APPLICATION OF EXTENSIBLE BUSINESS

REPORTING LANGUAGE (XBRL) FOR

FINANCIAL REPORTING
*Sujit Sikidar
**Suparna Ghosh
"Let us dedicate ourselves to the task of simplifying the internet's interfaces and
to educating all that are interested in its use." - Vinton Cerf, the internet is for everyone.
ABSTRACT
The present paper makes an attempt to discuss the conceptual framework of XBRL with its
emphasis laid down upon highlighting the various components of XBRL and the
mechanism of creating
XBRL statements. It focuses on analyzing the application of XBRL for financial reporting
purposes
and the feasibility of XBRL in developing business reporting language for Indian business
entities.
INTRODUCTION
Information is key to every human action. It has become so after the emergence of
information technology (IT) eliminating the physical distance, technological barriers and
thus bringing the whole world at a point of congruence. Business decisions can be made
rapidly in an error free environment with the application of information technology. Internet
facility has helped in receiving quick information at a high speed which is reliable, uniform
and can be used in making informed financial decisions. In the initial phase the web dealt
primarily with plain text and images through the use of hyper text mark up language
(HTML).
However, subsequently Document Type Definitions and schemes were developed through
the use of XML (Extensible mark up language). The XML has been extended further for its
application programme in extensible business reporting language (XBRL).
It defines different components of a document. HTML is an effective means of
communicating business information in a relatively small amount of space. HTML provides
tags for both ordered (numbered), lists and unordered (bullet style) lists.
XBRL
Extensible business reporting language (XBRL) is an accounting and financial linkage
for use in the internet. It is a structured but adaptable computer language developed to
*Faculty Member, Department of Commerce, Gauhati Univwersit, Gauhati-781014
**Research Scholar, Department of Commerce, Gauhati Univwersit, Gauhati-781014
Indian Journal of Accounting
73
solve a problem. XBRL shows several relationships such as associating the cash position and
cash flow of an entity in related financial statements. Its task is associating numbers with
variables and matching a name to a picture. However, in using language in an internet there
is a constraint. For e.g.:- In pre XBRL computer language, such as hyper text mark up
language
(HTML), such information cannot be processed directly by the recipients' application
software. HTML is a unit but it cannot process the other relevant information. Hence, the
reported data must be rekeyed in form acceptable to given customised software. XBRL is an
intelligent internet language that can be used in business entities by both the parties namely
provider of information and user of information from the financial statements. XBRL bridges
the communication gap between the preparers and the users of financial statements on the
internet. In fact XBRL is based on the extensible markup language (XML); by which both the
contents and relationships can be easily established between the users and preparers of
financial information.
XBRL has become the standard way of recording, storing and transmitting business,
financial information from the computer information providers to the information users. It
is capable of use throughout the world wherever XBRL is available for a wide variety of
business purposes. It will act as a cost saving device, enhances efficiency in information
storing, processing and retrieving in business and government related organisations.
XBRL runs open discussion groups where non- members can ask for specific help.
Members willing to use XBRL can gain support from a range of internal groups software
tools which are meant for specific tasks and are listed on the tools page on the website of
XBRL. XBRL has discussion groups in which members of the public can participate.
OBJECTIVES
The present article has been developed with the following objectives
• To examine the conceptual framework of XBRL as a business reporting language.
• To examine the mandatory use of XBRL in some foreign countries.
• To analyse the feasibility of XBRL in developing business reporting language for
Indian business entities.
METHODOLOGY
The present work is a descriptive type of research based on a contemporary work in
financial information system. The work is based on secondary data colleted from published
books, research articles published in professional journals and other websites.
MECHANISM OF CREATING XBRL STATEMENTS
We now discuss hereunder the manner of creating XBRL statements.
XBRL is an international open standard. Any organization or an individual can obtain
membership and can use XBRL statements for communicating their business related
information. The Securities Exchange Commission (SEC) of the U.S.A. as well as the
banking
regulatory body of the U.S.A. have made the preparation and furnishing of XBRL statement
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Indian Journal of Accounting
and information mandatory for such institutions. The members of XBRL include
International
Accounting Standard Board (IASB), Price Water House Coopers, Deloitte & Touché, Ernest
and Young, KPMG, NASDAQ stock market, Morgan Stanley, IBM, Microsoft, Oracle. On
March 5, 2002 Microsoft became the first company to publish financial statement on the
internet using the XBRL framework. The manner of creating and formatting reports in
XBRL tag is faster and quicker. It also reduces financial reporting cost by eliminating
redundancies in financial report production.
XBRL further solves the problem by tagging individual items of data in a way that
another computer can understand and work with it .Tagging is a metaphorical term for
assigning coded identifiers to data. We have realized that a fully tagged datum would be
described in an efficient way which is capable of retaining its identity and can be read
correctly by a user's application software. As we have mentioned here above that for using
XBRL in easy- to- use format there is an intervention of XML. XML is a general purpose
mark-up(tagging) standard for creating languages to standardize the data exchange between
different computing platforms and applications.(Hilmielifoglu, Joel Siegel, 2004). XML can
be used to define new document formats by combining and reusing other formats in order
to exchange information in an environment that do not share common platforms. As a
precondition
to the use of XML it is necessary to add structure and context to unstructured
information which can be transmitted to the other computers of other users.
The most fundamental steps involved in XBRL report are tagging data and applying a
style sheet to the tagged data with a view to convert XBRL files into a document; that
document is ultimately readable and appears to be paper report like a printed financial
statement. From our research investigation from the www.kpmg.com dated 17th August,
2010
it is revealed that tagged process is governed by the XBRL specifications. It also explains
how
to create taxonomies and instance documents. Taxonomies are the tagging dictionaries and
instance documents are the files sent by a reporting entity to a recipient to deliver XBRL
data.
COMPONENTS OF XBRL AND ITS USE IN ACCOUNTING INFORMATION
The basic components of XBRL and its use in accounting information have been
discussed as follows:
1. XBRL specification is designed in a technical language like revenue, cost, amortization
of deferred revenue expenditure, impairment of intangible assets, and recognition
of revenue under accrual system for the people accustomed with generally accepted
accounting principles (GAAP).
2. XBRL presupposes two conditions namely (a) it provides a framework for defining
tags that is taxonomy ;(b) the relationships among them that is schema. It does not
limit the extent of financial information that is to be disclosed in a financial statement
nor does it change the content of GAAP financial statements. Instead XBRL permits
the automatic exchange and reliable extraction of financial information across all
software formats and technologies including the internet. XBRL is useful for users,
preparers and regulatory agencies.
Sikidar and Ghosh
75
3. XBRL schema prescribes the mechanism of how to express instance documents and
the process of building taxonomies around it.
4. XBRL taxonomy is a dictionary created by a group. It is compliant with XBRL
specifications. It supports the method of exchanging business information. Taxonomies
contain definitions essential to create tags that will be incorporated in instance
documents. While doing so all the taxonomies must comply with the rules in XBRL
specification. In this section, taxonomy includes a kind of conceptual framework
(CF) like definition of asset, goodwill, cost, revenue, net income, gross sales, cash
generated and cash equivalents. A financial reporting concept within XBRL is called
an element. Each element is assigned XBRL basic attributes and relationships.
5. XBRL instance document comprises of traditional financial statement presentation.
For understanding XBRL instance document, a reader must understand at the outset
the definition part that is taxonomy.
FINANCIAL REPORTING MECHANISM WITH XBRL
XBRL does not imply any enforced standardization of financial reporting and it is
not a rigid one. This language is flexible and is a member of the family of languages based
on XML (Extensible Mark up Language). XML is a standard for the electronic exchange of
data between businesses and on the internet. Under XML identifying tags are applied to
items of data so that they can be processed efficiently by computer software. For instance,
a Unique Identifying Tag (UIT) is applied to items of financial data such as net profit, equity,
net worth, cost centre, profit centre, responsibility centre, gross working capital, net turnover
etc. Similarly, XBRL shows the interrelationship of the items in an operating statement as
well as in a financial statement. Under this format we can prepare style sheet depicting
opening inventory, purchase made during the year, other manufacturing expenses incurred
showing the cost of inventory of materials generated. This can be correlated to the credit
sales made during the year and the closing inventory left unsold at the end of the financial
year. With the application of XBRL tag and a mark up language we can identify the total
manufacturing cost and direct operating cost incurred during the year. The use of XBRL can
be of great help to the users as well providers of accounting and financial information in this
era of rapid internationalization of business exchanges. The manifold benefits of application
of XBRL in financial reporting have been summarized hereunder:-
• With the application of XBRL we can also reconstruct the profit & loss statement
indicating the total operating expenses shown on the style sheet; the total operating
income generated during the same financial year. The difference between the two
would manifest the net income/net loss arising from the business.
• In the same way, we can also prepare the cash flow statement almost on a daily basis
for the listed companies and for the banks. For e.g.: In respect of a listed company
we can identify in the XBRL, software and tag and format the entire cash flow
statement .We can assign a separate page in the format in respect of cash flow from
operating activities; cash flow from financing activities and cash flow from investing
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Indian Journal of Accounting
activities. Once the information content is formatted in the tag of the XBRL software,
at any given point of time we shall be in a position to print out a statement of cash
flow statement.
• Similarly, we can also prepare a fund flow statement by formatting the definition of
fund as a difference between current assets and current liabilities or the net current
assets. Once a format is developed in respect of the items having a bearing on net
working capital it can be clubbed together in the format. With the XML we can also
develop the current liabilities redeemable within a given financial year under
different heads. Once the current liabilities are formatted in XBRL tag the same can
be matched against the current assets available during a given year. The net impact
of fund flow can be already preserved in the markup language in the format. Once
it is done we shall be in a position to prepare a fund flow statement at any given
point of time. Thus, this is the beauty of application of XBRL.
• Not only XBRL can be applied in respect of absolute figures for different kinds of
financial statement but it can also be applied in relation to one item of the financial
statement with another item. This is what we call ratio analysis. With the help of
XBRL tag we can fit in some of the relatable accounting parameters such as earnings
of the company vis-à-vis the number of shares outstanding i.e., Earnings per share;
price earning ratio, paid up capital vis-à-vis total outside liability i.e., debt equity
ratio; current ratio, liquidity ratio, inventory turnover ratio, debtors turnover ratio.
All these can be fitted and formatted in the tag using the XBRL software. Thus, the
financial analyst can instantaneously construct a sheet of ratio analysis and enabling
the investor to make a wise informed investment decision. The decision so arrived
is likely to be error free. Hence, once with the help of XML the software is designed
and formatted the same can be applied at different points of time during the year.
Thus, we observe that for reconstructing a financial statement we need not set afresh
with so many people on the table to prepare the prime financial statements or a
subsidiary financial statement. Hence,any kind of financial statement which is
repetitive in nature, we need not put our physical and mental labour to prepare the
statement since the information content in the format are already loaded in the
software backed by XBRL, in no time we can reconstruct any kind of financial
statement that a user may require for his investment decision.
• We further realize in the course of our research investigation that when India switches
over from Indian GAAP to the IFRS from April, 2011 it becomes easier on the part of
Indian companies listed in US stock exchange, Securities Exchange Commission or
NASDAQ to quickly comply with IFRS requirements stipulated by Securities
Exchange Commission .Similarly, foreign multinational companies operating in India
under a joint venture or joint collaboration with an Indian company can easily
reproduce IFRS compliant financial statements. This is an added advantage for an
Indian domestic company listed in any of the world's leading stock exchanges.
Sikidar and Ghosh
77
• Further, when foreign companies come into Indian territory with foreign investment
in the shape of foreign direct investment (FDI) they shall have to comply with the
information required to be furnished to the Indian regulatory authorities. Foreign
Institutional Investors (FII's) are also entering into Indian business scenario with
their portfolio investment in the equity stock market. The FII's are also mandated to
satisfy both the regulating authorities of the parent country as well as the host country
by furnishing financial information which is IFRS compliant. Thus, XBRL as a mark
up language can facilitate the quick exchange of financial information to different
categories of stakeholders in respect of FDI or FII's.
• Adoption of IFRS is important in India because of close interaction with global
business entities. Hence, application of XBRL as one step advancement towards
adoption of IFRS would be considered to be a smooth sailing. As soon as the listed
companies switch over to IFRS, it would be mandated upon them at a subsequent
time period to be compliant with XBRL.
• Having considered the overall compulsive requirements of IFRS and XBRL, we
realized in course of our research investigation that compilation, processing and
distribution of financial information would be easier under XBRL. XBRL would
facilitate the exchange of investible resources and off-shore movement of investments,
financial assets in an easier manner and thereby meet the requirements of global
convergence of financial information.
• Further through our research enquiry as mentioned above we realize that in the
emerging business world US dollar, Euro and other Asian currencies are coming
into close contact as well as conflict with each other on account of exchange rate
variation, exchange rate translation, exchange rate transaction, exchange rate
exposure. Once these items are formatted in XBRL, perhaps the management of
foreign exchange and its control becomes an easy task for the central banking
authorities as well as the corporate entities.
• When in the context of international business we have entered into several kinds of
double taxation avoidance agreement (DTAA) with countries like Mauritius, Singapore,
Belgium, Switzerland and further exchange of information from the banks in
Switzerland for Indian citizens parking their surplus money in the Swiss Bank, such
exchange of information can be facilitated by XBRL. The information so furnished in the
software of the two government agencies can be kept close guarded between the two
governments concerned and the eventual secrecy of such information can be maintained.
USE OF XBRL TAG ON TAX RELATED INFORMATION
XBRL format can also be designed for furnishing information in respect of transfer
pricing. The transfer pricing mechanism will have a negative impact on international
transactions
unless the codes are revised to deal with some critical issues like period of agreement,
threshold
equity limits, shake hand price. All these matters now embodied under direct tax code (DTC)
approved by Parliament on 30th August, 2010 be fitted into the XBRL format.
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Indian Journal of Accounting
India entered for the first time in a totalisation agreement in Sept., 2009. India's first
totalisation agreement, the one with Belgium came into force on Sept.1, 2009. Totalisation
agreements are meant to prevent guest workers from having to pay dual social security
taxes both in home country whose company deploys them temporarily abroad and in the
foreign country where he works. In the absence of totalisation agreement companies that
deploy detached workers abroad agree to pick up their social security tabs. Since this
compensation attracts tax they pay the additional income tax too. This pushes up the overall
cost of deploying workers abroad. Under this totalisation agreement with Belgium, India
could convince the foreign government to treat domestic provident fund contributions as
social security taxes. Under the totalisation agreement with Belgium, an Indian Co. that
deploys a worker from India in Belgium would not have to pay his Belgium social security
tax, if both the companies and the workers make their due contributions to the employees'
provident fund in India (Sujit Sikdar, 2010). Hence use of XBRL software encompassing the
conditions stipulated in an inter- governmental totalisation agreement can be efficiently
processed in the format. The eventual tax liability can be easily computed from year to year.
Through the XBRL the exchange of employment related information between a host country
and foreign country with regard to the movement of workforce and the calculation of
eventual
tax liability can be easily done through XBRL formulated tagging facility. (Sujit Sikidar, Tax
reform measure in India : Potential for GST and Direct Tax Code, The Strategist, Journal of
Business Management., Assam University, Silchar, Volume.-I , No. 1, 2010 - Pg 7 to 16)
CONCLUSION
Thus, the objectives no. 1 & 2 stated above have been fulfilled. Our research enquiry
reinforces our belief that XBRL can be an efficient internet friendly software language
mechanism to derive reliable information for quick business related decisions. It would be
useful at the same time for cost accounting and tax accounting. When the country switches
over to a new tax system namely GST along with direct tax code (DTC) perhaps XBRL may
be a useful language to coordinate the centre-state as well as inter-state and intra-state
exchange of information through the new software facility.
REFERENCES
Hilmielifoglu, Joel Siegel, Extensible Business Reporting Language (XBRL). The
Management
Accountant, Institute of Cost and Works Accountant (Kolkata), No. 8, Aug. 2004, pp. 670-
71.
Ellen Perlman, Eileen Mullin, Programming the web using XML, Tata Mcgrow Hill
Publishing
company Ltd., New Delhi, 2004, P. 2.
Sujit Sikidar, Tax reform measure in India: Potential for GST and Direct Tax Code, The
Strategist,
Journal of Business Mgt. Assam University, Silchar,Volume I, No. 1, 2010, pp. 7-16.
www.xbrt.org
www.onesource.com
www.kpmg.com.
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