The government hopes to improve surveillance of companies through the introduction of a new financial reporting format that will make data accessible to all regulators. The new reporting tool, mandatory for large companies from July, will help the government prevent financial frauds like the Satyam scam, as filings made by a company before its primary regulator will be available to other regulators electronically as and when required. This will also reduce compliance burden for corporates, as they will no longer have to file data separately to multiple agencies. The format, known as eXtensible business reporting language or XBRL, is being developed by regulators such as the Securities Exchange Board of India (SEBI), ministry of corporate affairs, and the Reserve Bank of India (RBI). Companies are required to periodically furnish financial statements and information to regulators such as the RBI, SEBI, stock exchanges, registrar of companies and banks. While the regulator governing any company is responsible for keeping all information regarding its functioning, other regulators too require the information for issues falling in their domain. “With the growing Indian economy, regulators, investors and analysts demand corporates to be financially transparent. This call for financial transparency has been heightened in recent times by certain corporate crises that affect the very fabric of the economy,” said RPN Singh, minister of state for corporate affairs, in an internal communiqué on the ministry’s adoption of XBRL as a reporting tool. With XBRL, the government hopes to prevent another Satyam-like corporate scam, where the outsourcer was able to cover financial manipulation for nearly seven years because of lack of co-ordination between various regulators and financial institutions before which the company filed its data.
“There was no cross-validation of data which the company filed before regulators, like the exchanges, banks and tax agencies,” said a corporate affairs ministry official who was involved in the investigation of the fraud at the erstwhile Satyam Computer Services, now taken over by Tech Mahindra.
“As XBRL is embraced widely, financial statements prepared in this format can be submitted uniformly and at one place to various regulators, external auditors and financial institutions,” the minister said.
Although companies will incur a onetime cost for the switch in the reporting system, and may have to spend some more for sharing regulatory information with other agencies, experts say the new system will reduce compliance cost. “The overall cost for companies (on adoption of XBRL) will be reduced by 50 to 60% in the long run,” said Rakesh Rathi, national head of audit and assurance at BDO India, a consulting entity. According to reports, SEBI is currently developing SUPER-D (“SEBI Unified Platform for Electronic Reporting – Dissemination”), a platform that will enable it to receive financial and business information in XBRL format. Other agencies too are tweaking their systems to facilitate use of XBRL.
Corporates too are convinced about the workability of the new reporting tool.
“The proposal is feasible and practical as well. A technical platform with standardised format would enable companies to load information and data, which then could be used as a base for filing as per the requirement of various regulators and for different purposes,” said Ashok Haldia, director at PTC India Financial Services Ltd.
Besides saving time, effort and money, XBRL would help bring in consistency and uniformity in data provided by companies, Haldia added.
All India-listed companies and their subsidiaries, having paid up capital of Rs 5 crore or above, or with a turnover of Rs 100 crore or above, will have to file their financial statements in XBRL format from year 2010-11. The first phase of the transition has, however, excluded banking companies, insurance firms, power companies and non-banking financial companies.
Many countries and their financial regulators have approved or are in the process of implementing requirements around XBRL as the electronic financial reporting standard. These include the US, Japan, UK, Australia and China among the major economies.