBRL reports represented the HMRC’s commitment to open access and transparency which in turn would ensure better public services and stimulate growth through new revenue streams.

The ESMA (European Securities and Markets Authority) iXBRL implementation

Inline XBRL is at the crux of ESEF (European Single Electronic Format), a reporting format that has been enforced by ESMA (European Securities and Markets Authority) as part of the Transparency Directive for all public listed companies in Europe. As part of its mandate, ESMA has enforced the implementation of iXBRL in 23 European countries to ensure that the European Union is digitally unified and progressive. The mandate also encourages European issuers to publish transparent, unbiased, and comparable information in order to provide users a more comprehensive understanding.

Inception: 2020

Approx. number of entities: 5300

The Challenges

    • Geographic and linguistic implementation: Unlike the SEC and HMRC, the ESMA mandate ranges across 23 member states each with its own native language. The process of standardizing business reporting for every single EU country meant running numerous field tests, ensuring public review of proposals and taking feedback from the National Competent Authorities of the member states to make sure that iXBRL format will be received and adopted smoothly be entities.

The ESMA approach 

    • Use of language specification: For the sake of convenience, ESMA has provided the taxonomy in 23 languages. ESMA also states that ‘The RTS on ESEF does not alter the language regime set out in Article 20 of the Transparency Directive. Therefore, the labels of the elements used for marking up the annual financial report including the issuers’ extension taxonomy elements should be in the same language in which the annual financial report is prepared. Issuers are not required to provide labels in other languages.’
    • Critical features of the mandate:
        1. Detailed tagging exercise: Besides 10 mandatory tags, only facts in the primary financial statements need to be tagged. The ESEF taxonomy will ensure that users focus on tagging a much smaller subset of the most important information, at least in the first year of the mandate.
        2. Extensible taxonomy: The ESEF taxonomy will be extended by users. An issuer will need to modify (extend) the taxonomy so that a tag exists for each fact in the primary statements. If an issuer determines that the IFRS Taxonomy includes an element that corresponds to a disclosure of the issuer but is not yet included in the ESEF taxonomy, the issuers can define an extension taxonomy element whose name and label corresponds to name and label of the element in the IFRS Taxonomy.
    • Establishment of OAMs: As per the Transparency Directive, ESMA set-up Officially Appointed Mechanism for each member state. The OAM is responsible for the central storage of regulated information in each member state. This will make the report submission process smooth for companies and ESMA will have set up an automated process in place for the same.
    • EEAP (European Electronic Access Point): ESMA has developed a web portal service known as a European Electronic Access Point. The EEAP will provide centralized access to information already stored at national level by individual OAMs (Officially Appointed Mechanisms). As part of a two-step access to regulated information, the end users first to access the search facility on the EEAP website (by issuer and by type of regulated information), and in a second step, access the documents containing regulated information through hyperlinks to the specific regulated information stored at the OAM level.

The Result

    • At the time of writing this article, ESMA released the latest updated version of the ESEF taxonomy with the IFRS 2019 update. Everything is set in place and entities are in the process of transitioning to iXBRL.

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How regulators around the world are tapping the potential of XBRL

How regulators around the world are tapping the potential of XBRL