XBRL and the future of financial reporting

The boundaries of physical and digital worlds are melting at unprecedented speeds, leaving many of our policy-makers, heads of government and business people unprepared to integrate new concepts into decision-making processes.– Global Agenda Outlook 2013, World Economic Forum

At the last meeting of the International Auditing and Assurance Standards Board (IAASB) Consultative Group (CAG) and the International Ethics Standards Board for Accountants (IESBA) CAG  at the Public Interest Oversight Board offices in Madrid, Spain, from September 11 to 13  (my first participation as global representative of the International Association of Financial Executives Institutes), Mohini Singh of the Chartered Financial Analyst (Institute presented “Data & Technology: Transforming the Financial Information Landscape.”

The key reference of the presentation was the use of technology to generate structured data. While not much discussion was made on how structured data may be created, one can surmise that XBRL was the key point. For the uninformed, let me provide some backdrop (adopted from Michael Cohn’s article, Accounting Today, July 20) on XBRL, which stands for eXtensible Business Reporting Language. XBRL technology uses a data-tagging format that makes it easier for investors and analysts to compare financial information across companies and industries.

In 2009 the United States Securities and Exchange Commission (SEC) began requiring the largest public companies to file their financial statements using XBRL and phased in the requirements for smaller issuers over the succeeding two years.

In March this year the US SEC mandated that foreign private issuers preparing financials in accordance with International Financial Reporting Standards (IFRS) must submit them in XBRL format for financial periods ending on or after December 15. Said IFRS reporting companies are required to tag not only the primary financial statements but also the detailed amounts in the notes to the financial statements.

In Europe XBRL usage is expected to increase. Starting in 2020 the European Securities and Markets Authority requires European Union (EU)-listed companies to use XBRL for consolidated annual reports prepared in accordance with IFRS. This will impact on about
5,300 companies.

Singh identified the benefits to investors of structured data to include:

  • Improved financial statement accuracy;
  • Improved productivity;
  • Increased opportunity for higher returns;
  • Better risk management; and
  • Empowerment of the analyst.

(Noted as sources of above, R. Harold Schroeder, “XBRL US Investor Forum: Improving Financial Analysis through Structured Data” [November 4, 2015] and Pranav Ghai and Alex Rapp, “Value of XBRL for Financial Analysis” [12 January 2016])

In one of the slides, Singh showed “Financial Reporting: The Coming Changes”–

Current State                                 Future State

Historic                                           Real time

Periodic                                           On  demand

Composed of statements                   Composed  of customs searches and reports

Based on financial measures

Backward looking                              Based on financial and nonfinancial items Predictive

Interestingly, the presentation also included the survey results on awareness of XBRL initiatives covering respondents from the Americas (60 percent), Asia Pacific (16 percent) and EMEA (24 percent). Presented below are selected data only.

2007         2016

Not aware                                  59             55

Aware but not up-to-date

on its usage in

financial reporting                       32            35

Aware and plans for its

usage in financial reporting          9            10

(The foregoing table shows only the comparative data between two survey periods. There are two other intervening period survey results, 2009 and 2011, but I am focusing on the difference between two periods, long enough to assess any significant difference.)

Considering the intervening period of nine years (2016 vs. 2007), the change in awareness of XBRL initiatives does not seem to be very material. The 4-percent improvement on awareness (59 percent to 55 percent not aware) does not even translate to plans of using XBRL in financial reporting, for only 1-percent improvement is registered for this group of respondents. The balance of 3 percent is aware, but not even up-to-date on its usage in financial reporting. With the US SEC mandating the use of XBRL for IFRS-listed companies of non-US origin and the foreseeable implementation of EU mandate, the use of XBRL will increase.

While merits/advantages of adopting XBRL in financial reporting have been written about and discussed, there are still some concerns to be addressed like reviewing or validating the reports against a set of standards. There are no established standards/guidelines for review/audit of reports generated by XBRL. As things stand, the reviews are reportedly based on agreed-upon procedures.

Bringing the topic to the Philippine landscape, it may take time for the country’s regulators to consider mandating XBRL for listed companies, entities of public interest and similarly regulated establishments. Creating awareness should first be initiated followed by educating concerned, parties on its adoption and the regulators’ directive to use XBRL. Of primary concern to the regulated entities will be the corresponding investment to include training people and acquiring the software.


Dr. Conchita L. Manabat is the President of the Development Center for Finance, a joint undertaking of the Finex Research & Development Foundation  Inc. and the Virata School of Business at the University of the Philippines.

She is a member of the IAASB CAG and the IESBA CAG. A past chairman of the International Association of Financial Executives Institutes, she now serves as the chairman of the Advisory Council of the said organization.  She can be reached at clm@clmanabat.com



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