XBRL, what it means for investors and listed companies

Role of XBRL in financial reporting for listed companies and investors

eXtensible Business Reporting Language (XBRL), an interactive framework for exchanging business information and provides an interactive, standardized computer-based platform for financial reporting. Recognizing its potential, leading market capitals such as China, Japan, and the United States have mandated XBRL-formatted reporting. The United States has gone ahead a step further and adopted inline XBRL (iXBRL) filing. However, we will skip iXBRL and focus on XBRL in this discussion.

XBRL filing criteria improve the usage of the current accounting standards by digitizing the business languages without creating new accounting standards or requiring further disclosures from firms to outside audiences. XBRL software tagging ability provides the foundation of its working. These include reporting period, enterprise, reporting currency, the unit of measurement, and so on.

Why are financial authorities fussing about XBRL?

XBRL’s “electronic tags” identify financial data elements, which significantly reduce the processing time and cost of financial reports. XBRL standard is comprehensive and besides financial reporting, it can be used for Transaction Based Reporting, Sustainability Reporting, Internal Reporting, and Operational and Performance Reporting. It delivers quality reports due to its ability to define business logic and validation rules. Instead of validating the data after it is received by a regulator, XBRL validates then data during the creation of the report itself. XBRL can also easily define multidimensional models, which makes querying and analyzing much easier. Besides rendering information in a multi-lingual and human-friendly format, XBRL also offers a distinct way of reporting concepts. No wonder financial authorities have fallen head over heels for XBRL services.

Benefits of using XBRL

  • By using XBRL financial reporting, companies can systematize data compilation process. For example, data collected from various accounting systems from several sections can be rapidly and inexpensively assembled.
  • XBRL gives transparency and boosts capital markets’ effectiveness by aiding users of business and financial information in finding applicable and authentic information.
  • XBRL simplifies the confluence of accounting standards by the capability to arrange financial concepts amid public taxonomies.
  • It enables CPAs (Certified Public Accountants) to achieve their principal function of protecting the public interest by intensifying access of investors to the capital markets. It also increases the coverage of both small and large companies by experts through a discount on the cost associated with covering a firm.
  • XBRL modernizes the formulation of financial and business reports for both external and internal decision making for CPAs with the role of auditing, information technology, and financial management.
  • It drastically improves the capability of CPAs in financial authorities management to accurately publish and send financial information to investors, lenders, analysts, regulators, and other key stakeholders.

In a nutshell, adopting XBRL standard is win-win for all. Investors and regulators benefit because they have financial data readily available in human-readable formats. Moreover, XBRL standards reduce investors’ information processing cost and consequently reduces information asymmetry. The effortlessness of information processing is boon for new investors and market makers. The advanced financial visibility decreases information irregularity, which in turn influence XBRL filers’ stock liquidity. Listed companies using XBRL profit due to their ability to get more investors by providing easy access to more specified financial information. The icing on the cake is that XBRL software is free.

Although XBRL reports have multifold benefits, they need to be filed by trained professionals. We, at Datatracks, have a team of experts who make XBRL filing hassle-free for companies and let the companies file their reports on time and with precision.

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