eXtensible Business Reporting Language (XBRL) All You Need To Know

XBRL has revolutionized financial and non-financial reporting, making disclosures easier to access and interact with. Here's all you need to know about XBRL.

What is eXtensible Business Reporting Language (XBRL)?

To answer the question ‘What is XBRL?’, we must first understand that most business information around the world, including annual reports, is published in static document formats such as PDFs. While PDF reports are easy on the eyes and are well designed, the can only be read by a human reader. Any further analysis of the reported information requires a human user to manually key in the data into a spreadsheet. This limits the usefulness of business data and slows down the decision making process. Enter XBRL.

The eXtensible Business Reporting Language (XBRL) is an open standard that helps business entities produce and transmit financial and non-financial information in a digital format. The XBRL standard is developed and maintained by a not-for-profit organization called XBRL International. XBRL is called a machine-readable format because it comprises elements that allow computers to understand the data being transmitted. Individual XBRL elements are called tags and a collection of XBRL elements is called a taxonomy. To convert any given financial document into XBRL format, software solutions are used to mark up the given information with appropriate XBRL tags from a taxonomy. XBRL reporting of financial information is usually governed by regulatory mandates such as the US Securities and Exchange Commission’s (SEC) Inline XBRL mandate or the European Securities and Markets Authority’s (ESMA) iXBRL mandate.

What is Inline XBRL?

Inline XBRL (iXBRL) is a variation over the XBRL format. It can also be considered a more advanced format than XBRL. Whereas an XBRL document is a purely machine-readable document that makes no sense to a human reader, an iXBRL document is both human-readable and machine-readable. An iXBRL document is in the standard web browser format, HTML, and has machine-readable XBRL tags embedded in it. That makes it an xHTML document.

Another major difference between XBRL and iXBRL is that the former is used for reporting financial information that is template-based whereas the other is used to report data in a more flexible and visually-appealing manner.

In the table below, you’ll find the major differences between XBRL and iXBRL.

XBRL Pillar page_ Image1

For a Deep Dive into the XBRL/iXBRL Format, Download an eBook here.

What is an XBRL Taxonomy?

What is an XBRL Taxonomy

An XBRL taxonomy is a collection of individual XBRL elements. A taxonomy is the starting point of any XBRL reporting requirement because it represents the digital version of any given accounting standard. Major accounting standards such as IFRS and US GAAP have their digital taxonomy versions which companies use for preparing XBRL reports.

XBRL taxonomies can be of two types – open and closed. An open taxonomy allows reporting entities to create extension elements or customised XBRL tags to represent entity-specific information. A closed taxonomy is used to report template-based information and does not allow users to create extensions.

What are the Advantages of XBRL?
Who Benefits from XBRL?

The main advantages of XBRL are transparency, accessibility, and comparability.

  • Transparency: XBRL reporting makes financial and non-financial disclosures highly transparent since every data point is marked up with an XBRL tag and recorded digitally.
  • Accessibility: An XBRL report is easier to transmit between computer terminals because it is in a digital format. And since the information contained in an XBRL/iXBRL report is machine-readable, it can easily be pulled into a spreadsheet for analysis. This enhances the accessibility of XBRL information.
  • Comparability: When multiple entities file financial information in XBRL, their reports become comparable at a click. Analysts need not manually enter information into spreadsheets. They can access and compare XBRL information more easily than the data locked up in PDF or other static documents.

The beneficiaries of XBRL reports are regulators, investors, analysts, credit rating agencies, banks, and the reporting-filing entities themselves. Here’s how each of them benefits from XBRL reports.

  • Regulators: Market regulators, central banks, and insurance regulators mandate XBRL reporting because regulatory filings in the digital format are highly transparent. This makes it easier for the regulators to keep a check on the entities they regulate.
  • Investors and Analysts: The XBRL format helps investors and analysts to access, analyse, and compare financial information with greater ease and speeds up their decision-making process.
  • Credit Rating Agencies: These agencies find it easier to analyse companies and their debt instruments when the data is filed in XBRL.
  • Banks: Some major banks are known to analyse the XBRL reports of companies before giving out loans.

What is the Disadvantage of XBRL?
What are the Limitations of XBRL?

There are no known disadvantages of XBRL. Rather, the format has been improving business disclosures ever since major global regulators such as the US SEC and the UK HM Revenue & Customs mandated XBRL/iXBRL reports from public companies.

However, one drawback of the XBRL format is that it could raise regulatory compliance costs for companies, albeit temporarily. Companies have to tie up with XBRL software or service providers to help them file XBRL reports. This is a positive in the long run because XBRL reports, by virtue of being transparent and easily accessible, draw the attention of investors and even reduce companies’ costs of borrowing.

Who Invented XBRL?

Charles Hoffman, a Certified Public Accountant in the US, is known as the father of XBRL. Back in the 1980s, there was a proliferation of software solutions for various business functions such as keeping tabs on business transactions, maintaining payroll records, and managing taxes. However, the final output of all such solutions was a static report that only a human reader could interact with and do little else. The need of the hour was a solution that enabled users to type in business data one single time and have it circulate the entire business supply chain without ever being retyped. Hoffman realized that the Extensible Markup Language (XML), a newly-developed markup language that was solving data-sharing problems, held the key. Over the next couple of years, Hoffman and a mixed group of professionals including CPAs and technologists worked on building a new open data standard for transmitting business information across computer terminals without the need for human intervention. The result was the eXtensible Business Reporting Language (XBRL), which has now come to be used across the world for transparent business reporting.

Want to know the story of how XBRL came into being? Click here.

What are the Features of XBRL?

The main features of XBRL are its machine-readability, extensibility, and interoperability.

Machine-readability: XBRL is a machine-readable language. Computers understand XBRL tags and thereby the data marked up with those tags. This makes handling XBRL data an intuitive process for companies as well as investors and analysts.

Extensibility: XBRL reporting is not limited by the tags available in an (open) taxonomy. Companies can customize XBRL tags to represent disclosures for which no appropriate concept exists within the available taxonomy. This makes XBRL reporting more granular and companies can communicate their disclosures better with their various stakeholders.

Interoperability: XBRL, being an intuitive language, facilitates interoperability between software solutions. This makes it possible for XBRL reports to seamlessly move from report creation software (used by companies) to report collection software (used by regulators) and also be rendered by XBRL readers (used by investors/analysts). Moreover, XBRL data can be used intelligently using Application Programming Interfaces (APIs) for a variety of purposes that facilitate high-quality business decisions.

How does XBRL Work?

XBRL reporting is all about using the right XBRL tags to mark up the right business disclosures. So, here’s how it all works: Firstly, a regulatory agency introduces an XBRL reporting requirement and releases an XBRL taxonomy that defines the scope of the information the regulator requires entities to furnish. The entities that must comply with the regulator’s XBRL mandate must understand the scope and make preparations to supply the required information to the regulator in XBRL format. This includes tying up with a software or service provider who can help the entity in converting financial information into the format. Accordingly, the regulator prepares the infrastructure it requires for collecting the XBRL reports filed with it by the regulated entities.

The three main activities that companies must undertake in creating XBRL reports are Tagging, Forming Extensions, and Validating the XBRL document. Here’s what each of these activities involves.

Tagging: The tagging process involves using software to apply XBRL tags against the data points in a financial document. XBRL report creation software allows users to open their documents and reference XBRL taxonomy side-by-side and connect their disclosures to appropriate taxonomy concepts. Users need to gain a fair understanding of the reference XBRL taxonomy before attempting the tagging process – which is why the best software and service providers provide XBRL expert assistance during the reporting process.

Forming Extensions: Companies can form extensions or customised XBRL elements to represent disclosures that do not have a right-fitting concept in the reference taxonomy. This is because certain company-specific disclosures may not have a ready tag in the reference taxonomy. A rule to bear in mind regarding extensions is that companies can only form them while using an open XBRL taxonomy. A closed taxonomy does not leave room for extensible elements as it only supports template-based reporting.

Validation: Validation is the process by which users can verify the soundness and technical hygiene of the data they are disclosing. Users may use several freely available validation tools to test their documents. Some software solutions also have in-built validation tools. The validation process ensures that XBRL documents pass through the regulator’s report collection portal without a glitch.

How is XBRL Used in Accounting?

How is XBRL used in Accounting

XBRL is a business reporting language. Whereas accounting is used to record and report financial information to enhance transparency and facilitate business decisions, XBRL is used to convert the information into a digital format to improve the way it is accessed, analysed, and compared. Accountants must have a good grasp of the accounting standards that apply to their geography. They keep themselves abreast of updates to the accounting standards. An XBRL taxonomy is nothing but a digital version of accounting standards. Most global regulators have begun seeking financial information in XBRL format, so it makes sense for accountants to get familiar with the format and learn how to use it for financial reporting.

What is an XBRL File?

What is an XBRL File

An XBRL file is a document containing financial or business information in digital format. Each data point in the financial statements and at times even the notes to accounts will have a digital XBRL tag embedded. Investors, analysts, and other stakeholders of business information prefer XBRL files over PDFs because data in a digital format is ready to use and can easily be pulled into a spreadsheet.

How do I Create an XBRL File?

How do I Create an XBRL File

You can create an XBRL file by using software to tag your financial disclosures with appropriate XBRL tags from a taxonomy that represents your accounting standards. It is advisable to take the help of XBRL experts to tag your financial documents until you get a hang of how it is done.

How to Create an XBRL File from an Excel File? OR
How to Convert an Excel File to XBRL?

An MS Excel file – or even MS Word/PDF documents for that matter – must be converted into the HTML format before XBRL conversion. The HTML format allows XBRL tags to be placed against the numbers or data in the document. Simply put, an Excel or Word file cannot be converted into the XBRL format directly. The HTML format is key.

Most XBRL software available in the market facilitates HTML conversion quite easily. You only need to upload your source document (Excel/Word/PDF) on the software platform to facilitate the conversion. With a high-quality XBRL solution, the formatting of your input document will not be compromised.

What are the Requirements for XBRL Reporting?

The first requirement for getting started with XBRL reporting is an XBRL taxonomy. Any regulator that requires its regulated entities to submit XBRL reports must first make a taxonomy available. The regulated entities, on their part, must understand their regulator’s XBRL requirement and the provided taxonomy. Thereafter, they must tie up with software or service providers that can help them meet the XBRL data filing requirement.

Why should Companies Adopt XBRL?

Companies should adopt XBRL to make their financial and non-financial disclosures more transparent and also streamline their reporting process. There are two ways in which companies benefit from using XBRL. One – companies can show that they are all for adopting digital processes. Two – computers understand XBRL tags, and this makes the processing of machine-readable documents a highly intelligent process. Financial reporting and analysis teams can slice and dice XBRL data in a way they cannot do with PDF reports. In this way, XBRL gives companies and financial reporting teams a rich store of material and actionable financial information based on which to take high-quality business decisions.

How do Companies use XBRL?

Most companies use XBRL only to comply with regulatory requirements. They either outsource their XBRL reporting to service providers or use in-house software to prepare their own digital reports. Very few companies proactively adopt XBRL reporting for the sake of filing transparent, accessible, and comparable financial reports. However, XBRL adoption can only bring benefits to companies.

Is XBRL Mandatory?

XBRL filings are mandatory for public companies in certain geographies such as the US, UK, EU, and South Africa. Most XBRL implementations initially involve a voluntary phase where companies get used to the new filing requirements. Thereafter, the regulators make XBRL filings mandatory.

What is the US SEC iXBRL Mandate all About?

In 2009, the United States Securities and Exchange Commission (SEC) adopted rules requiring companies to use the XBRL format to prepare and submit their financial information. The rules were phased in over a three-year period.

  • Domestic and foreign large accelerated filers that use US GAAP standards and have a global public float of $5 billion were to comply with the new reporting requirement with their Form 10-Q, Form 20-F or Form 40-F for the fiscal period ending on or after June 15, 2009.
  • All other domestic and foreign large accelerated filers that use the US GAAP were to comply for the fiscal period ending on or after June 15, 2010.
  • All other filers using US GAAP, including smaller reporting companies, and all other foreign private issuers preparing financial statements based on the IFRS were to comply for the fiscal period ending on or after June 15, 2011.

In 2018, the SEC made amendments to its mandate and required the phased adoption of Inline XBRL for financial statement information of operating companies and also the risk-return summary information of funds.

The three-year phase-in for US GAAP filers was as follows.

  • June 15, 2019 – for large accelerated filers
  • June 15, 2020 – for accelerated filers
  • June 15, 2021 – for all other filers

The SEC has been among the early adopters of XBRL and iXBRL reporting and is set to mandate climate-related disclosures in the digital format in the near future.

The following are the XBRL taxonomies used for SEC reporting:

  • US Companies – US-GAAP Taxonomy
  • Foreign filers – IFRS Taxonomy
  • Mutual Funds – Risk/Return (RR) Taxonomy

Find out more about the SEC iXBRL Mandate here.

What is the US FERC XBRL Mandate all About?

The Federal Energy Regulator Commission requires energy companies in the US to submit their financial and operational information in XBRL format. The FERC XBRL mandate came into force in October 2021, with companies submitting their Q3 2021 FERC forms in the new format. FERC chose XBRL as a replacement for its MS Visual FoxPro-based data collection system which had become obsolete.

US energy companies submit the following forms in XBRL format

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Find out more about the FERC XBRL Mandate here.

What is the ESMA iXBRL Mandate all About?

In 2018, the European Securities and Markets Authority (ESMA) unveiled a plan to digitize corporate reporting for all public companies in the EU. The European Single Electronic Format (ESEF), which required companies to prepare annual financial reports in Inline XBRL, was to come into force on January 1, 2020. However, many EU countries allowed companies to postpone ESEF compliance by one year owing to the pandemic. This was to allow companies a respite from the additional costs of tying up with iXBRL software or service providers during the pandemic-induced slowdown.

ESEF compliance became mandatory for all EU companies with their 2021 annual financial reports. The mandate has been implemented in two phases. In Phase1 – which started in January 2020 (for voluntary ESEF filers) and continued through 2021 – companies were to only tag their financial statement data with XBRL labels. In Phase 2, which starts off with companies’ 2022 annual reports (to be submitted in 2023), companies must also tag the notes to their financial statements.

EU companies must use XBRL tags from the ESEF Taxonomy to prepare their annual reports. The ESEF Taxonomy is a collection of over 4,000 XBRL concepts and is based on the IFRS Taxonomy.

In answer to an earlier question ‘How does XBRL work?’ we described a three-step process that involves Tagging, Forming Extensions, and Validation. We wil now discuss two additional steps that are specific to the ESEF mandate. They are: Anchoring and Forming a Company Taxonomy.

  • Anchoring: As mentioned earlier, companies can create extension elements or custom XBRL tags to represent data for which no appropriate label exists in the given taxonomy. EU companies that create extension elements have to carry out an additional task. They have to link their extensions to ESEF taxonomy elements with the nearest accounting meaning – and this process is called anchoring. The anchoring requirement is specific to the ESEF Mandate.
  • Company Taxonomy: The company taxonomy is a framework of all the XBRL elements used in an ESEF report and the relationship between them. The company taxonomy is represented by four linkbases: Presentation Linkbase, Calculation Linkbase, Definition Linkbase, and Label Linkbase.

Get to know the ESMA ESEF iXBRL Mandate better. Click here.

What are the UK iXBRL Reporting Requirements?

The UK was the first jurisdiction to adopt the iXBRL format. HM Revenue & Customs required UK businesses to submit tax returns in iXBRL for accounting periods ending after March 31, 2010. In late 2020, the European Single Electronic Format (ESEF) requirements came into force in the UK, with the Financial Conduct Authority (FCA) overseeing compliance by all LSE-listed companies.

Subsequently, a UK version of the ESEF Taxonomy called the UKSEF Taxonomy was released. It was a combination of the ESEF Taxonomy and XBRL tags related to the Streamlined Energy and Carbon Reporting (SECR).

For HMRC iXBRL filings, businesses must use the Corporation Tax Computational Taxonomy. The US GAAP Taxonomy is a non-UK taxonomy accepted by the HMRC.

Want to know about iXBRL Reporting Mandates in the UK? Click here and here.

What is the South Africa iXBRL Mandate all About?

In July 2018, South Africa’s Companies and Intellectual Property Commission (CIPC) introduced an iXBRL reporting mandate to improve its regulatory function. Companies must use the CIPC Taxonomy to file their AFS in iXBRL format. The CIPC Taxonomy is based on the IFRS Taxonomy. The CIPC iXBRL mandate has since been revised to include reporting requirements for state-owned entities and cooperatives.

More about the CIPC iXBRL Mandate here.

What do Professional Accountants find most Useful About Using XBRL?

The most useful aspect of the XBRL format is that it streamlines the business reporting process – mainly when all activities leading up to consolidation are done keeping in mind the end goal of digital conversion. Moreover, since XBRL is a language that computers understand, XBRL tagging makes the reported data more useful than mere numbers or facts on a page. The data can be pulled into spreadsheets and sliced and diced in multiple ways without the need for manually rekeying the numbers. This makes the jobs of accountants, investors, and analysts easier and leaves them room for more high-quality tasks leading to better decisions.

How do Auditors use XBRL?

Auditors use XBRL as a tool to analyze companies’ digital financial reports. They use XBRL report creation tools, renderers, and validators to examine the XBRL tags placed against corporate disclosures. XBRL software solutions make the auditing process simpler by allowing auditors to search for disclosures by the XBRL tags placed against them. Since most disclosures are marked up with XBRL tags, navigating through the report is easier. XBRL validation checks throw up calculation errors and other mistakes in XBRL reports, so auditors can focus on understanding critical aspects of companies’ financials and their messaging.

Frequently Asked Questions about XBRL

Is XBRL a programming language?

XBRL is not a programming language but an open standard for the effortless and unhindered transmission of business information. Business entities are required to use software to mark up financial information with XBRL tags or code to represent such information in digital format.

A programming language sets out instructions for a computer to follow and act upon, whereas XBRL is used to make a computer understand various properties of the information being dealt with. While a programming language is intended as a message for the computer, XBRL is intended for a human audience with the computer acting as the mere conduit of the information. However, since a computer understands XBRL, it also facilitates the analysis and comparison of the reported information.

What are the applications of XBRL? OR What is XBRL used for?

The main application of XBRL is the transmission and reception of business information in digital format. However, there are a number of ways in which this is done. At the most basic level, there is the preparation of financial and non-financial documents in XBRL/iXBRL format. These are received by regulatory agencies via software solutions specifically built for validating, collecting, and storing such reports.

Other applications of XBRL stem from the Open Information Model (OIM) – an initiative by XBRL International to modernize and improve XBRL. OIM is aimed at decoupling XBRL from its XML origins and allowing users to select between various formats that facilitate seamless data transfer, including XML. OIM is currently developing the following formats.

  • xBRL-CSV – This helps entities to collect high volumes of granular data
  • xBRL-JSON – This simplifies the use of XBRL data and achieves higher Interoperability
  • xBRL-XML – This is the traditional way of working with XBRL

Want a sneak peek into XBRL International’s OIM initiative? Click here.

Do accountants use XBRL? Who are the users of XBRL?

Accountants need to understand XBRL. To be specific, accountants must familiarize themselves with the XBRL taxonomy or taxonomies used in their geography. That’s because XBRL taxonomy is simply the digital representation of the accounting standards they use. However, accountants are not the sole users of XBRL. The standards are used by regulators, investors, analysts, credit rating agencies, and banks.

The beneficiaries of XBRL reports are regulators, investors, analysts, credit rating agencies, banks, and the reporting-filing entities themselves. Here’s how each of them benefits from XBRL reports. In an earlier section where we explain the advantages of XBRL, we have mentioned how each of these stakeholders benefits from the open data standard.

Which category of companies is exempted from filing financial statements in XBRL?

In most geographies that have mandated XBRL, small and medium enterprises are free to choose whether or not to comply with a digital reporting requirement. The choice is intended to allow these companies a respite from the additional costs associated with XBRL reporting, such as tying up with a software vendor or service provider.

Understand XBRL and What it Can Do to Your Financial Reports