With XBRL, you can’t hide

In 1999, five accountants, working independently, tried to figure out if the Enron lie could not have been caught before it blew up. The basic question before the five accountants was: where did Enron hide its muck. They asked if there were lessons to be learnt from the Enron saga that would improve disclosure.

Thus was born eXtensible Business Reporting Language or XBRL as it is called. As the language for the electronic communication of business and financial data, it is revolutionising business reporting around the world. The XML properties of XBRL make the information machine-readable. The addition of business rules to XML creates XBRL, creating an information set that is more easily deciphered. XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits automatic checking of information.

More than 100 countries have embraced XBRL – the list includes China, Korea, Japan, the US and most recently, India.

At IRIS, our exercise to develop India’s first XBRL database of listed companies threw up some startling findings. We were stunned that for several companies, the financial statements for financial year 2008 lacked internal consistency in the sense that the numbers reported in the schedules did not tally with the number in the main financial statement. The variations ranged from as high as 40 per cent in some elements in some companies to less than 1 per cent in others.

We also found a company that has been reporting the same cash flow statement for three years running, word for word, number for number, decimal place for decimal place.

It is still early days but the benefits are self-evident. The outgoing US SEC Chairman Christopher Cox calls it the new Information Revolution. All companies listed on US exchanges have two years to move to XBRL-based reporting, the investment companies have until 2009 to do so and the rating agencies have been asked to comply soon.

India, a late adopter, is slowly but surely moving in the same direction, XBRL implementation is happening at BSE, NSE, SEBI, RBI and MCA, with each of them working to their own schedule. The Institute of Chartered Accountants of India has taken the leadership to form an XBRL jurisdiction in India.

But could the adoption of XBRL have helped in the early detection of the Satyam fraud? The answer is no. However, the use of XBRL can now help investigators unravel the Satyam story quickly.

Also, the implementation of XBRL can help the board see the information tabled before it with greater clarity, knowing fully well that if there is a footprint anywhere that is out of place, it will be visible. With the implementation of XBRL, you can’t hide, the trail will show up somewhere on the radar.

S. Swaminathan is the Founder CEO of IRIS, and India’s leading XBRL evangelist.

This article was published in Business Today.