XBRL in India. The Future of Financial Reporting. September 9, Darshan Varma

Transcription

1 XBRL in India The Future of Financial Reporting September 9, 2011 Darshan Varma

2 1 2 3 Introduction to XBRL Ministry of Corporate Affairs (MCA) mandate Preparing for XBRL 4 How Can an External Expert Help

3 What is XBRL? Analyzing Data The Old and New Way! How XBRL works Key features Example of Taxonomy How XBRL helps Potential Uses of XBRL Global Scene India Scene

4 What is XBRL? XBRL (extensible Business Reporting Language) is a computer language that, through a process of tagging, makes documents machine-readable. This makes data download and analysis much easier compared to the old way of copy/pasting and rekeying of information. The process is depicted in the following two slides 3

5 Analyzing Data The Old Way! ABC Financial Statements XYZ Financial Statements.doc /.xls /.pdf / html 4

6 Analyzing Data The New Way! User s Software ABC Financial Statements XBRL file XYZ Financial Statements.doc /.xls /.pdf / html 5

7 How it Works (1) 6

8 How it Works (2) 7

9 How it Works (3) 8

10 Key features Similar to bar-coding, based on XML Enables electronic transmission and exchange Critical features: Tagging and use of Taxonomies Fast and accurate data collation Extensible, i.e. enables extending Taxonomies and creating new ones Breaks language barriers Supports financial and non-financial data, including narrative notes to the accounts XBRL improves the manner in which financial statements are shared and analyzed 9

11 Example of Taxonomy Plain English 10

12 Example of Taxonomy - xml 11

13 How XBRL Helps Transparent filing of financial statements; Universally-accepted data format; Efficient and timely transfer of data; Quick and easy analysis of financial data, both internally an across companies; Improved monitoring by regulators, viz. SEBI, RBI, MCA, Stock Exchanges, etc.; Easier detection of errors and inconsistencies; Significant cost reduction in data collection and data analyses; Increased accuracy of financial data; Improved performance measurement, cost accounting and decision making; Globalization of financial and business data; Global sharing of resources; Easier and more efficient financial analysis by auditors; Real time reporting and validation of data. 12

14 Potential Uses (Examples) Supplier Data Regulatory Filings Forms Customer Data Financial Statements Project Info Employee Data MIS / Budgets 13

15 Global Scene Several countries have already mandated XBRL-based filing of financial statements. In Israel, all public companies are mandatorily required to do their filing using XBRLbased interface called MAGNA. In Japan, beginning financial year , approximately 5,000 companies and 3,000 investment funds are compulsorily required to do their filings using XBRL-based EDINET system. USA has already mandated XBRL-based filing for its top 500 companies effective June By the middle of 2012, all domestic and foreign companies that are publicly traded in the United States are required to provide their SEC filings using the XBRL format beginning with simple block tagging but progressing to more complex detail tagging of financial information including footnotes and schedules. Similarly, in China, Singapore, Germany, Italy, Korea, India, etc., XBRL filing is currently mandatory for certain select companies. 14

16 Indian Scene XBRL India is an acknowledged jurisdiction of XBRL International created by The Institute of Chartered Accountants of India (ICAI) to spearhead the promotion and adoption of XBRL in India Members of XBRL India include the premier organizations like Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Ministry of Corporate Affairs (MCA), Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Insurance Regulatory and Development Authority (IRDA) XBRL India has developed Indian GAAP Taxonomies for commercial and banking companies MCA has issued Circular mandating XBRL filing for certain companies and has issued C&I taxonomy. Gateway and validation standards are pending. Optional filing notified by NSE Certain RBI forms mandatory Several organizations have adopted XBRL SEBI embarking on ambitious SUPER-D project Several other government departments also planning to move to XBRL 15

17 Applicability of XBRL Recent updates Additional insights

18 Applicability of XBRL MCA Circular dated 7 June 2011 Companies covered All companies listed in India and their Indian subsidiaries; or All companies with a paid-up share capital of Rs. 5 crores and above; or All companies with a turnover of Rs. 100 crores and above. Does not apply to banking companies, insurance companies, power companies and Non- Banking Financial Companies (NBFC) Documents to be filed Financial statements, including notes to the accounts Auditors report Directors report Failure to adhere to the time line may result in imposition of additional filing fees. A filing deadline of 30 September 2011 has been notified. Where companies hold the Annual General Meeting (AGM) in September 2011, the XBRL Instance document should be filed within 60 days from the AGM or Nov 2011 whichever is later 17

19 Recent updates Final taxonomy and business rules for commercial and industrial enterprises issued Dedicated website set up ( which provides useful information, including a brief filing manual No extensions to the core taxonomy would be allowed Filing gateway and validation tool expected to be operational by mid August 2011 XBRL filing to be attested by Chartered Accountant/Company Secretary/Cost and Works Accountant. 18

20 Additional Insights (1/3) Consolidated financial statements The XBRL Instance document needs to be prepared for the consolidated financial statements as well Non-banking subsidiaries of banking companies (e.g. Shared Service Center, Mutual Fund AMC) These are covered as such companies file Schedule VI financial statements and are covered in the C&I taxonomy Provision of XBRL conversion tools by the MCA The regulator has announced plans to provide conversion tools to companies; however, this is not expected in the first filing phase Companies with years ending prior to 31 March 2011 (e.g. 31 December 2010) XBRL filing is required for companies whose year ending is 31 March 2011 or thereafter, subject to fulfilling the other criteria 19

21 Additional Insights (2/3) Voluntary filing Voluntary filing is encouraged. Thus, a company not currently meeting the threshold can still file using XBRL instead of the usual pdf submission Definition of exempted companies Any company not filing financial statements in compliance with Schedule VI of the Companies Act is exempt. For example, companies governed by the Electricity Act, Banking Regulation Act, Insurance Act, etc are exempt in the current phase. Documents outside the financial statements The filing requirements include not only the full financial statements but also the directors report, auditors report and basic business information. Block text tagging rather than detailed tagging is expected for such documents 20

22 Additional Insights (3/3) Comparatives These are required to be tagged along with the current year information Roll-forward of tags Depending on the software being used, XBRL tags can generally be rolled forward to the next year, subject to amendments to the taxonomy, changes to financial statement presentation requirements (for example, the revised Schedule VI) and the format in which the financial statements are finalized by the company. 21

23 Mechanics for XBRL conversion Potential challenges Common Errors Other Observations on XBRL Instance Documents Implications for Indian companies Role of the Company Secretaries

24 Mechanics for XBRL conversion Begin with traditional financial statements (Source Document) Submission of XBRL file to MCA Taxonomy Extension taxonomy / coding expertise 2. Step 1 Upload document Output Document 3. Engine / Tool Tagging / Validating 4. Step 2 Mapping/ tagging to the taxonomy Step 3 Create the instance document Step 4 Review instance document and validation 5. Sharing / Analysing 23

25 Potential challenges Some of the key challenges that companies might encounter as they adopt XBRL reporting are : Understanding XBRL and how it needs to be implemented Training staff on XBRL Identification of the software tool to be used for preparing XBRL-compliant financial statements Ensuring that the financial statements are tagged correctly to the relevant taxonomy the first time and dealing with error reports Planning smooth and timely compliance with MCA s XBRL-reporting requirements within the prescribed timelines 24

26 Key global observations: a snapshot of common errors In approximately 6,300 submissions through early March 2011, XBRL US identified approx. 65,000 errors (number of occurrences in submissions): Negative value reported, should have been positive (34,765)* Value reported for concept that should have been zero (5,516)* Positive value reported, should have been negative (1,873)* Value reported for a concept was different from the value reported for a same concept with a dimension on a different statement in the same report (890)* *Source: XBRL US website ( March 17,

27 Common Errors in Submissions To Date Tag Selection Selected observations on the submissions to date include: Filer used one standard element when a standard element with a narrower definition or a standard element with a broader definition was more appropriate 1 Filer created an extension when a standard element was more appropriate 1 1 Source: See Staff Observations from Review of Interactive Data Financial Statements on xbrl.sec.gov. 26

28 Common Errors in Submissions To Date Tag Creation Selected observations on the submissions to date include: New elements created by filers should not include company-specific or period specific information in their name 1 New elements created by filers for amounts appearing on the balance sheet or income statement must have a debit or credit balance attribute 1 All extensions must have a definition 1 1 Source: XBRL US Webinar XBRL For Filers: Implementing XBRL for SEC Reporting (Aug 18, 2010) 27

29 Other Observations on XBRL Instance Documents Judgment required when tagging subsequent events For example, determining the period type and context date Tagging a data point that appears in the financial statements more than once with more than one tag Cash on the balance sheet and in the cash flow statement Ending goodwill on the balance sheet and in the footnotes Not tagging all of the data in the source financial statements Inadvertently not tagging an amount Some numbers do not require tagging Acceptable calculation inconsistencies 28

30 Implications for Indian companies Companies need to quickly gear up to this new reporting challenge. Some of the key decisions which need to be addressed are: Question: Whether the project should be executed inhouse or outsourced to experts? Answer: Global experience indicates that majority of the large entities outsource XBRL activity to external service providers to optimize time and efforts. Question: Project timelines? Answer: It is beneficial to start early as this enables better project management, timely adherence with filing deadlines and provides adequate time for resolution of validation errors. Mandatory use of XBRL provides an opportunity to determine how XBRL can also be optimally used for purposes beyond financial reporting 29

31 What should Indian companies do? Identify a core team to deal with XBRL compliance requirements and understand/ identify the impact on the financial statements Identify the software/ tool to be used Estimate the efforts involved in tagging the financial statements to the relevant taxonomy Train core team on XBRL Evaluate the appointment of an external consultant to execute/ advise on/ assist in the entire process Start early!!! 30

32 Use of an external expert

33 Use of an external expert An External Expert can assist companies in various areas: End-to-end project management assistance Training staff to understand XBRL Validation Checks Selecting software tool for XBRL implementation Implementation guidance on tagging and validation processes Training Trained External Expert Alliances for Software/ Tool End-to-end project implementation, including preparing complete XBRL documents on a fully outsourced basis Outsourced Project Execution Resource Support Use of an external service provider in the first year is likely to optimize time, efforts and accuracy 32

34 Darshan Varma Associate Director Accounting Advisory Services KPMG in India Phone: +91 (40) Mobile : darshanvarmagm@gmail.com