Financial Statements in XBRL

Financial statements are a vital part of economic life. Creating digital, unambiguous, accurate and reusable versions of financial statements is one of the core capabilities of the XBRL standard.

Flexibility is key

Financial statements:

• are governed by official accounting standards
• contain specific types of information
• are influenced by norms and habits within industries
• are extremely flexible – different organisations can and will have dramatically different reports

The last point – flexibility – is what makes creating digital versions of paper financial statements a complex challenge. Accounting standards provide significant choices for accounting professionals. Different companies can report very different things, even if they are peers or competitors. They can aggregate subtotals in different ways. They can disaggregate data in the ways that they choose. They can move individual components of financial statements around. They can introduce entirely unique reporting ideas. All of these choices are governed by the judgement of the accounting team involved. Financial statements are not like forms.

Of course, flexibility is not just the domain of financial statements. It is true of almost anything labelled a “report”. Different people present information in different ways. Financial statements and reports are not the same as forms. XBRL allows the creation of both.

It’s worth understanding how, and what it means.

Extending XBRL

Preparing, publishing, exchanging, consuming and analysing financial statements was always a design goal and has been a key capability of XBRL for many years.

You can think of an XBRL taxonomy a bit like a tree structure. Or rather, a template for a tree.

It is a representative view of the way a financial statement might look.

However, in the forest, no two trees are the same. XBRL taxonomies can be altered by the organisation preparing their report so that the digital version is an exact representation of the older style paper report. There are a range of changes that can be made to the provided template to take account of the specific reporting decisions of that organisation. These are called extension taxonomies.

For example Company A might use a unique reporting term. They can publish an extension to capture that idea. The extension is added to the original tree template, and then the numbers and text that need to be associated with each tag are filled in.

Company B might move where a concept appears in the tree structure.

Company C might disclose certain information about each of it’s divisions. In order to do so, the company can create what are termed “Dimensions” that duplicate part of the tree structure, once for each of the different dimensions.

Using these extension mechanisms (usually a combination of them) it is possible to create XBRL reports that are exact representations of financial statements.

Comparability and Extensions

Extensions are very powerful, but that they can also present a range of problems. Typically used by securities regulators in order to allow the exact presentation of financial statements as prepared, many other types of implementation don’t require their use. The key reason for this is to do with comparability.

Financial statements are flexible, but they are not, by their nature, comparable. Each organisation creates their disclosures in a way that provides what represents, in their view, a “true and fair view” of their financial circumstances. Comparing paper financial statements is a difficult exercise, and XBRL versions of the data make things somewhat simpler. But where companies have disclosed information which might be comparable in different ways, XBRL can’t provide a “magic bullet”.

Some regulators have avoided this problem altogether, by requiring regulated firms to provide only the information that conforms to the official taxonomies, and do not encourage extensions. Agencies can provide a fixed format or template that must be filled in wherever relevant (either as a form or via a system-to-system XBRL message).

Others reach a similar conclusion – maximising the comparability of filings, and discouraging extensions through the use of Inline XBRL, normally shortened to iXBRL. iXBRL allows the creation of a full financial statement with the “look and feel” that the preparer desires, and only those concepts identified as mandatory or important being marked up. The iXBRL document is a web page that can be automatically and consistently converted into an XBRL document for consumption by a relevant system.

Some allow extensions in only limited circumstances.

Still others look to the growing market of sophisticated analytics that is growing up around XBRL to deal with the question of comparability and allow extensions to flourish.

To take away

As well as complex forms, XBRL allows the creation, publication and exchange of entire financial statements. Different environments provide differing levels of flexibility in this area, depending on their requirements and specific situation.

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