XBRL Consulting

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India: On the Road to XBRL-Enabled Financial Reporting

The purpose of this article is throw some light on XBRL, the conversion process, the benefits, some of the pitfalls, and some of the challenges in implementing the Ministry of Corporate Affairs (MCA) mandate to selected companies to file their financial reports by November 30, 2011. For those who are not yet familiar with XBRL and its impact, a list of reading materials is provided at the end of the article. Briefly, XBRL is a software language for the electronic communication of business and financial data which is revolutionising business reporting around the world. It provides major benefits in the preparation, analysis and communication of business information. It offers cost savings, greater efficiency and improved accuracy and reliability to all those involved in supplying or using financial data. Created by an American CPA, Charles Hoffman , in 1998 XBRL had a slow start, but has been championed globally by XBRL International and regulators in USA, UK, Japan, China, Singapore and other countries.

MCA regulations
XBRL is freely available, and is today, the reigning global standard for exchanging business information. It has been widely adopted in the US, Japan, Europe, China. Now, after a few regulatory bodies in India (SEBI, RBI, NSE, BSE) have trialled it, the Ministry of Corporate Affairs (MCA) has mandated financial reporting in XBRL from the Financial Year 2010-2011 for the following categories of companies all listed companies and their subsidiaries (excluding overseas subsidiaries) all unlisted companies with a paid up capital of Rs. 5 Crore and above All unlisted companies with a turnover of Rs. 100 Crore or above Further, The companies listed above are permitted to file XBRL compliant documents up to 30.11.2011 or within 60 days of their due date, whichever is later without any additional filing fee. The current mandate excludes banking companies, insurance companies, power companies, Non Banking Financial Companies (NBFCs). By November 30, 2011, approximately 30,000 companies in India will need to submit their financial documents in the XBRL format to the MCA. Eventually, it is expected that almost 9 lakh companies would need to report in XBRL from Financial year 2011-2012.

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Why XBRL?
XBRL offers major benefits at all stages of business reporting and analysis. Some specific benefits for two categories of stakeholders are given, below. For businesses, XBRL is important for the following reasons: 1. Streamlines existing, laborious manual report assembly and review process and controls through automation 2. Provides a higher level of effectiveness in information aggregation, analysis, and distribution 3. Heightens internal transparency within an enterprise 4. Enhances reporting process and controls agility For regulators, the following benefits are key elements: 1. Reduces corporate compliance burden 2. Source validation and analysis improve the quality of company disclosure 3. Improves transparency and re-useability of company disclosures 4. Enhances analytical capabilities 5. Makes regulatory processes and outcomes cost effective The benefits are widely acknowledged wherever the technology is in place. Today, few in the world who have implemented XBRL, voluntarily or otherwise, would deny that XBRL has had a profound impact on the world of business reporting.

What needs to be converted in XBRL format?

These are the required documents or information for conversion in XBRL format:

Detailed tagging Balance sheet and its schedules Profit and loss a/c and its schedules Cash flow statement

Block tagging (Mostly) Notes to accounts Director s report Auditor report

Selective information from notes, like subsidiary information, joint ventures, associate, related party transactions, director information, have to be tagged in detail, as well.

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A division of Blue Consulting Pvt. Ltd

Process Flow of Conversion

An overview of a professional multi-layered XBRL conversion process is illustrated below:

The conversion process itself is much more than just the selection and deployment of good software. That is a small part of the effort. When companies in the US began to implement the XBRL process on a voluntary basis, they found that it could take up to six months to process the first instance documents (as reported by report by the Aberdeen Group - Enabling Compliance and Business Improvements Through XBRL). There is a long learning curve before XBRL can be implemented on an end-to-end basis. The process itself requires professional knowledge of financial reporting experience of implementing this knowledge at a practical level. Where the XBRL process is being outsourced, the consultant would need to have experience across different verticals. When the document is tagged, it is converted into XBRL, and will look something like example
<?xml version="1.0" encoding="UTF-8"?> <xbrli:xbrl xmlns:ifrs-gp="http://xbrl.iasb.org/int/fr/ifrs/gp/2005-05-15" xmlns:iso4217="http://www.xbrl.org/2003/iso4217" xmlns:xbrli="http://www.xbrl.org/2003/instance" xmlns:xbrll="http://www.xbrl.org/2003/linkbase" xmlns:xlink="http://www.w3.org/1999/xlink"> <xbrll:schemaRef xbrll:href="http://www.org.com/xbrl/taxonomy" xlink:type="simple"/> <ifrs-gp:OtherOperatingIncomeTotalFinancialInstitutions contextRef="J2004" decimals="0" unitRef="EUR">38679000000</ifrsgp:OtherOperatingIncomeTotalFinancialInstitutions> <ifrs-gp:OtherAdministrativeExpenses contextRef="J2004" decimals="0" unitRef="EUR">35996000000</ifrs-gp:OtherAdministrativeExpenses> <ifrs-gp:OtherOperatingExpenses contextRef="J2004" decimals="0" unitRef="EUR">870000000</ifrs-gp:OtherOperatingExpenses>

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Since this is not a human readable format, it will be converted into pdf or doc format, and then it can be checked for accuracy.

Global Experience: Some common mistakes during conversion

We can note the following from the experience of companies that have already implemented XBRL: Negative values errors in positive and negative signs (50% of the errors) Incomplete tagging of company reports Items that included improper units of measure, decimal attributes, calculation links, and others. There are many more, however, the underlying causes for the errors were: Tagging performed by individuals without full understanding of a company s financial reporting Focus on speed and lower cost over accuracy and completeness in tagging Lack of defined process and timeline Focus on rendering, rather than on the structure of the disclosures (Source: Securities Exchange Commission, USA)

Challenges on the Road to XBRL-Enabled Financial Reporting

While the technology and process are clear; however there are challenges to meeting the deadline, as outlined below. While the MCA has announced its deadline (November 30, 2011) for filing by selected companies, it has, at the time of writing this article at September end, yet to release its validation tool. This leaves around 30,000 companies with about 50 working days to complete the documentation. Given the depth of financial reporting experience and the time that is required to file in this new technology and format, it could be an optimistic deadline. Earlier too, the MCA deadline had to be advanced from 30th September to the current deadline due to unavailability of its validation tool. For the first time in the history of XBRL implementation worldwide, MCA has made it mandatory for the companies to get the financial statements prepared in XBRL mode to be certified by a practicing CA/CS/CWA in this first phase of implementation. However, till date, there is no clarity on the format and mode (i.e. manual or digitally) of certification by these professionals. In addition to this, there is the question of software and software selection. Currently, there are no stringent criteria on the reliability of available software and the prices climb steeply from Rs. 4,000 to Rs. 4 lakhs. On what basis does a company select a vendor? The MCA says it will list software vendors, however, it also provides a disclaimer that it makes no recommendations. All this leaves providers and companies in a state of uncertainty.

XBRL Consulting
A division of Blue Consulting Pvt. Ltd These are a few of the challenges in the way of implementation. Another is skilled manpower. In the coming year, around 9 lakh companies will be required to file in XBRL format. How will this requirement be addressed?

To see companies fulfilling the high expectation of accountability and transparency in their business and accounting information, these issues will need to be resolved sooner, rather than later.

Way Forward
Some developments (related to XBRL) that are due to happen in Financial Year 2011-2012 are: As mentioned earlier, XBRL filing will be mandatory for around 9 lakh companies Extensions in taxonomy are going to be allowed, taking the process to another level. There will be lots of changes in taxonomy due to implementation of the new Schedule VI from 1st April 11 and likely implementation of IFRS is likely from FY 2012-13

Resources
Websites Ministry of Corporate Affairs http://www.mca.gov.in/ The Institute of Chartered Accountants of India http://www.xbrl.icai.org/ XBRL International http://www.xbrl.org/ XBRL India (XBRL India is the Indian Jurisdiction of XBRL International) http://www2.xbrl.org/in/ Books XBRL for Dummies by Charles Hoffman Financial Reporting Using XBRL - by Charles Hoffman ICAI Publication on XBRL A Primer (This Article has been written by CA Chandan Goyal and he can be reached at his e-mail id at chandan@blueconsulting.co.in)

About Chandan Goyal: Chandan is a dynamic and experienced professional in the field of Finance and Taxation. In the past, he headed the finance function of a joint venture of a Fortune 500 company which has pan India operations. He was instrumental in streamlining important Finance & Accounts ('F&A') processes, especially EVA reporting. Key job responsibilities included International & Domestic taxation issues, Treasury Management, and presentation before Audit Committee of the Company.

XBRL Consulting
A division of Blue Consulting Pvt. Ltd In his quest to provide excellent and value added F&A services, Chandan co-founded Blue Consulting Private Limited.