What is XBRL?
Standard definition – XBRL stands for eXtensible Business Reporting Language. It is a language for the electronic communication of business information, providing 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 business information.
Explanation 1 – What a company has in a non-XBRL world is a bunch of pdf files, excel and html files with it. And combining those we get monolithic information… (Means hard to analyze). Every company is filing in its own format. It will take much time to analyze those information. In XBRL world, each piece of information is assigned a particular (taxonomy) so that every company’s financial statement can look alike so it can be analyzed and can be even passed on to other company very easily. Globally it is very beneficial.
Explanation 2 – Let me go this way. When you go to the grocery store you buy a carton of milk at the counter, the checkout man pull out his barcode reader and scan the barcode of the carton. What you see is the amount you are paying but what the store knows by scanning when it was manufactured, its expiry, name, manufacturing details etc. Similarly, in XBRL every particular of financial information is allotted a particular term (taxonomy) and the amount corresponding it contains a lot of information about its contents. That taxonomy is standardized for all the companies globally.
Arrangement of Financial Statements made easy – As a student or an accountant, if one wants to analyze the information then one will visit different websites look for financial statements which are in different format for different companies. Then copy it to excel and adjust the formatting and then putting them into a specific desired format. This can be very tedious and time consuming. Here XBRL comes into action. One can simply download the XBRL format file from companies’ websites and use an XBRL viewer to view those files. Each company’s format will be the same.
Comparison for financial analysts/ students made easy – As I discussed above, consolidation of accounts of different companies is quick. So, comparison of the same would be easy. Whether you are financial analyst assessing the viability of the company or just student working on some project, XBRL format can be a true savior.
Cost reduction for investment companies – As consolidation is made easy by XBRL, the company will be no more in need of employees kept for the same purpose.
Sharing information among companies made easy – Imagine a world without XBRL where your company want some information from other company and they send you a pdf/excel which is non-understandable. You kept on looking for what you want, searching all the day which can be tiring. With the help of XBRL, information exchange is made easy as you can easily point out the particulars you need from other company’s financial statement.
Opens employment opportunities – This is the obvious point that introduction of XBRL requires knowledge and attracts advices from professional like CA/CMA thereby creating employment.
XBRL in India – Requirements?
The MCA has mandated the reporting of financial statements for all the companies which are:
1. Listed in India + their Indian Subsidiaries.
2. Having a paid up capital of Rs. 5 Crores and above.
3. Having a turnover of Rs. 100 Crores and above.