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XBRL :Future of Financial Reporting

By Nalin Anushke Bandara Dissanyake

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Financial reports are the documents and records put together to track and review how much money business is making (or not).

What is FR

Why FR To deliver financial information to the

stakeholders.

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Evaluation of Financial Reporting

Paper Based FR

HTML Based FR

XBRL

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For many years the financial information provided to senior managers and external users was quite aggregated in a physical paper-based “report”.

Limitations : Only a person can read a report. The data can not be shared with other systems, only with other people.

Evaluation of Financial Reporting

Paper Based FR

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HyperText Markup Language (HTML) is the main mark-up language for creating web pages and other information that can be displayed in a web browser.

Therefore in 1990s HTML format is used for Financial Reporting. This enabled a database for Financial reports which can be accessed anyone from any ware.

Limitation : Only a Display of Information.

Evaluation of Financial Reporting

HTML Based FR

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Limitations of Paper & HTML based reporting

Corporate Accounting Scandals like Enron, Tyco International, Adelphia, Peregrine Systems reduced confidence of investors.

Background for a New Language

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Father of XBRL CPA (Certified Public Accountant) Invented the concept of XBRL (XML

Reporting language) in 1998 US SEC refused to adopt XBRL XBRL Team travelled all over the world

◦ Make XBRL the global standard for business

reporting before other countries started developing their own standards.

Charles Hoffman

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China Belgium Canada Chile Netherlands Korea

Singapore South Africa Spain Denmark Germany India

Ireland Japan Nevada United States United Kingdom Australia

Worldwide XBRL Adaptation

United State adopted XBRL, developing EDGAR (Electronic Data Gathering, Analysis and Retrieval) system spending 50 million in 2009.

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XBRL - eXtensible Business Reporting Language

XML (eXtensible Mark-up Language)-based mark-up language used to communicate financial and business data electronically.

What is XBRL

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Very similar to barcodes

Instance (XML) document consists all the XBRL Tags (Barcodes) which enhance the machine readability.

XBRL is machine (computer) readable data (Meta-Data)

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Normally computers have no inherent knowledge of financial reporting and do not understand information that is not fully defined.

EG : Computer cannot understand following figure, Only a display .

XBRL is machine (computer) readable data (Meta-Data)

How it Happens :

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Enhancing the computer readability for FRs.

Telling the computer :Statement TypeHow the Presentation (Display) should beFormula for the figureCalculationScale Specific (Generally accepted) Code (Tag)

Mapping Process

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Example :

Statement : Income Statement

Tag (Machine readable ID),Currency ,Scale & etc.

Mapping Process

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Users

Non-Professional

General Public

Customers

Professional

Financial Institution

Shareholders

Government

Managers

Users of Financial Reports

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Simplifying complex Financial Information, By giving simple pop-up definition.

Is This the Only Use of XBRL ?

USE of XBRL

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XBRL : X stands for EXTENSIBLE : An EXTENTION to the Typical Financial Reporting formats.

What is the Extension :

XBRL offers major benefits at all stages of business reporting and analysis.  The benefits are seen in automation, cost saving, faster, more reliable and more accurate handling of data, improved analysis and in better quality of information and decision-making. 

USE of XBRL

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What is “Financial Analysis”Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project.It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports.

How XBRL Facilitate Financial Analysis.

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Currently XBRL Interpreting software devices have been developed to utilize machine readability of XBRL reports.

These Devices : Process and store all XBRL filings in a uniquely

structured way. Use advanced computing techniques to increase

comparability between companies by Calculating range of Ratios.

Data is available within minutes after a filing leaves the CFOs hands

How XBRL Facilitate Financial Analysis.

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Calcbench, Inc

◦ http://www.calcbench.com/

XBRL to XL

◦ http://www.xbrlxl.com/

Microsoft XBRL Add-in to Excel http://xbrl.us/research/Pages/data.htm

XBRL Software

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How Ratios are Calculated Example : Current Ratio = Current Assets = AssetsCurrent

Current Liabilities

LiablitiesCurrent

All these tracked through 6 files we produce.

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 SEC has released a request for proposal (RFP) regarding introducing support of Inline XBRL as part of its Interactive Data mandate in July 2014.

With 3 phases Design phase Development phase Implement phase

What’s Next

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XBRL formatted information to be embedded into a web browser-displayable HTML document.

Inline XBRL

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 The world of computerized financial data has not yet progressed as far as have other computer applications, due to lack of a single financial-data standard.

Successor for manual Analytical work.

Internal management reporting method within an organisation.

Potentials of XBRL

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Developing a software using XBRL tags to record internal transactions similar to Barcode reading system.

XBRL as an Internal management reporting method

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At the point of sale

Operation of a Barcode System

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Similarly XBRL tag based Internal reporting software can be use to record all the transactions (Book-keeping) daily basis. Since computer readable globally accepted Accounting tags have been all ready developed.

As a result of that, daily analysis can be done smoothly. Can identify Trends, Gaps, Improvements and make decisions proactively.

XBRL as an Internal management reporting method

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Infrastructure upgrades needed for implementation.◦ But these hardware and software requirements for XBRL will meet in by

the market. Lack of Comparability because of Extensions :

◦ Fundamental investing depends on the analyst’s ability to make comparative analyses among companies and across time periods. The use of individual or poorly structured standard extensions, however, could seriously diminish the expected benefits of a move to XBRL reporting

Potential Loss of Reliability :◦ Audits required for XBRL reports before filling since these are subjected

only to a technical validation.

Main issues regarding XBRL

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“We are currently only at stage one or perhaps stage two of the XBRL journey. It is an international language for business reporting because it has been adopted by so many countries and it is being adopted in anger by regulators in 26 countries.

Hudson Hollister (Founder & Executive Director for data Transparency Coalition) suggest US government to use XBRL for other sectors like Education & Health to standardize and structure Big Data.

Conclusion

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THANK YOU!