XBRL stands for eXtensible Business Reporting Language, an electronic information standard that allows for machines to easily read business and financial information. This allows regulators to move from unstructured reporting formats such as PDF, Word (or even paper-based reporting) to a standardized digital format that machines can read. The change from paper, PDF, HTML-based, and HTML-based reports to XBRL is similar to the change from film photography to digital photography.
Why is Structured Data (XBRL) important?
National regulators across the European Union receive close to around 874,000 pages of audited financial statements each year. If a regulator had to pick 5 companies with the highest cost to sales in a particular city- consider much time would it take? Probably days, weeks, or even months. It is very important that regulators have an easy way to access data so that they run comparisons and checks quickly. When companies report their AFR in a machine-readable and structured format (like XBRL), regulators can run queries to quickly retrieve the information they are looking for.
The Evolution of XBRL
A group of accountants, technologists, and government policy and regulatory bodies came together in the early 2000s to explore ways in which the power of technology could be leveraged to access data in a more streamlined and timely manner. The solution that they came up with was a new standard called XBRL – an open-source, royalty-free, machine-readable data standard (based on XML) for reporting of business and financial information. The XBRL specification is developed and maintained by XBRL International (www.xbrl.org). Today, XBRL is a global standard and is leveraged world-over by over 140 regulators in over 60 countries.
Benefits of Structured Data (XBRL)
Let’s look at what makes XBRL such an attractive option for exchanging electronic information:-
- MACHINE READABLE: Since XBRL data can be read by machines, it is much easier for regulators to retrieve and analyze this data. The XBRL standard is also very comprehensive and can accommodate various domains of business reporting. XBRL is just like a bar code that is able to scan information. In the below example, once Company A tags ‘Sales’ to the ESEF tag ‘IFRS-full_Revenue’ and assigns a period attribute, unit, and scale, the XBRL machine is able to read the data and interpret it.
The XBRL standard offers a distinct way of reporting concepts along with its distinct definitions. This helps in clear understanding of what is being reported.
- STANDARDIZED INFORMATION: While in the earlier example Company A reported Sales, another Company could report Turnover, the third Company can report Revenue. While companies use different ways to present their disclosures, by mapping items in their report to the standard taxonomy elements, it becomes easy for the data to be comparable. Below is another example where Company B reports ‘Revenue’. The same ESEF element ‘IFRS-full_Revenues’ we saw in the earlier example will be used to map ‘Revenue’ information. Therefore, Company A reporting ‘Sales’ and Company B reporting ‘Revenue’ are standardized and comparable.
- DELIVERS CLEANER DATA: One of the main reasons for XBRL’s popularity is its ability to clearly define business logic and validation rules, thus making the data reported, cleaner. This is made possible through validation rules that are built into the taxonomy. Validation rules can run several checks such as calculation checks, consistency checks, and assertion checks. This in-built taxonomy and business rules help in validating data during the creation of the report itself, rather than after it is received by the regulator.
