XBRL in India’s regulatory reporting: today and tomorrow
A few years back, I was part of the team responsible for building Reserve Bank of India’s (RBI, the country’s central bank) returns. During that period, I came to know RBI supports different modes like email, hard copy (paper-based), online and distributed systems and various formats such as csv, email etc for submission of returns.
It was a BIG surprise for us as a team since it was very unique to RBI unlike other regulators in the APAC region. Additionally, we thought it might be really challenging for regulators internally also to share report data across internal departments for reconciliation. I recently got another opportunity to engage in the RBI reporting and came to know it had started XML/XBRL report submission for all the returns.
The eXtensible Business Reporting Language (XBRL) has become the global standard by regulators across the countries as the electronic financial reporting standard. The Institute of Chartered Accountants of India (ICAI) initiated the idea of using XBRL in 2007 for the regulators in India. It was an instant hit among all the regulators. XBRL made it easier to analyse the information from the returns. Another major benefit was that information captured from it could be used without relying on third-party investments.
The four major regulators in India involved in the adoption of XBRL are the following entities:
- The aforementioned RBI – the apex financial regulator;
- Ministry of Corporate Affairs (MCA) – the business register for companies in India;
- Securities and Exchange Board of India (SEBI) – the regulator of India’s listed companies;
- Insurance Regulatory and Development Authority (IRDA) – the insurance regulator.
Strategies to implement XBRL
XBRL is platform independent and offers a universal standard for defining business information. It also provides a foundation for the exchange of data/reports. Financial institutions (FIs) in India are forced to implement XBRL submissions for returns because regulators like RBI had made it mandatory. It can be implemented in any of the following methods:
Within this approach, XBRL is only used for reporting to external regulators. Thus, usually some converter is used at the very end of the reporting generation processing chain. It just converts from one report to XBRL/XML. This approach has complicated the audit process, it is error-prone, and the reconciliation is complex. It is a stop-gap solution used just for regulatory reporting.
As per EY’s 2015 survey (conducted among the largest US and foreign banks), 36% of the survey respondents are posting manual adjustments within the reporting tools. I am sure this number will be much higher in India. Now imagine FIs’ XBRL systems do not support this… then what are the chances of generating correct returns. Additionally, a lot of other functionalities will not be available, like drilling down to the source level from XBRL return instance, validation at XBRL, adjustments at returns (XBRL report) etc.
Built-in or tightly-coupled
This is when XBRL has full control – end-to-end – over the reporting process and works seamlessly to churn out return for both internal and external users.
Thus, XBRL is an integral part of the reporting process rather than being another output from a manually generated Excel which has no linkage with underlying systems and data. The advantages of this approach include data lineage to the XBRL output, the new taxonomy build/import, automatic update of validations and so on. Thus, FIs will have features such as a comprehensive audit, data lineage, quick turnaround on returns, reconciliation, XBRL return level validation, cross return validation etc. It can also be extended within the FIs for internal operations – for generating internal reports.
XBRL in India: progress to date
For the first time, the regulators have introduced electronic forms using XBRL between companies and regulator agencies in India. It has also become the standard, default format. XBRL increases comparability and transparency of information.
The progress on XBRL submissions regulator-wise has been the following:
MCA has made XBRL as a mandatory requirement for submission of all statements. Currently, around 30,000 companies are using XBRL to file their statements with the ministry. Also, MCA is considering new ways in which it can take better advantage of the XBRL standard in line with the government’s “Digital India” initiative.
RBI introduced the first XBRL-based reporting system bank in 2008, by launching seven capital reports in the XBRL format through its Online Returns Filing System (ORFS). Its aim was to make paper-based returns redundant. The immediate benefit of this was the reduction in the number of returns – from 291 to 223.
RBI applied a phased approach for the submission of the returns in the XBRL format. Currently, RBI is working with a vendor to build taxonomy for Phase 3 returns (95 reports). And a parallel run of Phase 2 (97 reports) is currently underway.
Among the biggest benefits realised by the regulator has been eliminating the process of submitting the same report to multiple departments within RBI. Thus, the time previously spent on re-keying the same information, is now being spent on analysing the information/data.
SEBI initially attempted to introduce the new system – Super-D (SEBI Unified Platform for Electronic Reporting – Dissemination) – back in 2002, to have a single platform to be used across listed companies, mutual funds and other SEBI registered intermediaries in XBRL. It was expected that it would have the capability to manage simultaneous filling of 500 documents on normal days and 15,000 during peak times. It would help to enable reading and dividing the information under different head, as well as finding the right information to identify any irregularities provided in the submission.
Besides disseminating the information on a real-time basis for investors and other parties, the XBRL technology-based new system was also going to help SEBI to monitor any irregularities in the affairs of companies and market intermediaries.
Unfortunately, SEBI shelved this initiative.
Challenges of implementing XBRL
Every FI faces some teething problems when adopting new technology. The same holds true here. Some of the challenges faced by FIs in a bid to implement XBRL the right way include:
Inexperience using XBRL
According to a recent survey conducted by the Global Journal of Finance and Management among 400 chartered accountants in India, only 46.13 % are of the opinion that XBRL has been implemented in his/her organisation. Among auditors, only 30% think that XBRL has been implemented at some of their clients.
The most common reason quoted by the survey participants is that they think XBRL is not relevant to their organisation. Also, it is not a mandatory requirement. Thus, the adoption rate of XBRL is in reality very low. It can be one of the reasons for Indian banks are using it only for XBRL submissions.
According to the heat map of EY’a 2014 Banking on Technology report, the “compliance and audit” department capabilities within IT are still at a nascent stage. Indian banks are still not modernising technology across their compliance and audit departments.
Currently, we have a limited choice of vendors in India who can directly import XBRL taxonomy and provide the complete benefits of an XBRL reporting solution.
Also, FIs in India are not aware how technology can change the reporting landscape for them. For them, XBRL is a mandatory requirement of the report which they need to oblige and nothing else. However, the real benefit of XBRL is much wider and it can be only achieved by adopting the “tightly-coupled” approach (described above).
The regulators in India are now in the process of adopting XBRL. Also, the country’s business environment is very dynamic and I expect regulators will make changes in reporting requirements. Taxonomy will change too as a result. Staying up-to-date with current taxonomies is an essential feature for any vendor or in-house built system.
The future of XBRL in India
XBRL is the way to improve efficiency, accuracy, timeliness and reliability of the financial data. The Indian regulators have already realised it. I believe there will be more new initiatives to push XBRL on financial institutions.
RBI may move from the return-based taxonomy to one taxonomy across all of the returns. This will help RBI to reduce data elements to 120-150 data points. Also, it will give access to all the information for various departments of RBI to analyse.
It may also happen that National Stock Exchange of India (NSE), Bombay Stock Exchange (BSE) and the aforementioned SEBI may have one consolidated hosting platform for sending all the information across all the regulated companies using XBRL. Hopefully it will enable the Indian regulators to have one common comprehensive database that can be accessed by any regulatory body in the country. This will avoid future inter-regulatory delays.
The aforementioned IRDA may also move to the XBRL format, following the implementation of IFRS9.
Currently, we have inconsistency as regulators do not have a common database which can be accessed during runtime. Technology is available but the regulators are still evaluating it.
Hopefully in the future, India’s regulators will create a comprehensive database, accessible to the three key regulatory bodies – RBI, SEBI and IRDA. It will be like a common repository of company information and hopefully strengthen the corporate governance. Also, it will act as a constant check on erring companies.
By Amit Agrawal, VP at a Singapore-based reg reporting software company