Understanding XBRL for regulatory filing

The global framework for effective exchange of business information – XBRL has revolutionized the space of e-communication. XBRL is the abbreviated form of eXtensible Business Reporting Language. It is freely available from the XBRL International consortium. It is also not the property of any software vendor, nor is it restricted to any one particular computer system or language.

For a better understanding of XBRL, it is important to understand why it was introduced to businesses in the first place. When the need for a standardized system that enabled seamless processing of business information surfaced, XBRL was introduced. XBRL is designed to cut down on manual processing, analyzing, and entry of data by automating the entire process. After the introduction of XBRL, one was able to easily comprehend, compare and analyze the data in financial statements.

An Instance document created according to the rules of XBRL, which contains all the above information, can be validated and created into readable renderings of XBRL data that can then be viewed on the EDGAR website. When validated, if there are simple errors with respect to business rules or even syntactic errors, the software can identify and flag them. This allows the preparers to rectify their mistakes before filing their final reports. This had proven to be efficient when in comparison to the manual methods of reporting, which had their own drawbacks like problems with validation, labor, and time-intensive. 

When companies are obliged to file regulatory returns in XBRL or iXBRL format, Regulatory filing software comes to their rescue. Companies are aware of how XBRL has changed the face of regulatory financial reporting and led to a dramatic increase in the number of users who adapted to this effortless style of financial reporting. XBRL also aids the regulatory reporting process by allowing financial preparers to tag all financial items in their business reports in line with the taxonomy. Taxonomy is the grouping of key financial concepts and defining them with specific tags for individual data items, their attributes, and interrelationships. 

Advantages of using a Regulatory Filing Software – 

A. Significant improvement in the efficiency of business processes 

With the Automation of regulatory filings, a company can aim to streamline activities that are highly labor-intensive and time-consuming. This could result in redirecting the company’s resources to more important business functions instead of manual regulatory reporting work. 

The application of cognitive intelligence technology and Automation in the regulatory filing process can help execute manual tasks with minimal supervision. This would allow companies to redirect their resources to tasks that add more value. The software framework helps identify errors that could have easily missed a human eye, ensuring that you make Error-free Filings. This could save the company time and penalties in the worst-case scenario. 

B. End-to-end Automation is the future

End-to-end Automation of the entire regulatory reporting process can cut down so many laborious man-hours and map data from the source systems to report generation. Starting to leverage the technology that automates these processes, one can help prime the consumers for an end-to-end regulatory filing system.

C. Return on Investment 

With the right focus on areas such as- 

● Standardization of data aggregation and development of reporting templates

● Enhancing the capabilities of reporting templates for reconciliation, analysis, and review at a later date

● Improvement of the quality of the data being reported for overall accuracy of the reports 

A firm can aim to maximize its savings and gain the biggest return on its investment. DataTracks provide hassle-free and accurate compliance reports with the help of their software solutions. 

Depending on the type of report required for filing with the regulatory body, a company can create an XRBL document using 5 main approaches. 

Understanding XBRL for Regulatory Reporting_Blog

1. Forms based approach offered by the regulator or third party

Every regulatory body has specific expectations when it comes to filing compliance reports. Some regulators provide the companies with their standard template or form to file the regulatory reports. A third party can also be approached to assist with the filing of that one form. The forms are highly simplified and available on the web. To access the forms, one can log in to the system with appropriate authentication and cut and paste the required information onto the form.

The process of cutting and pasting can be considered manual, time-consuming work. The margin for error is also high as it is manually done. What happens after the process of coy paste is that the system runs a range of validation rules to identify any errors in the filings. Once identified, the system rejects the areas that are incorrect. The company can rewrite the filing with correct information and submit it. 

2. In-house embedded production from existing software

In an environment where a regulator already uses legacy paper, PDF, or proprietary filing arrangements and has shifted to XBRL, one can get their software vendors to simply update their systems to incorporate XBRL tagging. 

This process could be fully automated or semi-automated. In this approach, the XBRL can happen as usual with only minimal changes to the existing process. And because this approach requires minimal changes, the costs incurred by the companies are very low. Thus, a company that previously relied on manual processes for filing regulatory reports can now comply with XBRL-based filing requirements in a simple and budgeted manner. 

One major drawback of this method is that this approach is not capable of handling an extensive process that involves gathering data for the regulatory report manually or via multiple systems that do not have an automated consolidation system. 

3. Outsourcing 

Outsourcing is a highly collaborative approach that is known to significantly reduce the work of individuals involved in the process of preparing XBRL versions of a report along with their other day-to-day responsibilities. To further this collaborative approach, companies use Cloud-based tools that allow the regulated companies to review and oversee the work of the service provider. Certain environments that are highly sensitive to such huge process changes can benefit from outsourcing thor XBRL filing responsibilities. XBRL experts are fully equipped to handle the nature of the work they’re responsible for. 

4. In-house production with “bolt-on” tools and processes

This approach allows a company to continue with its existing method for filing. With the help of a ‘bolt-on,’ they’re able to create an XBRL document from a set of documents prepared from other means. This approach is opted for by companies with sophisticated reporting needs and processes. They turn towards bolt on’s for their requirements when they feel that their processes are difficult, impractical, or expensive to change. These tools can range from desktop to SaaS offerings that can be used for the creation of XBRL documents. 

5. In-house embedded production with Disclosure Management or Regulatory Filing software and changed processes

The Disclosure Management and Regulatory Filing tools are designed to take a different approach. They embed the process of tagging into the creation of XBRL documents. The process of managing the report preparation, review, amendment, audit, and approvals are carried out via collaborative tools. Some tools are embedded systems that act as a Linking Source system which is responsible for linking all your source files and consolidating them into the XBRL language of reporting, thereby automating the process and ensuring consistency.

These tools are tailored for specific markets and filling frameworks, while some are a hybrid offering that includes outsourced assistance with tagging and XBRL knowledge. 

No data can be published without checking for errors. Reports that contain errors can lead to penalties by the regulatory body. Validations are a fundamental part of producing and reviewing the data before filing or publishing it. Validations relate to business logic and rules. Low-level validations are syntactic and are used to ensure that any information prepared using a software can be reconciled. An XBRL validation is part of its taxonomy and is generally published by the regulators themselves. Anyone who intends to report in XBRL will need to familiarize themselves with the validation rules that are imposed by the regulator and make sure that they are compliant with the validation rules before filing their data. 

XBRL adoption is expected to accelerate, and countries including the US, Netherlands, and Japan have developed a curriculum around the education, training, and certification programs that are in line with the regulatory frameworks of those countries. This training will prepare companies to improve their efficiency and ensure that they are XBRL Certified.

Connect with an iXBRL Expert from DataTracks to understand how we can simplify compliance reporting for you.