EXtensible Business Reporting Language (XBRL) is an open technology standard which makes it possible to store business and financial information in a computer-readable format.

It is a way to “bar code” information contained in income statements, balance sheets, text information included within the footnotes and other requirements of business reporting.

Many countries and/or financial regulators have approved, or are in the process of implementing, requirements around XBRL as the electronic financial reporting standard. These include the US, Japan, UK, Australia and China to name a few.

Now, India can be added to this list. On April 1, 2011, the Ministry of Corporate Affairs (MCA) posted a circular on its Web site requiring listed companies as well as companies above a certain size (paid-up capital greater than Rs 5 crore or turnover greater than Rs 100 crore) to file their 2010-11 financial information using XBRL format. This represents a significant change in the manner in which companies are required to share financial information with the MCA.

XBRL works through tagging or associating individual items of information (in the accounts or computations) with machine readable code known as XBRL.

To make this process manageable all the available and required ‘tags' are contained in what is known as a ‘taxonomy'.

Draft taxonomy

The MCA posted a draft taxonomy on its Web site on April 15. The taxonomy is based on the existing Schedule VI of the Companies Act and includes over 3,000 elements (‘tags').

It allows tagging of not only the primary statements but also detailed footnotes (e.g. depreciation policy). The final taxonomy and business rules for XBRL reporting would be notified by May 20.

Companies in the financial services sector in India, i.e. insurance entities, banking and non-banking finance companies, comply with sectoral regulatory requirements as directed by entities such as the Insurance Regulatory and Development Authority (IRDA) and the Reserve Bank of India (RBI).

The current MCA draft taxonomy does not appear to support the various sector-specific regulatory requirements.

We understand that as a result, an extended timeline may apply for companies in the financial services sector as well as the power sector, in order to allow for development of taxonomies incorporating respective regulatory inputs.

The draft taxonomy appears to contain elements pertaining to quarterly filing under Clause 41 requirements of Securities & Exchange Board of India (SEBI). Although there has been no official announcement as of yet, it is interesting to note that SEBI is currently developing SUPER-D (“SEBI Unified Platform for Electronic Reporting – Dissemination”) which is a platform enabling it to receive financial and business information in XBRL format.

Keeping in mind all of the above, companies should note that there is less than six months, given the September 30, 2011 filing requirement as per the circular, to prepare XBRL format information. In addition, while the taxonomy and business rules are expected to be released soon, the option for XBRL format filing is expected to be made available on the MCA Web site only from July 15 onwards.

Appropriate strategy

It is essential that corporates build an understanding of XBRL and its applicability within their organisations. Various options exist in order to produce XBRL-compliant information, such as outsourcing the preparation of XBRL to a third party or producing the information in-house. In-house implementation will require purchase of appropriate software and training staff as well as integration of the software into existing financial and business information platforms. The appropriate strategy will depend on a number of factors such as the availability of resources within the organisation with the right skill set, complexity of the financial statements, and existing information technology environment in the company.

In particular, companies should note that finalisation of XBRL filing rules from the MCA is a critical component from both the compliance perspective as well as for any software provider as their validation tools would need to be customised to the Indian requirements.

Given the tight timelines, companies should begin the process as soon as possible. A late start may prove costly not only by impacting upon the quality of the deliverable but may also result in missing the deadline.

(The authors are Associate Director & Manager at Ernst & Young respectively. The views expressed herein are personal. )

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