Inline XBRL reporting – a game changer by the SEC
The U.S. Securities and Exchange Commission (SEC), which regulates publicly listed companies and their financial reporting, has finally mandated the submission of financial statements in a format called Inline XBRL.
Currently, companies have to submit their financial statements quarterly and annually in XBRL and HTML formats. XBRL is a global standard of business reporting where every piece of reported data is described unambiguously. The scope of reporting is also deepened, as data can be described using multiple dimensions. The benefit of XBRL is that consumers of the data (investors, analysts, regulators, government authorities, market researchers, and such) would be able use automated programs and read reported data from several thousand companies in an instant, instead of browsing through multiple pages of documents, taking notes. It would otherwise take months to comb through the data manually, to analyze it, and use it for any viable decision making.
This luxury of being able to consume large sets of data instantaneously is obtained by obligating the preparers of that data to go to extra lengths. The preparers, traditionally, create their financial statements in word processors. There is no specific order in which to present the data, as creativity is the key. The statements can contain considerable textual information, with descriptions of the financial results, along with supporting graphs and images. Once this document is prepared, it is converted into a machine readable (but not human readable) XBRL format, which is then submitted to the regulator.
The final XBRL document is a package comprising:
- An XBRL file that contains all facts or data points that need to be reported. Each fact is associated with a context. For example: the value for “Cash and Cash Equivalents” is a fact, but it can only be understood if it is described along with the context – as in the period “as of 31-Dec-2017” and the entity “by XYZ company”. Each fact has certain attributes, such as the nature of the fact (e.g.: monetary value, date, string). The name given to each fact, along with its attributes and contextual information, is called a “Concept”. An XBRL file is, in essence, a collection of facts coupled with their associated concepts.
- An XML schema definition file, that describes the taxonomy used for reporting, such as the IFRS or US GAAP taxonomy. The taxonomy contains definitions for generally accepted concepts used in financial reporting.
- An XML definition linkbase file. In an XBRL file, as mentioned earlier, each fact is associated with a concept. Each concept is closely associated with other concepts in different ways – they may have a similar meaning to other concepts and be used as an alias, or they may be a part or a sub-group of a larger concept. The relationships between the various concepts are defined and documented in the definition linkbase file.
- An XML calculation linkbase file. A value of a fact with its concept representing “Total Assets” should be checked to verify if it is equal to the summation of values from facts representing the various subcategories of “Assets”. The links among the various concepts that form part of this calculation and all other calculations (meant for consistency checks in the reported data) are specified in the calculation linkbase file.
- An XML label linkbase file. Each concept is given a human-understandable textual description called a “Label”. These labels can be specified in multiple languages. The links between these labels and their associated concepts are defined in the label linkbase file.
- An XML presentation linkbase file. The contents in an XBRL file can be displayed in a format readable by humans using programs or applications that can render XBRL files visually. These programs can search for individual facts (e.g.: “property, plant and equipment”) and display their values. But if this item has to be displayed as a part of a financial statement (e.g.: the balance sheet), then one needs to know its position or order within the financial statement, and whether it’s a subtotal item and so on. Such information has to be present in the presentation linkbase file so that all reported facts from the XBRL file can be presented in order.
This XBRL package is separate from the HTML version of the financial statements prepared by companies. Ensuring consistency between these two files is painstaking, and increases the reporting burden on companies.
XBRL organizations have worked tirelessly over the last few years to come up with an improved standard of reporting, called Inline XBRL (iXBRL). This format not only revolutionizes the way data is reported, but also simplifies the entire reporting process for data preparers.
Some salient features of an Inline XBRL report are:
- A single, unified report in XHTML format.
- The XHTML page is a simple web page, similar to most of the web pages available on the internet, and can be viewed and understood by everyone, machines and humans alike.
- All XBRL-related data is embedded within the XHTML page, thereby enabling automated programs to retrieve data in the same way they would from a regular XBRL file.
- Data consumption is instantaneous, as automated programs can simply ignore the XHTML content and look for the embedded XBRL content to identify the required information.
- Data preparers can present creative statements more easily, and at the same time embed tags for values so that investors can extract the information without hassle.
- Submission of just a single XHTML document reduces the compliance burden on filers as they currently submit HTML and XBRL documents separately.
- In the current scenario, when filers make changes to the HTML version of the document, the exact changes need to be made in the XBRL package as well. There have been several cases of inconsistencies in reporting between the submitted HTML and XBRL documents. This problem is eliminated fully when submitting a single XHTML file using iXBRL.
It’s evident that Inline XBRL transforms the way business data is being reported and benefits both preparers and consumers of financial information.
The SEC initially permitted companies to file in Inline XBRL voluntarily from June 2016. Soon realizing its immense potential, the SEC has now made it mandatory for companies to report only in iXBRL, starting from 2019. The implementation of this mandate will be carried out in phases, and details of the exact timelines are available here.
This adoption of Inline XBRL comes as a relief to the financial community, especially the preparers of data, as it is bound to increase the speed and effectiveness of information flow amongst various business stakeholders. This move by the SEC has been widely appreciated by industry bodies, and is being closely monitored and evaluated by other regulators as well, for implementation in their own jurisdictions.
DataTracks specializes in SEC reporting solutions with its cloud based software called Rainbow, and also provides XBRL tagging services. If you’d like to find out more about the SEC’s proposed amendments to XBRL reporting, or would like to know how best to ready your operating company or fund for the transition to iXBRL reporting, please feel free to get in touch with us.
For more information on how DataTracks can assist your reporting requirements, reach out to us at firstname.lastname@example.org . We’d love to help you out.