A simple guide to XBRL use cases (SEC, FERC, ESEF)

Financial reporting is crucial, and XBRL plays a key role in this process worldwide.

This blog gives you a clear understanding of XBRL, its application in different countries, and how it can benefit your business. It's essential knowledge for everyone, from experts to beginners.

So, let's delve into the world of XBRL and see how it's reshaping financial reporting, including:

What is XBRL?

XBRL (eXtensible Business Reporting Language) is a global business reporting standard used to exchange information in a way that’s both easily understandable to finance leaders, but also to finance technology. XBRL tagging structures data in such a way that it can be easily analyzed by finance technology for the purposes of regulatory reporting. This makes digital reporting easier for issuers, and data aggregation and analytics easier for investors.

What can XBRL do?

The goal of XBRL is to make regulatory reporting more consistent, accurate, and efficient. This type of reporting allows tags to be associated with data, allowing for:

• Additional information to be incorporated into regulatory reports for analysis.
• Reports to be evaluated against a set of business and logical rules.
• Businesses to present their data in a way that makes the most sense for them, while also providing additional context in the form of currency alternatives or language translations.

The benefit of XBRL is that it is interchangeable between business systems, allowing organizations to exchange data across a reporting chain.

Who uses XBRL?

Businesses, regulators, governments, analysts, investors, and accountants all use XBRL. Some of the use cases for XBRL include:

• Businesses – To provide information to regulators, move data around, manage risk, and measure activity.
• Regulators – To evaluate the risk and performance of the businesses they regulate, and process corporate tax affairs.
• Governments – To simplify and consolidate reporting requirements and standardize the way government data is shared with the public.
• Analysts & investors – To understand organizational risk and performance and evaluate potential investments against their existing portfolio.
• Accountants – To prepare XBRL reports.

Important features of XBRL

XBRL employs the use of taxonomies, which are standardized definitions for reporting terms and the relationships between these terms. The benefit of these taxonomies is that they can be used in multiple languages, allowing organizations to share data without having to constantly recreate reports.

XBRL as an international reporting standard

XBRL is an international reporting standard managed by the global non-profit, XBRL International. XBRL is used in more than 50 countries around the world and forms a critical part of various regulatory reporting standards, including the U.S. Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS).

How XBRL works

So far, we’ve outlined what is XBRL and who uses it, and made a brief mention of the benefit of taxonomies. In this next section, we’ll breakdown what is a taxonomy, and how to tag with XBRL.

What is a taxonomy?

Taxonomy is a dictionary of standardized definitions used to categorize and classify financial data and terminology. Taxonomies are not only used to categorize data, but they can also help explain the relationship between two or more data points. Taxonomies are used as part of the XBRL reporting process, allowing companies, stakeholders, and investors to easily exchange information.

What is a taxonomy extension?

A taxonomy extension refers to customizing or expanding XBRL taxonomies to accommodate new or changed elements as part of a company’s regulatory reporting. This might involve adding new elements, modifying existing ones, or changing relationships among elements to suit a company's unique financial reporting requirements. One of the benefits of XBRL reporting is that X stands for “extensible,” meaning it is flexible enough for a wide range of use cases and companies.

What is tagging?

Tagging is the process of applying XBRL taxonomies to a company’s financial data as part of regulatory reporting. Each tag corresponds to a specific data point in the financial statements, such as revenues, assets, or liabilities. This process allows the data to be easily understood, analyzed, and compared by users of the financial reports, including investors, analysts, and regulators.

What is an instance document?

An instance document refers to a company’s business reporting information that has been tagged with XBRL taxonomy. The expectation is that an instance document is created for each financial report (e.g., annual reports, earnings releases, etc.).

An instance document contains the specific values (such as numerical data for financial statements and textual information in the footnotes) that relate to taxonomy. It's essentially a digital version of a traditional business report, only it's far more useful because the information it contains is machine-readable and thus can be analyzed more easily and accurately.

What is rendering?

Instance documents are usually an XML file that can be read by finance technology. Rendering is the process whereby an XML file is translated into format understandable to finance leaders. The benefit of rendering is that it converts data into a more visually appealing and comprehensible format, such as a table or a graph.

What tools can I use to help with XBRL?

To create an XBRL report, you will need some form of finance technology. The most common type of technology to support regulatory reporting is a financial performance platform. Overall, it’s important to choose a platform that can handle XBRL taxonomies and create instance documents, so you can render reports into a readable format and distribute the necessary documentation. Some of these tools also offer additional features such as validation checks to ensure the accuracy and completeness of your XBRL data.

Wat is iXBRL?

iXBRL or inline eXtensible Business Reporting Language is an extension of XBRL that embeds XBRL data into a human-readable HTML document. This means that iXBRL documents can be viewed with a standard web browser, making the data more accessible and visually appealing to users.

What can iXBRL do?

iXBRL (Inline eXtensible Business Reporting Language) combines the advantages of HTML and XBRL. iXBRL embeds XBRL metadata within an HTML document, which makes the report readable by finance technology like data analysis tools, while also being easily understood by finance leaders when viewed in a web browser. This dual readability makes iXBRL a powerful tool for creating, analyzing, and sharing business and financial information.

What are some iXBRL use cases? Why would finance use iXBRL?

Much like XBRL, iXBRL is in use around the world. Companies in the U.S., the UK, Japan, Denmark, and other European countries are all required to use iXBRL. Many of the use cases mentioned for XBRL, including businesses, regulators, governments, investors, analysts, and accountants also apply to iXBRL.

For finance specifically, iXBRL can enhance the quality of data analysis and reduce the time needed to produce financial reports. It also allows for easier sharing and comparison of financial data, which can aid decision-making processes.

XBRL in Canada is voluntary

In 2007, the Canadian Securities Administrators (CSA) announced a voluntary program for companies looking to incorporate XBRL tagging into their reports.

Why companies should join the voluntary XBRL filing program

Companies should join Canada’s voluntary XBRL filing program to gain practical knowledge of how to prepare, file, and use XBRL information in their reports, as much of the global marketplace is already using these standards.

How to use XBRL financial statements

To use an XBRL financial statement, you need financial performance management software or an XBRL viewer that can interpret XML format. The key component of an XBRL report is the instance document, which contains the actual financial data and references to the taxonomy that provides the definitions for the data. To view the XBRL financial statement, you must open this instance document file with your software.

However, viewing and understanding XBRL data often requires more than just opening the instance document. Depending on the software used, additional steps may be needed, such as mapping the taxonomy tags to the corresponding data points in the financial statements. This is because XBRL statements are designed for machine readability and interoperability, and they may not be easily understandable to humans without the appropriate software. Therefore, it's crucial to have a tool that can effectively translate the XBRL data into a human-readable format.

XBRL in the United States: FASB and the SEC

In 2008, XBRL US first released the XBRL US GAAP Taxonomy, and since then, the Financial Accounting Standards Board (FASB) took over the maintenance and ongoing development of these standards.

However, it's important to note that the Securities and Exchange Commission (SEC) still plays a significant role in the XBRL reporting process in the United States. For example, it accepts the GAAP Financial Reporting Taxonomy each year and provides resources and guidance for filers preparing their financial statements in XBRL format.

Who must file using iXBRL?

In the United States, all companies who prepare their financial statements under the Generally Accepted Accounting Principles (GAAP) must file their reports in an iXBRL format with the SEC.

What must be filed using iXBRL?

In accordance with SEC regulations, various entities including operating companies, funds, and clearing agencies are required to submit specific financial information in iXBRL format. Below is a simplified overview of these requirements:

• Operating companies, both domestic and foreign, are required to submit their financial statement information, including cover pages and certain other disclosures, in iXBRL format with the SEC.
• Funds, such as open-end funds, closed-end funds, and business development companies, must tag certain prospectus items and financial statements in iXBRL format.
• Clearing agencies that provide a central matching service are required to file their annual report in iXBRL format.

XBRL and the FERC

Here’s a brief overview of the adoption and implementation of XBRL by the Federal Energy Regulatory Commission (FERC) and its implications for the energy industry:

• The Federal Energy Regulatory Commission (FERC) has adopted XBRL for financial data collection from energy companies.
• FERC manages the taxonomy of its data collection system, providing a consistent structure for reporting financial information.
• FERC offers resources such as taxonomy guides, tools, and instructions to aid in the transition to XBRL.
• The adoption of XBRL by FERC improves the quality and accessibility of financial data in the energy sector, making it easier for companies to comply with regulatory requirements.

XBRL in the UK: how the HMRC uses XBRL

In 2009, HM Revenue and Customs (HMRC) and Companies House announced that it would become mandatory for companies to send their tax returns online using iXBRL for accounts and computations.

What is the HMRC?

HM Revenue & Customs (HMRC) is the national tax authority of the United Kingdom. It's responsible for administering and enforcing taxes, as well as handling certain benefits and tax credit payments for UK residents.

What tools can businesses use for iXBRL tagging in the UK?

HMRC offers a free online tax service that can be used by small companies who do not have financial performance management software. HMRC and Companies House also provide a joint filing service that allows companies to enter their accounts data once.

XBRL in the EU: ESEF implementation and ESG reporting

XBRL reporting in the European Union was introduced as a requirement for annual financial reports under the amended European Transparency Directive, which took effect on January 1, 2020. The main regulatory body overseeing these requirements in the EU is the European Securities and Markets Authority (ESMA).

In addition to financial reporting, the EU has announced new sustainability reporting requirements under the Corporate Sustainability Reporting Directive (CSRD), which will also be using XBRL. These standards will be codified in the European Sustainability Reporting Standards (ESRSs).

XBRL for financial reporting

The European Single Electronic Format (ESEF) mandates the use of iXBRL for preparing annual financial reports, ensuring they are both human-readable and machine-readable. Here are the key points:

• All annual financial reports must be prepared in XHTML, which can be opened with standard web browsers.
• For annual financial reports containing IFRS consolidated financial statements, they must use iXBRL to mark up the disclosures with ESEF taxonomy labels or tags, making them structured and machine-readable.
• Starting from January 1, 2022, notes need to be block tagged, including explanatory notes and accounting policies. This block tag can contain text, numeric values, tables, and other data.

XBRL for sustainability and ESG reporting

From January 1, 2024, as per the agreement on the Corporate Sustainability Reporting Directive (CSRD), businesses will need to:

• Prepare their management reports in XHTML format.
• Use iXBRL taxonomy to mark-up sustainability information, including the disclosures required by Article 8 of Regulation 2020/852.

In support of this, a set of standards called the European Sustainability Reporting Standards (ESRS) will be developed. These standards will include a taxonomy, or classification system, to help tag and organize the reported information.

How XBRL reporting positively affects your business

Better transparency around financial reporting

By using XBRL, companies can streamline the creation and distribution of their financial reports, which improves transparency, as machine-readable data is less open for interpretation by investors, stakeholders, and analysts, and regulators.

Faster financial reporting

Since XBRL reports are in a machine-readable format, this can expedite the analysis of financial reports, allowing investors, stakeholders, analysts, and regulators to more easily understand the information presented and make data-driven decisions.

Reduced risk of errors around financial reporting

XBRL reduces errors in financial reporting by eliminating manual data entry and promoting standardized data tagging. This automation not only minimizes human error but also ensures consistent categorization of financial information, leading to more accurate and reliable reports.

Builds trust with shareholders, stakeholders, and the public

XBRL democratizes access to data by providing both machine- and human-readable formats. Its standardized taxonomy ensures everyone is categorizing and explaining their financial data in the same way, building trust with shareholders, stakeholders, and the public.

Challenges of implementing XBRL reporting

Inconsistencies with tagging and other data quality issues

Since XBRL taxonomies are so extensive and can be modified to accommodate a company’s unique use case, there can be inconsistencies with tagging and other data quality issues in the preparation of financial reports. However, these issues are often due to incorrect implementation or lack of understanding of the XBRL standards, rather than a flaw with XBRL itself.

Technical limitations, including compatibility with existing software

To convert XBRL data into a human-readable format, companies must have some form of financial performance management software or an XBRL data-reader. Cost can be prohibitive for smaller companies, who must prepare these reports infrequently, which means technical limitations can be a barrier to XBRL.

Training the team on XBRL

As we’ve discussed, XBRL taxonomies are quite extensive and can be modified to fit a company’s specific use case. As a result, it can be difficult to train your finance team on the intricacies of this reporting method, leading to longer implementation times and increasing your risk of errors.

How to do XBRL tagging in Prophix

Prophix simplifies XBRL reporting by fostering a collaborative environment through its user-friendly Financial Performance Platform. It enables frictionless version control, easy document revisions, and ensures alignment among all collaborators through in-app commenting and workflows.

With Prophix, you can be confident about the quality of your filings as it uses a single source for data, providing an audit trail and real-time visibility of your reporting progress. Our Financial Performance Platform also features an integrated XII certified validator, IRIS Bushchat^®, which supports ongoing quality checks.

Prophix also offers 24/7 expert support and in-house tagging services to meet the highest reporting standards and keep up with the latest mandates and taxonomies.

FAQs about XBRL

What is XBRL in accounting?

XBRL, in accounting, is a global standard used for exchanging business information. It allows financial data to be communicated and processed consistently and accurately, enhancing transparency and efficiency in financial reporting.

Can Excel open an XBRL file?

Yes, Excel can open an XBRL file. However, to properly view and manipulate the data, you may need specialized software or add-ins that understand the XBRL format.

Who is required to file with XBRL?

The requirement to file with XBRL varies by country and regulatory body. For example, in the US, the SEC requires publicly traded companies and certain other entities to submit their financial statements in XBRL format.

What are the disadvantages of XBRL?

While XBRL has many benefits, it also has some disadvantages such as the complexity of implementation, the need for ongoing updates to taxonomies, and potential misinterpretation of tagged data if not done correctly.

What is iXBRL tagging?

iXBRL tagging is a process where financial data is embedded directly into a document, making it both human-readable and machine-readable. This simplifies the presentation and analysis of financial information.

Conclusie

Understanding XBRL is a critical step in mastering the financial reporting process in today's business environment. This blog aimed to provide a clear understanding of XBRL, its use in different regions, and how it can enhance your business operations.

As financial reporting continues to evolve, staying informed and adaptable is crucial. So, continue to improve your understanding and let XBRL be a useful tool in your financial reporting processes.