When a business scandal occurs, there is a domino effect on the immediate stakeholders like employees, investors, the industry to which it belongs, and ultimately the entire country. Celebrated financial crimes around the world shake the credibility of the current reporting practices and there always arises an urgent need to improve the governance process to avert such dastardly incidents from happening in the future. xbrl
To address this challenge, a more structured format of financial reporting named XBRL was introduced. With this format, regulators can receive and analyze data in an efficient manner quickly and accurately.
The benefits of XBRL are plenty. The structured format also greatly helps regulators swiftly analyze the thousands and millions of data they receive from businesses in order to carry out their regulatory obligations. A recent KPMG study showed that an average annual report contains 165 pages, and with a country having an average of a few hundred entities under its purview, regulators would find reviewing such a large volume of Financial Reports quite a herculean task.
This means that regulators receive thousands and millions of pages of financial data every year in PDF, Excel, or email formats, which is an unstructured format. Going through millions of pages of files in diverse formats every year is just impossible, even if the regulator had an army of people to aid them.
How will Structured Data (XBRL) benefit the OAMs and NCAs in the EU?
Countries like the Netherlands and Australia have already adopted XBRL to improve their compliance. While the Australian tax office alone saved AUD 1.1 billion by moving to XBRL reporting, the SMEs in the Netherlands witnessed a decrease in time taken to credit applications by four days when data was submitted via the XBRL standard.
Taking cues from success stories worldwide, the EU passed a mandate that would make ESMA/ ESEF Compliance reporting a reality. This law makes it mandatory for all public companies to file their Financial Reports in the iXBRL format.
The move to iXBRL is multifold; here’s how it will help the NCA and OAM:-
- Detect Fraud: Crimes need to be curbed and the way to report financial data needs to improve to avert scams and financial theft from happening in the future. With the support of iXBRL, the OAM can validate the AFRs quickly and reduce the scope of errors committed due to human errors.
- Reduced effort and time: The regulators will be able to save time on scrutinizing each AFR individually.
- Improved operational efficiency: With the data being available in a quick and easy manner, the national regulators experience an efficient process to manage their governance activities. They can then focus their attention and utilize their time for analysis and comparison of the data they receive from the filing entities and also determine the trends in each sector and the economy as a whole.
As XBRL evangelists and industry pioneers, IRIS has helped many business registries, stock exchanges, and central banks implement XBRL across 24 countries. We believe with different countries adopting XBRL as a standard for digital financial reporting, there would be more tightened regulatory norms resulting in early detection of fraud and malpractice.
