Companies that are obliged to file regulatory returns are increasingly required to do so in XBRL or iXBRL format. What do people charged with this responsibility need to know? What are the different ways that compliant XBRL documents can be created? We answer some of those questions here.
What are the different approaches to preparing XBRL documents?
There are a wide variety of different approaches to XBRL document creation, depending somewhat on the type of report that needs to be prepared, the systems being used to create the non-XBRL version of that document, as well as the preferences or requirements of the recipient and users of the information contained in the report.
Broadly, there are at least 5 different approaches that may be relevant.
- Forms based approach offered by regulator or third party.
- In-house embedded production from existing software.
- Outsourced production.
- In-house production with “bolt on” tools and processes.
- In-house embedded production with Disclosure Management or Regulatory Filing software and changed processes.
|1. Forms offered by regulator or third party
|Some regulators provide a template or form based approach to filing compliance, using XBRL to control quality, not always making it clear that XBRL is being used. Sometimes specialised software is distributed to regulated firms. Sometimes the forms are available on the web.In order to use this mechanism, filing companies need to login to the system by providing appropriate authentication and then rekey or cut and paste the required information into the form. The system will typically run a range of validation rules over the data and reject areas that appear to be in error. Once corrected and completed the filing is submitted.
|The advantage of regulator provided forms and templates is the relative simplicity and relative low cost imposed on the preparing regulated company. These kinds of mechanisms are often offered to smaller and simpler companies, as well as in the initial stages of a regulator’s data collection project, in order to simplify the implementation process for the regulator and regulated firm alike.
|Regulator supplied forms, even spreadsheet-based forms, inevitably require rekeying and copy-paste manual effort, which is time consuming, costly and error prone. Depending on the information being provided, this approach can create risk for regulated companies and they often consider alternative system-to-system mechanisms instead. In these kinds of environments, regulators can limit the errors with comprehensive error checking and limit the respondent burden by keeping the forms simple. The process is a good starting point, but it is desirable to incorporate a system-to-system option in order to enhance the accuracy and timeliness, while keeping costs down.
|2. Embedded production with existing software
in smaller companies with relatively straightforward operations are often created with common off the shelf (“COTS”) software. Accounts production and tax preparation software are good examples. In environments in which the regulator has moved from legacy paper, PDF or proprietary filing arrangements to XBRL and where these kinds of systems are already in use, existing software vendors will usually update their systems to incorporate XBRL tagging.
This might be in either a completely automated or a semi-automated manner. This means that XBRL documents and reports that need to be filed with the regulator can continue to be prepared, with only minimal changes to existing processes required. Typically the change obliges the preparer to be aware of (and pass!) the relevant data quality tests that the regulator imposes.
|The advantage of embedded XBRL production with existing or COTS software is that minimal process change is required and minimal (or zero) costs are incurred by the preparer company and/or their service providers, such as accounting professionals. For some companies that need to comply with new XBRL based filing requirements and that historically have relied on very manual processes, moving to this kind of solution is cheap, simple and low risk.
|The main disadvantage of this approach is that it is only relevant to relatively simple kinds of operations. If the process of gathering together the information required to prepare the regulatory report is manual, or spread across multiple systems without an automated consolidation mechanism, these kinds of solutions are unlikely to work. These kinds of tools are sometimes inflexible, meaning that some of the other advantages of shifting from a paper-paradigm to a data-paradigm in terms of performance and risk reporting are unavailable.
|Many businesses find that outsourcing their XBRL filing responsibilities to be the best approach for them. This typically involves quite close collaboration with a third party expert that works to tag the relevant report in XBRL. In some environments, this process is made more sophisticated through collaboration tools of one sort or another, which allow the regulated company to carry out some of the work themselves, review the work carried out, or in other ways oversight the work of the outsourced service provider. These kinds of approaches are sometimes a transitional measure, at the beginning of a new regulatory arrangement. Sometimes they work on a permanent basis. Typically outsourcing makes sense in environments in which introducing process change would be difficult or risky.
|The advantage of outsourcing is that it significantly reduces the work involved in preparing XBRL versions of a report, often at an already busy time. Depending on the kinds of reports involved, (especially if they are relatively straightforward) this can be a cost effective solution. In some environments outsourcing provides or is perceived to provide a “risk insulation” mechanism, separating the officers of the company from the regulator to some degree. For small operations with complex reports, outsourcing is often the only realistic way to prepare their XBRL documents.
|The disadvantage of outsourcing the preparation of XBRL versions of a report include questions of risk, accuracy and timeliness, as well as variable costs involved.
|4. In house “bolt on” tools.
|Companies with relatively sophisticated reporting requirements and processes that are difficult, impractical or costly to change, often turn to so-called “bolt on” tools. These tools range from desktop to SaaS offerings that allow the creation of an XBRL document, often from a combination of Word® and Excel® documents that have been prepared via other means. They are called “bolt on” solutions as they allow the regulated company to continue with an existing process that aggregates, consolidates and otherwise sources the information needed for the regulatory filing using traditional means. The new software is “bolted on” as a new additional step in the process of preparing the report.Some bolt on tools require significant XBRL knowledge and judgement in selecting tags. Others require very little, depending on what is being reported. Companies utilise these tools in order to ensure that they have full control over the process of regulatory reporting.
|Bolt on tools allow companies to implement XBRL filing with significant control, while retaining existing report preparation processes and technologies. Some provide very significant levels of automation. Others are more complex but provide greater control.
|Use of these tools means that there is an additional step to add into an existing process, negatively impacting timelines and sometimes introducing new kinds errors. By their nature, bolt on tools create an XBRL version of a report, based on a legacy format. This can introduce new risks. The use of these tools often requires moderate or significant knowledge of XBRL syntax and conventions.
|5. Embedded “Disclosure Management” and “Regulatory Filing” tools
|Disclosure Management and new generation Regulatory Filing tools take a different approach to the creation of XBRL documents, embedding the process of tagging into the creation of the report and managing the “Last Mile” of report preparation, review, amendment, audit and approvals via a number of collaboration techniques.Some of these tools are truly embedded systems, linking via database connections to corporate reporting and consolidation systems, ensuring the consistency and automating their production. Others instead seek to replace or enhance existing Excel® and Word® based processes with collaboration mechanisms and XBRL-based controls. Some tools are in-house. Others are SaaS based. Most are tailored for specific markets and filing frameworks. Some are something of a hybrid offering, including outsourced assistance with XBRL knowledge and tagging.
|The advantage of these systems is that they can significantly reduce the time and cost involved and improve the overall quality and reliability of reports being prepared (regardless of XBRL).
|The disadvantage of these systems is that they are relatively expensive and are therefore mostly attractive to large and complex enterprises. They also require a complete redesign of existing reporting processes – something that can often be considered positive, rather than negative!
What is Validation and why is it so important?
XBRL uses the idea of formal “validation” or error checking as a fundamental part of the process of producing, reviewing and publishing or filing data. Some validation is quite low level, or “syntactic” and is used to ensure that information prepared using diverse software is interoperable. Other validation really relates to business rules, or business logic. For example a rule that states that “the balance sheet must balance” is a piece of business logic.
XBRL validation is generally (although not always) published by the regulator, as part of the “taxonomy” or definitions used by XBRL-capable reporting software. Companies that have to report in XBRL should familiarise themselves with the validation rules that their regulator or agency that they are filing to publish and ensure that they run the rules prior to filing their data.
Training and certification
Some XBRL Jurisdictions, including XBRL US, XBRL Netherlands and XBRL Japan have developed training and/or certification programs that provide tailored education and certification specific to the regulatory framework in those countries. This training should be considered an important part of a company’s preparation in dealing with, or improving their XBRL readiness.
Introductory, web-based training and certification is available through a course developed in close co-operation with XBRL International.
Classroom style training is available from a large number of providers, consultants and vendors. While much of this training is high quality it is not currently endorsed by or approved by XBRL International.