How does XBRL Work?
XBRL, developed by a group of visionary individuals (full story here), has slowly but surely transformed the compliance reporting and data analysis industry.
XBRL is, at its heart, a markup language optimised for business reporting. This means that all the information that companies put on, say, a balance sheet, will be marked up with tags such as ‘Current Assets’ and ‘year ended 31st December 2014’ and so on (almost like you mark up a textbook with flags like ‘very important’, ‘critical for tests’ etc). Therefore, XBRL code looks exactly like HTML code, with information nestled between multiple tags describing that bit of information.
XBRL is extensible. This means that the tags that are used for describing information are not limited to the ones that are available in a specific dictionary (called taxonomy). Technically, it is possible to create your own tags.
This is the basic idea of XBRL. Of course, there are other benefits to using XBRL that make it so powerful. XBRL allows us to standardise data. This means that no matter what currency data is submitted in, or whether the numbers are in thousands or millions or billions, comparisons between companies are always smooth. The following is a great example showing the value that standardisation can bring to a comparison exercise:
Let’s assume there are two companies A and B. They provide the following information:
|Company A (USD)||5000||5000|
|Company B (INR)||5000||6000|
From the above table, it would seem that Company B has had a 20% growth in revenue from 2013 to 2014, while Company A has been stagnant. However, what it doesn’t say is that the INR fell with respect to the USD such that if the numbers for Company B were reported in USD, it wouldn’t show a growth at all. This is not to say that Company B was intentionally misrepresenting its numbers. It’s just that in a comparison, all factors extraneous to the actual numbers must be kept the same. This standardisation can be achieved automatically by XBRL, thanks to the tags that are used to markup documents.
This standardisation affords immense power to XBRL. But it does suffer from the need to have all companies’ financial statements in that format. This, in turn, depends on strong regulatory mandates. Singapore’s XBRL mandate is a step in the right direction, and more far-reaching mandates will only help streamline the reporting process.
DataTracks is a global leader in preparation of financial statements in XBRL and iXBRL formats. With over 10 years’ experience, DataTracks prepares more than 12,000 XBRL statements annually for filing with regulators such as SEC in the United States, HMRC in the United Kingdom, Revenue in Ireland, ACRA in Singapore and MCA in India. DataTracks provides world-class services with its team of certified accountants experienced in US GAAP, UK GAAP, India GAAP, SFRS and IFRS.
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