In addition to preparing for the implementation of IFRS (International Financial Reporting Standards) on January 1, 2011, Canadian companies should be cognizant of another acronym, XBRL, that stands to revolutionize financial reporting worldwide.
What is XBRL?
XBRL stands for eXtensible Business Reporting Language, which is an emerging business reporting language being developed by a non-profit consortium of international companies, organizations and government industries that is designed to make it easier for entities that produce, collect and use financial information to share and analyze financial data.
How Does XBRL Work?
Instead of treating financial data as a large block of text (as in a standard internet page or a printed document), XBRL applies computer-readable identification tags to each individual item of data. The tags provide information about the item, such as whether it is a percentage, fraction or monetary item. These tags enable computers to recognize the information in an XBRL document, store it, analyze it, exchange it with other computers and display it automatically in a variety of ways for users. XBRL works regardless of the language or accounting standard used by the reporting company, enabling financial data to be compared and analyzed globally between companies using a variety of accounting standards.
What Are the Benefits?
Through the use of identification tags, XBRL will save users of financial information time and money by eliminating the need to re-key financial data into a spreadsheet (a process prone to error) for comparison and analysis. Entities that collect business data (for example, governments, regulators and financial information companies) and entities that produce or use business data (for example, auditors, company managers, financial analysts and investors) all stand to benefit from XBRL. Once data is gathered in XBRL, different types of reports using varying subsets of the data can be produced with minimal effort. The data can also be checked by software for accuracy.
When Will XBRL Become Mandatory?
Currently, there is no requirement in Canada or the U.S. that financial statements be filed in XBRL format. However, the regulators are moving in that direction.
In the United States, the Securities and Exchange Commission (“SEC”) introduced a voluntary XBRL filing program in 2005 allowing companies to submit XBRL documents as exhibits to their ordinary financial statement filings. There are over 50 companies participating in the SEC’s voluntary XBRL filing program. In June of this year, the SEC released a proposal to implement new rules requiring companies to provide their financial statements in XBRL format. The proposed rules are scheduled to be phased in beginning this fall and will require companies that have a worldwide public float of over $5 billion to provide XBRL filings as exhibits to their ordinary filings for periods ending as early as December 15, 2008. The SEC plans to replace the EDGAR (Electronic Data Gathering, Analysis and Retrieval) system with IDEA (Interactive Data Electronic Applications) which will be capable of handling XBRL filings.
The launch of mandatory XBRL filings is much further on the horizon for Canadian companies. The Ontario Securities Commission (“OSC”) launched a voluntary XBRL filing program in the spring of last year and currently a handful of companies are participating. At a Canadian Securities Administrators (“CSA”) panel discussion held in September 2008, it was suggested that Canadian regulators will not make XBRL filing mandatory until Canada converts its accepted accounting standard from Canadian GAAP (Generally Accepted Accounting Principles) to IFRS (International Financial Reporting Standards) in 2011. Additionally, a new or updated Canadian electronic filing system will likely be required before XBRL becomes mandatory in Canada as SEDAR, in its current state, does not have the capability to support the amount of XBRL filings that would be filed if XBRL was mandatory. (SEDAR is the official site that provides access to most public securities documents and information filed by public companies and investment funds with the CSA.)
The CSA and the OSC support the move towards XBRL and believe that it will benefit both Canadian investors and the Canadian capital markets. XBRL could be specifically useful in Canada because of the large number of public companies in Canada with small market capitalization. XBRL will make the financials of these companies much more accessible to analysts and will assist analysts in discovering smaller companies for potential investment.
As XBRL becomes mandatory in more jurisdictions worldwide (mandatory XBRL filing and an accounting standard conversion were recently simultaneously implemented in Israel at the beginning of this year), Canadian companies that take the initiative and file their financial statements in XBRL may enjoy a competitive advantage in the global marketplace.