Looking Under the Hood - The Ideal XBRL Software Tool

This article was published in the July 2012 issue of FOCUS , the monthly magazine of ICSI-WIRC. You can send your feedback to the authors by writing to info@beyondsquare.com or leave inline comments on this blog.

CA Rangan Varadan (CEO and Director, Beyond Square)

Karthik Ganeshan (Director, Beyond Square)

INTRODUCTION

In a highly networked world, organizations are measured as much by their efficiency and transparency as they are by their results. Information exchange within the enterprise, stakeholders, partners and regulators should not only be efficient and painless but also consistent. With disparate systems and disparate entities within an organization, bringing in standardization in the way data is collated and reported would rate as one of the top organizational challenges.

XBRL, now over a decade old, has provided an answer to this long standing challenge. XBRL was developed to enable speedy and efficient access to information, improve corporate communication with stakeholders and most importantly reduce enterprise risk by accurate consolidation and analysis of data. XBRL is a language that leverages Internet technologies for the communication of business information coupled to the metadata (data about data) associated with the information. For example just as a UPC bar code uniquely identifies a physical product such as a book or electronic gadget, the XBRL “bar code” uniquely identifies chunks of information.

eXtensible Business Reporting Language, better known as XBRL, is used as the common (computer) language for the electronic communication of business and financial data. XBRL is of value to any entity for:

• Regulatory reporting
• Internal reporting
• Information exchange with partners, stakeholders, investors and analysts

For regulators, many of the recent challenges globally have forced them to obtain timely, precise and detailed information from companies. Even if a company reports all the information to regulators, in the pre-XBRL world, there was no way for regulators to easily analyze and measure the data in their possession. XBRL has helped change that. Mandatory XBRL based filing has been introduced by regulators in Japan, United States, Italy, China, Singapore, and most recently in India.

XBRL supports a wide variety of data that organizations use to build management reports, including financial statements, sustainability reports and balanced scorecards. Organizations can also leverage XBRL by embedding it within their internal processes to enhance the effectiveness, efficiency and reliability of management reporting.

Standardization brings value to both information providers and consumers. XBRL can provide such standards for internal and external use.

SELECTING THE RIGHT XBRL TOOL – A GUIDE

While most companies in the initial XBRL adoption phase have looked it from a purely tactical perspective, they should gradually plan to broaden the scope of their XBRL initiative by making the under-lying source systems XBRL aware.

When organizations venture out to purchase an XBRL software tool, they have to take a number of things into consideration:

• Where can XBRL fit within the organization’s own information supply chain?
• What resources or knowledge about the use of XBRL exist within the organization or are readily available from external sources?
• What is the fit between existing internal processes and applications and any available XBRL solutions?
• Can XBRL be integrated into the organization’s holistic reporting strategy?

For service providers involved in XBRL conversion, the following considerations become important:

• Does the software support multiple taxonomies?
• How easy is the tagging process, and can it be reused for subsequent filings?
• Does the software support workflow for job assignment, review and approval?
• Is my client’s data secure?
• Is there a way to store the data centrally, archive and audit it?

Irrespective of whether you are purchasing XBRL software for enterprise use or as a service provider, here is a list of recommended features that you should look for in your XBRL tool:

• With the recent increase in the pace of XBRL adoption globally, it won’t be long before most of the regulatory authorities in India mandate data to be filed in XBRL format. The XBRL software you use should be able to support multiple taxonomies (e.g. MCA revised schedule VI, Cost audit taxonomy, SEBI taxonomy, US GAAP etc.)
• Tagging source documents to the target taxonomy is one of the most important activities in XBRL based reporting. The software should enable a qualified user:
  • To complete the tagging with relative ease, and free of errors.
  • The tagging should be reusable viz. once tagged, the tagging information can be used for generating a XBRL instances across multiple years
  • The software should allow tagging directly to documents in their source format (e.g. trial balance extract, finalized financial statements, notes to accounts etc)
  • A key differentiator in XBRL software will be its ability to generate multiple report outputs from the same tagged input. If the software can generate custom MIS reports or even automatically generate a financial statement, it becomes a preparation tool and not just a conversion tool
  • There are a number of steps in the process of generating an XBRL instance. These are: data collection, tagging, iterative conversion and validation, independent review, client review, certification and filing. If the software tool can provideworkflow features along with user access management, then the organization can also split the process into logical modules and keep complete control of the their report generation process.
  • For Service providers, the ability to manage multiple XBRL projects across multiple clients becomes very important. Software that can maintain and provide an integrated view across all XBRL projects will be of great benefit.
  • The software should maintain versions of the source and output files, provide for data archival and audit, and most importantly should be secure.

CONCLUSION

XBRL is just not for regulatory purposes but has its use as well in other fields of business.

Planning such use is critical and organizations should think ahead and use XBRL in such a manner that business information from information providers to information consumers is available in a consistent and reliable manner. At the same time, XBRL is not a solution to all information transfer problems. XBRL is designed explicitly to support business reporting and, as a result, has inherent limitations.

If you look at XBRL purely as a compliance exercise and a cost burden, you may end up with a software tool that may meet your immediate requirements but will bring in no process change, and the existing process inefficiencies will continue.

If you however want to leverage the power of XBRL, you might as well make it worth your while and identify the software that does more than just XBRL conversion.