Expect to hear a lot more about XBRL. Here’s why
The reporting standard XBRL is becoming more important than ever. XBRL (“eXtensible Business Reporting Language”) is an XML-based language and open global framework for tagging data – it has been described as a “a dictionary of tags” – and while it has been around since 1998, it’s only really in 2021 that it has really started to gain significant traction – amid growing demand for its use in both financial and ESG/sustainability reports.
XBRL has “traditionally” been used to standardise financial statements and make them machine readable. In 2018, US markets watchdog the Securities and Exchange Commission (SEC) voted to phase in requirements for financial filings to be submitted in XBRL. The SEC’s vote mandated the use of “Inline XBRL” (iXBRL), which involves embedding XBRL data directly into filings to make them both human-readable and machine-readable. (As of June 15, 2021, companies must file their annual Form 10-K and quarterly Form 10-Qs in iXBRL format.)
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Regulators in Europe have followed suit, under the Transparency Directive. The European Securities and Markets Authority (ESMA)’s ESEF Regulation also requires that all issuers with securities listed on an EU regulated market mark-up their IFRS consolidated financial statements using XBRL tags and iXBRL technology. (The UK’s FCA in 2020 delayed mandatory implementation of this by one year: pushing back new requirements for companies to publish annual financial reports in XHTML format instead of PDF format to financial years starting on or after 1 January 2021, for publication from 1 January 2022, with the same extension for the XBRL tagging requirements.
XBRL also remains the great hope of a growing number of Environmental, Social and Governance (ESG) and other sustainability professionals, who believe its application to sustainability reporting could transform an environment otherwise riddled with inconsistent, hard-to-obtain and hard-to-read sustainability reports — sometimes provided by corporates as annual standalone PDFs, sometimes rolled into annual financial reports; rarely provided according to the same formats, frameworks, or general sustainability metrics.
In late September 2021, for example, the Value Reporting Foundation (a non-profit formed in June 2021 through the merger of the International Integrated Reporting Council and the Sustainability Accounting Standards Board released its SASB Standards XBRL Taxonomy — designed alongside PwC to help simplify the disclosure process for businesses and improve the quality, usefulness and comparability of ESG disclosures to investors.
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As S&P Global’s ESG president Dr Richard Mattison recently told The Stack‘s founder Ed Targett: “Right now if you produce a sustainability report, perhaps you put on your website, there’s no standard place to put it; it’s not like it always sits in a filing or an annual report. You have to go looking for it and then all of the terms and definitions might vary a lot. Narratives vary from company to company — you don’t have a P&L and a balance sheet for sustainability, unfortunately, and so makes it really hard to pull that information in and analyse it.”
He added: “If the information is electronically tagged, and references one or more standards, it’ll help companies reduce the burden of the amount of people asking them for this information. And it will help spread the information further and wider. When it comes to the common good, that’s probably the single thing that will help [most] with information flow… we kind of rest our hopes in reporting technologies like XBRL.”
As non-profit consortium and standards body XBRL International (which has over 600 members globally) puts it: “The change from paper, PDF and HTML based reports to XBRL ones is a little bit like the change from film photography to digital photography, or from paper maps to digital maps. The new format allows you to do all the things that used to be possible, but also opens up a range of new capabilities because the information is clearly defined, platform-independent, testable and digital. Just like digital maps, digital business reports, in XBRL format, simplify the way that people can use, share, analyse and add value to the data.”
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There’s a wealth of resources available on all things XBRL, including at XBRL International, which adds that “good quality, granular, machine-readable data drives greater automation, and produces more dependable and consistent outcomes for researchers, analysts, investors, corporate planners, auditors, regulators, and standard setters”, while “structured financial data makes fintech applications like AI more reliable.”
The strong recommendation of the XBRL consortium for developers coming to the standard for the first time meanwhile is that they should integrate third party libraries to deal with XBRL data and metadata rather than attempting to implement the XBRL specifications themselves, from scratch, with the non-profit adding that “developers need to understand that the structure and validation of data contained in XBRL instances is subject to multiple layers of machine readable metadata contained in interconnected XBRL schema and linkbase documents. Developers should also understand that every aspect of an XBRL document (data and metadata) are subject to multiple layers of validation.” In terms of using third-party libraries, it notes that this, “assumes that the developer’s interest is in adding XBRL support onto an existing system, for example, creating an XBRL mapping and export function, or an XBRL import function, or an XBRL analysis capability as part of a larger system. Once developers become familiar with XBRL, then it might very well be sensible to replace or enhance that third party component with a native code base…”
An iXBRL Viewer that allows iXBRL reports to be viewed interactively in a web browser was open-sourced under an Apache 2.0 license by software company Workiva in 2019 meanwhile. Available on GitHub, it lets users access the tagged XBRL data embedded in an iXBRL report. Developers, regulators and reporters can find a host of other commercial and open source XBRL tools and services here.