Almost all companies have to report material information to their stakeholders and maintain compliance with regulatory authorities, be it a private companies or a large public entity. The question arises why iXBRL tagging is essential for business information reporting now a days?
Days are gone when financial information was considered absolutely crucial and mandatory for companies to report to the stakeholders, under present circumstances even non-financial information, such as ESG information is equally important to be reported accurately and on time and iXBRL Tagging is considered best for this job.
Let’s first understand what is actually meant by business information here.
1. What is business information reporting?
Any material event or information which is important to the external stakeholders such as investors, lenders, and regulatory authorities for making informed decisions about the company is considered to be business information.
Business information are of two types:
- Financial Information: It includes all the key financial statements such as income statement, statement of financial position (balance sheet) cashflow statement, and statement of change of shareholders equity along with the footnotes to these financial statements.
- Non-Financial Information: includes any relevant information other than the financial data is considered non-financial information such as information about its impact on the surrounding it operates in or we can say the information about its ESG (Environment, Social, and Governance) factors.
Now a day financial and non-financial is equally critical for investors for making an informed decision about the company. Therefore, financial and non-financial information is digitally processed and communicated to external stakeholders in the form of iXBRL format.
Now, the question is what actually we do in iXBRL tagging, what does it mean?
2. What do you actually mean by iXBRL Tagging?
Inline eXtinsible Business Reporting Language (iXBRL) is a type of file that embed XBRL tags (machine-readable) into a human-readable HTML file. XML, xHTML, XBRL, and iXBRL are all markup languages with their own unique properties and differences.
So, there was a need to have structured data of an entity that is human as well as machine-readable, and that problem was solved by iXBRL.
Let us explain iXBRL tagging with the help of a simple example,
There are 4 different companies operating in the same line of business, however, they have reported their top line with different labels:
Company A: Total Sales – $100
Company B: Total Revenue – $105
Company C: Turnover – $110
Company D: Revenues – $120
From the accounting perspective total sales, total revenue, turnover, and revenue corresponds to the same thing, as a human we can understand this, however, it’s impossible for the software to consider these labels as one until and unless we give such instruction to the software.
This is just a very simple example there could be more complex cases where it would look different apparently, whereas they convey the same meaning. Therefore, a set of guidelines and detailed vocabulary is designed for iXBRL tagging which we call taxonomy.
Regulators along with XBRL international developed a common language of business reporting called iXBRL along with the set of corresponding accounting vocabulary guidelines called taxonomy.
XBRL Taxonomy: this is a collection of standardized names (tags) given to line items present in the business reports (financial and ESG Reports). In other words, it’s a collection of all the reporting vocabulary for a given jurisdiction.
It provides complete information about each and every tag, such as the Property name, and its value along with the standard label and its complete definition.
For the above example, you can view complete information on tag “revenue” on yeti, such as name (revenue), data type (monetaryItemType), Period Type (duration), and Balance Type (Credit) along with standard labels and definitions.
Taxonomies are based on financial reporting jurisdictions such as USGAAP, IFRS, and so on, and based on the company’s adopted reporting framework XBRL taxonomies are selected for iXBRL tagging purposes.
3. Crucial Steps to follow during iXBRL Tagging
3.1 Selection of Software:
The selection of iXBRL software is of paramount importance as this is the only tool with which you will convert your financial and sustainability reports (non-financial reports) into iXBRL format.
Select only software that meets XBRL specifications and consumes less time while performing tagging.
Points to consider while selecting iXBRL software for digital reporting?
There are lot many software vendors available for iXBRL tagging, however, it’s good to consider the following points before selecting software for yourself.
- Affordable Pricing: Software should be affordable and it should not burn a hole in your pocket. Check for comparable pricing in the markets before selecting one.
- Customer Support: It is a crucial factor, you must get 24×7 customer support during the reporting period at least else you may miss your filing deadline.
- XBRL Specification: The software must meet all the latest XBRL specifications specified by XBRL International.
- Errors and Warning: The software should be able to check and clear all the validations of the iXBRL file. This is the crucial part, normally files with errors are not accepted by the regulators.
- Taxonomy Updates: The iXBRL software should be capable of fetching the latest taxonomy, else chances are there that you may end up using deprecated elements (iXBRL tags) in your file.
- Roll forward features: though these are not essential features, however, important to speed up your tagging process. This is important for the companies that have already filed their filings with the regulators.
In roll forwarding the software roll forward all the elements to the new reporting cycle, and then you have to just change the facts as per the latest reports. This will also keep your files consistent in terms of tagging thus enhancing the credibility of your report and it also helps reduce errors considerably.
3.2 Identification of Taxonomy:
Once you have the iXBRL tagging software available to you, the next step is to select the iXBRL taxonomy. The important point you have to remember is the account GAAP your company has followed while preparing the financial reports, accordingly you have to select the iXBRL taxonomy.
For example, if your company has followed IFRS for accounting and financial reporting purposes then you have to select IFRS iXBRL taxonomy.
The best practice is to follow the regulator’s guidelines for iXBRL tagging. There is guidance available for iXBRL conversion for regulators you wish to submit your financial reports.
You can have an inline XBRL guide for Detail Footnotes Tagging for sec submissions and Block Tagging Guidance for ESEF reporting.
3.3 Identification of relevant data
It is crucial to identify the data which needs to be tagged in iXBRL. Identify all the key financial statements, footnotes, and other relevant information which needs tagging.
Companies registered with the SEC has got quite structured financial reports, however, for ESEF filings we need to clearly mark down all the critical information which needs to be tagged for iXBRL conversion purposes
3.4 Creating Document Entity Information [DEI] of your file:
Each iXBRL file should have a DEI role in the XBRL file, this includes top-level information about the reporting entity and its document such as entity name, reporting period, currency, etc.
3.5 Tagging of data with iXBRL tags
Tag all the required information using the latest available taxonomy using the software. First, all the key financial statements such as Income statement, balance sheet, cash flow, and shareholder’s equity are tagged and then their respective footnotes are tagged in the sequence as available in the financial report.
3.6 Removing Errors and Warnings from the file.
Once all the relevant information is tagged, remove all the errors from your file before submitting the iXBRL file to the regulators. It is important to remove all the errors from the file else your file will be rejected by the regulators.
3.7 Submitting iXBRL files to the auditors
Before you submit files to the regulators, some regulators require that iXBRL files be audited by the auditors before it is submitted to the regulators.
We can prepare iXBRL reports in-house or we can outsource this to third-party service providers. The benefits of outsourcing to a third party are that these people are experienced and understand the nitty-gritty of iXBRL tagging.
4 Benefits of tagging business information in iXBRL
There is numerous benefits for tagging financial and sustainability [non-financial/ESG] information in inline XBRL. Some of key benefits of filing reporting in iXBRL are:
4.1 Compliance with regulatory bodies
iXBRL tagging is crucial for companies that need to file financial reports with regulatory authorities such as the SEC or ESMA [ESEF].
By implementing iXBRL tagging, companies can ensure that their reports meet the standards set by regulatory authorities. This reduces the risk of non-compliance and avoids penalties associated with late or inaccurate filings.
By Inline XBRL, the error rate is significantly reduced as the numerical data is directly marked or you say tagged within the document itself. Also, regulators can easily identify any discrepancies or initial indications of misconduct or fraudulent activities.
4.2 Improved accuracy and consistency in reporting
All the facts and figures are mapped by following universal standards by making use of taxonomy and that too with the help of software. Therefore, the reports produced are accurate and more consistency it is approaching.
There are almost negligible manual interventions in the report preparation, therefore, it increases the overall quality of the reports.
4.3 Facilitate comparable company analysis
Since all the companies are tagged by following the same standard and at the click of a button all the data can be retrieved by the machine easily, this helps super easy for the analysts and stakeholders to perform comparable company analysis of any given set of companies.
4.4 Streamlining of the financial reporting process
All iXBRL tagging is done with the help of software thus minimizing the manual interventions, this not only reduces the time and resources but also enhances the efficiency of the reporting process.
4.5 Enhanced investor and stakeholder communication
Investors and stakeholders can easily access all the business information submitted to iXBRL. Since all these data are present in a structured form, therefore, it’s quite easy for them to perform any type of analysis for informed decision-making.
5 How can you start tagging business information in iXBRL?
Wondering how you can start iXBRL conversion of your business information? You have a two options for converting your file in iXBRL:
5.1 In-house iXBRL tagging team
You can build your own in-house team of trained iXBRL professionals plus procure iXBRL tagging software. This will help you keep tapping on the iXBRL process, also it is best suited if your regulators require lot many files and forms to be submitted regularly with them.
For a small company, that has to file just quarterly and annual reports with the regulators then it makes sense for them to outsource it to the third-party service providers.
5.2 Third-party iXBRL tagging services
If you have limited iXBRL reporting requirements and do not want to shell out big bucks on iXBRL software then it is better to outsource your iXBRL conversion jobs to third-party service providers.
Top 3 Factors to Consider When Choosing an iXBRL Service Provider.
A. Expertise and experience in iXBRL tagging
While choosing an iXBRL tagging service provider, it is essential to select one that has expertise and experience in iXBRL tagging. Business reporting in XBRL is not new, even SEC has adopted final rule way back in 2009. Therefore, always select an outsourcing partner who is more experienced in the XBRL process.
B. Availability: 24×7
Make sure your iXBRL partner should be available 24×7 at least during the peak reporting period, as there are cases where you have to make last-minute changes to your file and immediately those changes should get implemented to your iXBRL file as well.
C. Affordability: Cost-effectiveness
Remember iXBRL conversion is not about burning a hole in your pocket, select an iXBRL service provider whose services are not only affordable but also who can act as your dependable business partner.
These 3 factors can help you find quite a reliable iXBRL partner who can take care of all your iXBRL-related requirements.
Conclusion
In conclusion, effective reporting of business information is essential for companies to maintain compliance with regulatory authorities and communicate material information to stakeholders. iXBRL tagging requires selecting suitable iXBRL software that meets XBRL specifications and facilitates efficient tagging processes.
The benefits of iXBRL tagging include improved compliance with regulatory bodies, streamlined financial reporting processes, and facilitated comparative analysis of companies.
Companies have options to start iXBRL tagging, including establishing an in-house team or outsourcing the iXBRL conversion to third-party service providers. When selecting an iXBRL service provider, factors such as an experienced team, availability, and cost-effectiveness should be considered.
By adopting iXBRL tagging, companies can ensure compliance, improve reporting quality, and effectively communicate crucial information to stakeholders and regulatory authorities.
