According to a report from the Financial Reporting Council’s Financial Reporting Lab (PDF), XBRL (eXtensible Business Reporting Language) will play a central role in the movement toward the digitalization of corporate reporting.
And with regulators in over 60 countries using XBRL for corporate reporting, I agree with the report’s recommendation that regulators, companies and investors should work together to understand how to maximize the benefits of XBRL in the future.
The report is focused on digital corporate reporting in the UK, but clearly addresses the much wider use of XBRL. It especially considers the requirements of the new European Single Electronic Format (ESEF) for digital corporate reporting, which starts in 2020 and requires XBRL-tagged financials for the annual reports of EU listed companies that use International Financial Reporting Standards.
Production, Distribution and Consumption using XBRL
Successful transformation of financial reporting into a digital XBRL format by any regulator or any reporting jurisdiction requires the that two key components be properly integrated: a) the production of the digital financials and b) the ensuing consumption of the digital data. The report from the FRC’s Financial Reporting Lab captures these items and explains the pros and cons.
The report also addresses one additional component that it deems critical - the distribution of the data, meaning how it’s disseminated to regulators and external parties. The report states that, “Digital reporting should be usable, up-loadable, universal, searchable and intuitive. Overall XBRL fulfills these objectives.”
Other Digital Corporate Reporting Recommendations
There’s more. The report provides additional recommendations regarding digital reporting, which are:
- Technology companies should produce tools and packages for non-technical users who create, distribute and consume XBRL data.
- Companies need a strategy at Board and audit committee level on how they implement XBRL.
- Investors should engage with regulators, auditors/assurance providers and companies early on to ensure XBRL data meets the needs of the investor community.
What is XBRL?
If you are new to XBRL or need a refresher, Appendix 2 of the report is titled “What is XBRL?”. It gives an understandable explanation of this core technology for business reporting. It’s a good place to start.The report, published in December 2017 is as relevant today as it was then. You can read or download the Financial Report Lab report here.