Digital business and financial reporting with XBRL ( Topic 11) Flashcards
Digital business and financial reporting with XBRL
XBRL: eXtensible Business Reporting Language is a standard for the electronic communication of business and financial data
- > Instead of treating financial information as simply a block of text, XBRL provides a computer readable tag for each item of data
- > XBRL adopts a semantic approach ( focus on meaning – embedding meaning within strings of financial data – allows more efficient and in depth analysis by users or recipients of data).
The Role of XBRL in Decision Making & Reporting Systems
XBRL makes financial reporting to various user groups much more efficient.
Internal users: same pool of financial data – differing reporting requirements from investors, regulators, government agencies. Time spent producing reports ( paper and electronic) in specific formats without XBRL.
External users: analyse publicly available information. Difficult to manipulate information using web page information ( html format) and pdf files. Need to re-enter data into other software such as Microsoft Excel spreadsheet for analysis purposes if no XBRL.
Advantages of XBRL:
o Reduced data manipulation o Paperless reporting o Industry accepted standards o Reduced accounting time o Recognition by main software vendors o Interchangeable data o Comparisons across companies
Corporate regulators worldwide are moving towards mandating XBRL for corporate filings and reporting.
o Mandatory in UK since April 2011
o Mandated in USA since Dec 2008, beginning 2009 for largest companies and for all public companies by 2013.
o Not mandatory for filing financial reports with the stock exchanges in Australia and New Zealand.
Use of XBRL reaching a tipping point in:
o Europe, Australia, Singapore, Japan, Korea, China
o These companies have various XBRL financial requirements
o Large banks worldwide starting to require XBRL usage in loan documents and credit granting procedures.
XBRL Concepts
XBRL uses tags applied to data to:
- specify what the piece of data is
- specify how it is used
- make the data searchable
- represent a standard for the business environment
o Eg tag has the same meaning - in terms of calculation and what the value represents for anyone using the XBRL standards
o Provides a consistent taxonomy for searching and using data contained in web pages. Data searchable and comparable.
XBRL Tagging
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XBRL Taxonomies
- Taxonomies are the dictionaries that define each accounting item that can be tagged in XBRL. Eg Internal ( general ledger / chart of accounts) and external taxonomies ( US GAAP and IFRS).
- A taxonomy contains one or more schemas. A schema is a formal description of the structure and content of a database
- A schema contains numerous elements (each tagged item) that make up the financial statements. US GAAP 4000 elements
XBRL Linkbases
Linkbases are the parts of an XBRL taxonomy that control how the data elements are linked together. Eg individual current assets add together to give total current assets. Current Assets and Non Current Assets add together to give total assets.
The various linkbases include: o Calculation ( eg assets = liabilities + equity) o Label ( eg human readable strings - definition of cash and cash equivalents) o Reference ( eg link to an ASX listing Rule) o Definition ( eg ‘is part of....’) o Presentation ( eg grouping for visualisation of accounts)
Instance Documents
- When XBRL tagging is applied to a file containing data ( eg income statement), the XBRL document is called an instance document
- The instance document contains information about the organisation’s financial statements at one instant in time
- Instance documents can be created by specialist XBRL tagging programs or by Microsoft Office
Benefits of XBRL
Paperless Reporting
o With XBRL all information is coded once and then electronically
extracted
– no need for paper based report
Industry-accepted standards
o XBRL has been collaboratively designed.
o There is only one version of XBRL
Reduced Accounting Time
o The data tags interact with other databases o Possibility of real-time reporting
Recognition by major accounting software vendors
o Incorporated into most ERP systems
o Data is easily transferable between packages
Interchangeable data
o Once data is tagged it can be reused to meet differing financial reporting requirements
Comparisons across companies
o Enables investors to do their own efficient analyses
on a large number of companies
Improved audit quality
o Providing that the data is input correctly and the correct tag applied, then the output will be correct
o Need to audit original tags
Different Ways to Apply XBRL Tags
There are two main ways to code the financial accounts:
Attach XBRL to the accounting system
Attach XBRL tags after the financial accounts have been prepared
The second method is the most likely initially
Mistakes are more likely coding accounts once they have been produced
Additional Detail & Language of XBRL Tags
XBRL reporting and integrity of information
o Once tags are applied, the accounts and their tagging need to be audited for reliability and accuracy
Continuous auditing: a methodology for issuing audit reports simultaneously with or shortly after the occurrence of the relevant events Extensibility: companies can extend the taxonomy by developing their own elements
Tagging accounts using XBRL
Common business software such as word processing, spreadsheet and database packages can be used for XBRL.
What is a blockchain?
A blockchain is a decentralized and distributed digital ledger or transaction database.
- A blockchain records transactions across many computers as a ‘chain of transaction blocks’
- All blockchain transactions that ever occurred can be publicly accessible
- Transactions registered in blockchain cannot be altered retroactively
