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Companies around the world are working to increase transparency in their financial reporting while also reducing the regulatory burden. Two global standards help enable these objectives: International Financial Reporting Standards (IFRS; a set of accounting standards) and eXtensible Business Reporting Language (XBRL; a technology standard. This article highlights the objective of XBRL, its action towards business process and its terminology (Taxonomy, schema and Linkbases). The article also emphasizes need for IFRS for preparing the financial reports with the help of XBRL taxonomy.
THE ROLE OF XBRL AND IFRS IN FINANCIAL REPORTING
INTRODUCTION XBRL (eXtensible Business Reporting Language) is just a computer software language that is developed specifically for the automation of business information requirements, such as the preparation, sharing and analysis of financial reports, statements, and audit schedules. XBRL labels companies' financial and other data with codes from standard lists (taxonomies) so that investors, auditors and analysts can more easily locate and analyze desired information.
OBJECTIVE OF XBRL The main objective of XBRL is to provide transparency. Investor has put in its money in company and shall be aware of it's IN and OUT. The XBRL is a way of electronic communication of business and financial data and is of immense utility to the capital markets and the investing community.
XBRL involves huge initial conversion costs for companies but the long-term benefits for investors and the capital markets would be significant.Â XBRLÂ is a digital 'language' that was developed to provide a common electronic format for business and financial reporting.Â Â
Developed specifically to communicate information between businesses and other users of financial information such as analysts, investors and regulatorsÂ
Provides a common electronic format for business reporting
It does not change what is being reported.Â It only changes how it is reported.
It is self-contained document. There are thousands of companies releasing financial results on quarterly, interim and on annual basis. There is no easy way to compare contents, but for XBRL.
ADVANTAGES OF XBRL
Streamlined processes for collecting, comparing and reporting financial information
Improved financial communication and transparencyÂ
Increased data accuracyÂ
Multi languages and accounting standards supportÂ
Improved risk management and controlÂ
Ease of maintenanceÂ
Faster, more reliable and extended scope of analysis capabilities for better decision-making
XBRL IN ACTION
XBRL in Action is a one-stop shop for comprehensive, XBRL implementation information providingÂ interested partiesÂ specific project details as reported directly from the project managers who are implementing XBRL.Â This allowsÂ visitors the ability to research XBRL with information from real life use cases.Â
The terminology used in this document frequently overlaps with terminology from other disciplines. The following definitions are provided to explain the use of terms within the XBRL knowledge domain.
Taxonomy XBRL taxonomy is an electronic description and classification system for the contents of financial statements and other business reporting documents. XBRL taxonomies can be regarded as extensions of XML Schema, augmented with written documentation and a number of additional XML Linking (XLink) files.
Taxonomies may represent hundreds or even thousands of individual business reporting concepts, mathematical and definitional relationships among them, along with text labels in multiple languages, references to authoritative literature, and information about how to display each concept to a user.
XBRL Instances contain the reported data with their values and "contexts" (e.g. currency or reporting period). Instances must be linked to at least one taxonomy which define their contexts, labels or references.
An XBRL extension is a taxonomy extends an existing base taxonomy. The extension taxonomy may include, exclude or change information from the base taxonomy. The extension can be regarded as an overlay which modifies the structure of the taxonomy, adds and prohibits elements, their labels, linking, order of appearance and other characteristics. The main idea behind an extension is to encourage business users to tailor the taxonomy to their specific needs, while using the elements of the base taxonomy to ensure comparability.
XBRL Schemas together with linkbases define an XBRL taxonomy. The purpose of XBRL schemas is to define taxonomy elements (concepts) and give each concept a name and define its characteristics. It can be regarded as a container where elements and references to "linkbases" files are defined.
XBRL linkbases and XBRL Schemas define together an XBRL taxonomy. Taxonomies with only the core elements (concepts) defined in an XBRL Schema would be useless. The purpose of XBRL linkbases is to combine labels and references to the concepts as well as define relationships between those concepts.There are five different kinds of linkbases. Each has a special purpose:
The label linkbase
The XBRL Consortium aim is to create and develop a world-wide standard for electronic business reporting. This requires for the taxonomies to represent business data in multiple language. Therefore it is possible to create an element (concept) in the taxonomy with labels in different languages and or for different purposes e.g. a short label PPE compared to its long label Property, plant and equipment. Those labels are stored and linked to their respective elements in a label linkbase.
The reference linkbase
Most of the elements appearing in taxonomies refer to particular concepts defined by authoritature literature. The reference linkbase stores the relationships between elements and the references e.g. IAS, para 68. The layer does not store the regulations themselves but the source identification names and paragraphs.
The presentation linkbase
Business reports are in general organised into identifiable data structures e.g. a Balance Sheet.Â The presentation linkbase stores information about relationships between elements in order to properly organise the taxonomy content. This enables a taxonomy user to view a one dimensional representation of the elements.
The calculation linkbase
The idea of a calculation linkbase is to improve quality of an XBRL report (XBRL instance). The calculation linkbase defines basic calculation validation rules (addition/substraction), which must apply for all instances of the taxonomy. For example two elements (concepts) A, B can be summed up to a third element (concept) C, such that C = A + B.
The definition linkbase
The definition linkbase stores other pre-defined or self-defined relationships between elements. For example a relationship can be defined that the occurrence of one concept within an XBRL instance mandates the occurrence of other concepts.
Â ICAI & XBRL
Â ICAI has built up the Taxonomy which contains the concept; it does not contain any factual information reported by entity.
Â Taxonomy has been based on three broad reporting categories. These are
Commercial and Industrial
Non-Banking Finance companies
The ICAI XBRL taxonomy has been constructed to conform to the current Indian Accounting Standards and Company Law.
XBRL AND IFRS
Transparency in the financial reporting is tremendously increasing around the world and two global standards have assisted to achieve these objectives i.e. IFRS and XBRL. IFRS and XBRL are two different projects, a combined project implementation approach can enable greater efficiency and control over reporting. To enhance transition to IFRS, consider how XBRL fits into company's reporting processes as on date and start assessing how company's current reporting processes may be affected by the adoption of IFRS.
IFRS IFRS stands for "International Financial Reporting Standards" and includes International Accounting Standards (IASs) until they are replaced by any IFRS and interpretations originated by the IFRIC or its predecessor, the former Standing Interpretations Committee (SIC). IFRS are developed and approved by IASB (International Accounting Standard Board). These are standards for reporting financial results and are applicable to general purpose financial statements and other financial reporting of all profit-oriented entities.
NEED FOR IFRSLevel of Confidence: The key benefit will be a common accounting system that is perceived as stable, transparent, and fair to investors across the world, whether local or foreign.
Risk Evaluation: IFRS will eliminate barriers to cross-border listings and will be beneficial for investors who generally ascribe a risk premium if the underlying financial information is not prepared in accordance with international standards.
Merger & Takeover Activity: Cross-border mergers and acquisitions will get a boost by making it easier for the parties involved in as far as redrawing the financial statements is concerned.
Investments: Foreign investors will be attracted to economies where IFRS-compliant financial statements are the norm.
IFRS TAXONOMY The IFRS Foundation XBRL Team is responsible for developing the XBRL representation of the IFRSs - including International Accounting Standards (IASs), Interpretations and the IFRS for Small and Mediumsized Entities (SMEs) - issued by the IASB, known as the IFRS Taxonomy.
The IFRS Taxonomy is developed by the XBRL Team. The IFRS Taxonomy is developed following a 'Standard Approach', which effectively means that the Taxonomy is developed on a standard-by-standard basis (eg IAS 1, IAS 2â€¦ IFRS 1, IFRS 2, etc). The analysis of IFRS disclosure requirements then forms the basis for further development, and ultimately results in the construction of physical XBRL files. The Taxonomy can be efficiently maintained and remains accessible to accounting users.
The Standard Approach means that the Taxonomy is organised and structured in a way that is familiar to preparers, thereby facilitating readability and usability. The Standard Approach is visible in the folder structure of the Taxonomy and the organisation of the extended link roles (ELRs). For example, the linkbases corresponding to IFRS 1 are found in the folder /ifrs/ifrs_1_2010-04-30.
Fig 8: Phases of IFRS Taxonomy development
Customising the IFRS Taxonomy
After the line items of an entity's financial statements have been conceptually mapped to the IFRS Taxonomy, the choices made in this stage need to be realised into files and folders (modules). These modules of the IFRS Taxonomy then need to be collected into an entry point. This entry point, usually in the form of a schema file, can then be used to create an extension.
While entry points are not necessarily needed for filing purposes, they can be useful for navigating the structure of the IFRS Taxonomy and for finding appropriate concept when mapping to an entity's disclosures.
For example, a choice was made in the mapping phase to use either the Statement of cash flows, direct method - Consolidated financial statements or the Statement of cash flows, indirect method - Consolidated financial statements, and also to apply one of the two versions of IFRS 3 Business Combinations.
Creating an entity-specific extension
In an entity-specific extension, preparers provide supplementary concepts for the IFRS Taxonomy together with respective relations for these concepts (and their relations to IFRS Taxonomy concepts).
Creating an entity-specific extension is not an obligatory stage in the preparation of XBRL financial statements based on the IFRS Taxonomy. If the structure of an entity's financial statement is aligned with the structure of the IFRS Taxonomy and no specific dimensions are applicable, the entry point generated in the previous stage can be treated as a company-specific extension.
Fig 9: IFRS Taxonomy core and extension
The structure of an extension
There is no single approach for extending the IFRS Taxonomy. Preparers can first create concepts and later link them within linkbases, or start with taxonomy component definitions such as ELRs and then add concepts later. Many regulators will require preparers to provide their own linkbases and extension schema without reusing IFRS Taxonomy linkbases. It is advisable to first add ELRs identified in the mapping process, then to add missing concepts, and finally to link existing IFRS Taxonomy concepts with the added concepts in the entity-specific linkbases.
Existing IFRS Taxonomy concepts should be reused wherever possible. In cases where a concept is not already defined in the IFRS Taxonomy, only then should an entity-specific concept be added.
Adding extended link roles (ELRs)The IFRS Taxonomy consists of a number of ELRs representing financial statements excluding notes, notes and dimensions (axes). IFRS Taxonomy relationships (financial statements excluding notes, notes or dimensions (axes)) can be directly copied into extension linkbases.
Entity-specific ELRs should be created only for presentation, calculation and definition linkbases.
Entity-specific concepts should only be added when there is no corresponding concept in the IFRS Taxonomy. To ensure that a concept does not already exist, the IFRS Taxonomy should be searched (using an XBRL tool) to check for the existence of the concept. Concepts represent reportable items, hypercubes (tables), dimensions (axes) or domain members (members). Each added concept includes a number of characteristics. These characteristics must be added to extension concepts and must be consistent with the architecture of the IFRS Taxonomy.
Fig 10: Characteristics of an IFRS Taxonomy concept
Concept name The concept name should be created using the Camel Case version of the English standard label, in order to ensure consistency as the IFRS Taxonomy changes.
The concept ID should be constructed using the entity-specific namespace prefix followed by an underscore (_), followed by the concept name.
Preparers should define the item type for each concept, common item types used in the IFRS Taxonomy.
Period typeConcepts representing stocks should have the period type set to instant, while concepts representing flows should have the period type set to duration. In cases where the period type is not obvious, the period type attribute should be set to duration.
Abstract conceptsAbstract concepts are used to organise hierarchies in the presentation linkbase. All abstract concepts should have the abstract attribute set to true.
Domain membersDomain members (for example, Cosmetics added to Dimension - Operating segments) should be abstract items with the period attribute set to duration and the type set to domainItemType.
Axes and tables (dimensions and hypercubes)
Concepts added in different than item substitution groups are axes (dimensions) and tables (hypercubes). The IFRS Taxonomy defines the number of axes (dimensions) that should be used, and preparers are not expected to add new axes (dimensions) unless they are required by the entity-specific disclosures. The IFRS Taxonomy defines tables (hypercubes) for most situations when axes (dimensions) are linked to line items. However, there are five axes (dimensions) - and also the entity-specific dimensions - which will require preparers to add tables as part of their extension.
LabelsConcepts may have multiple labels, but at a minimum, concepts should have at least one unique English standard label. Upper case letters should be only be used for the beginning of a label or names and abbreviations. Suffixes for standard labels, which should also be used in extensions, are as follows:
Abstract- should be used for all abstract concepts in a standard label
text block- should be used for all string concepts representing text blocks in a standard label
axis- should be used for all concepts in the substitution group axes (dimension) in a standard label
table- should be used for all concepts in the substitution group table (hypercube) in a standard label
IFRS TAXONOMY USED FOR PREPARING FINANCIAL STATEMENTS IN XBRL FORMATThe specific requirements for instance documents and entity-specific extensions based on the IFRS Taxonomy are normally prescribed by receiving institutions or are included in local regulations. The IFRS Foundation is currently working with other members of the ITA project to create a Global Filing Manual (GFM) which constitutes a set of rules providing guidance on the preparation, filing, and validation of filings in eXtensible Business Reporting Language (XBRL) format.
Fig 11: The process for preparing Financial Statements based on the IFRS Taxonomy
The first stage - working directly with the IFRS Taxonomy is required.
In the second stage - An entry point with the required IFRS Taxonomy components is created.
The third stage - Focuses on the extension of the customised IFRS Taxonomy for disclosures in an entity's financial statements that are not available in the IFRS Taxonomy.
Four stage - Instance document is to create an XBRL instance document based on the IFRS Taxonomy and the entity-specific concepts defined in the previous stage.
MAPPING THE IFRS TAXONOMY
To map the IFRS Taxonomy one should know how IFRS Taxonomy reflects the IFRSs from a financial reporting perspective.
The easiest way to learn about the structure and content of the IFRS Taxonomy is to use The IFRS Taxonomy Illustrated and the xIFRS (IFRSs with XBRL)*, or to navigate the taxonomy using an XBRL tool (preferably one with taxonomy viewing functionalities) The components of the IFRS Taxonomy are grouped using what are referred to in XBRL terminology as extended link roles or extended links (ELRs). The IFRS Taxonomy consists of modularised ELRs which represent sets of disclosure requirements. Examples of these modularized components are:
Table 2: Financial statements excluding notes - for example Statement of cash flows, indirect method - Consolidated financial statements. The IFRS Taxonomy consists of a number of ELRs and concepts. Modeling concepts by the means of hierarchies and axes (dimensions) is of particular importance when mapping to an entity's own financial statement components.
Three approaches are used to model IFRSs in the IFRS Taxonomy:
(i) financial statements (excluding notes),
(ii) notes, and
(iii) dimensions (axes), which are used to provide general information about sets of line items.
Once preparers are familiar with the structure of the IFRS Taxonomy, the objective is then to map their entity's financial statements to ELRs, relationships and concepts from the IFRS Taxonomy. Only ELRs, relationships and concepts from the IFRS Taxonomy which are relevant to the entity's specific financial statements need to be considered. Any disclosures which cannot be mapped (because there are no equivalents in the IFRS Taxonomy) will need to be extended at a later stage. It should be noted that necessary disclosures can be found in the whole IFRS Taxonomy (not necessarily only in the corresponding note) and also they labels do not necessarily must match. An example of mapping an entity's financial statement with the IFRS Taxonomy.
Many countries have recognized the need for convergence of accounting standards and are moving towards its implementation whilst others are more in their approach of financial reporting in IFRS. From a financial reporting perspective, the development of the IFRS Taxonomy entails the incorporation of up-to-date IFRS disclosure and presentation requirements in either a new taxonomy or the structure of an existing taxonomy. These activities also prompt other essential processes and the implementation of other IFRS-related information within the Taxonomy, including the alignment of wording (terminology) and XBRL references to the corresponding IFRSs.
Both IFRSs and XBRL are intended to standardize financial reporting in order to promote transparency and to improve the quality and comparability of business information, therefore the two forms a perfect partnership.