How the CIPC's move to XBRL will affect your business

XBRL allows reported financial results to be tagged with predefined descriptions, which makes analysing financial data much quicker and easier

XBRL stands for eXtensible Business Reporting Language, which essentially is a global web-based computer language designed for business reporting. It is being adopted by regulatory bodies around the world and South Africa is following suit, starting with the Companies and Intellectual Property Commission of South Africa (CIPC).

WHY XBRL?

The reason for the move to XBRL is primarily to make financial data more transparent and manageable to investors, analysts and regulators. By tagging your financial statements and disclosures with the concepts from a prescribed taxonomy (basically a library of reporting concepts), electronic files can be created that can all be read in the same way. In essence, one is mapping financial reports to a standardised chart of accounts (taxonomy). For example, if you report your revenue as ‘sales’ and I report mine as ‘turnover’, we are talking about the same thing, but our reporting definitions may not be interpreted the same way. If, however, we both tag that field as per the relevant XBRL taxonomy, the electronic files (which includes all our tags) can easily be imported into an XBRL reader, which will report both companies in the same format (that is, presented as ‘revenue’).

The CIPC decided to move towards requiring companies to file their annual financial statements in XBRL format (as opposed to only in PDF format) to leverage the advantages the format offers. It believes this will:

• Reduce the administrative load on businesses when they report financial information to the government for regulatory compliance
• Improve transparency and analysis capacity
• Reduce the administrative burden for both the CIPC and companies reporting to multiple regulatory bodies (that is, where one submission can serve multiple purposes)

Moving away from the unstructured PDF format will minimise human error. With PDF submissions, someone at the CIPC needs to manually examine each and every document. Once XBRL has become the standard submission format, annual financial statement data can be quickly validated against the International Financial Reporting Standards (IFRS) taxonomy. Basically, a validation engine can run automatically through the rules built into the taxonomy to check that each rule has been adhered to.

A further advantage will be that CIPC can also consolidate all the annual financial statement data submitted into a common repository, allowing it to perform in-depth analysis via Business Intelligence technology, which will enable it to identify and track trends. In other words, the data will suddenly become a whole lot more useful. This will become even more relevant as other regulatory bodies embrace XBRL. CIPC believes that more regulators will begin to develop their own taxonomies and that South Africa may decide on the principle of Standard Business Reporting (SBR) by introducing a common taxonomy for all regulators. Currently, SARS is planning to adopt XBRL and other regulators are sure to follow. In an ideal world, this will mean you will be able to submit financial data once instead of in multiple formats to multiple bodies.  While that’s a long way off, it is the ultimate goal. Investing in doing XBRL properly upfront would be wise if this is the case.

WHO IS AFFECTED

 The short answer is that in the long term, almost every business will be required to file annual financial statements in XBRL format. In terms of the Companies Act, the following  entities will have to submit annual returns and annual financial statements through XBRL:

• All public companies
• Private companies
• State-owned companies
• Non-profit entities
• Close corporations
• (Essentially everyone except cooperativesand trusts)

Of course, given that CIPC has 2 million companies registered, roll-out needs to be a stepped process. It began on 1 July 2018 with the first ‘batch’ of organisations required to submit annual financial statements in XBRL – a total of 105 000 companies of varying sizes and categories. These companies have 30 days from the annual anniversary of their date of incorporation to submit their annual financial statements in XBRL.

As of 4 October, 1 500 had done so, with uptake growing. The penalty for not submitting is ultimately deregistration, so compliance is vital.

Currently, as the CIPC works on building its taxonomy (which currently includes a little under 5 000 concepts), minimal tagging is required (fewer than 50 fields). This will increase on 1 October 2019, when updates will be announced and the second phase of the roll-out will begin.

WHERE SHOULD YOU START WITH XBRL?

When your company needs to submit the first set of XBRL annual financial statements, you will need to know which entry point into the taxonomy applies to you. This is based on your company category. If you are an SME, you will need to tag financials according to the IFRS SMEs reporting standard. Otherwise, you need to use the IFRS full reporting standard. The information on these categories is laid out in Regulation 27 of the Companies Act. At the moment, limited tagging still applies, but this will expand as time goes by.

There are various options available to you in terms of how you prepare an XBRL submission. There are companies that will take your annual financial statements in MS Word or PDF format and manually create an XBRL submission for you, tagging every relevant field. But, given that they charge per tag or page, this tends to be a costly exercise. If you already use a financial reporting consolidation platform, it’s worth finding out if it’s XBRL enabled, as this may be the simplest option available to you.

Another option is to investigate cloudbased XBRL solutions that facilitate the tagging for you. In a nutshell, these help you to quickly and seamlessly bring together the minimum information required, help you to tag each one as per the CIPC taxonomy (and according to your company category), and then create the electronic XBRL document for you to submit. Given that this type of solution is automated, it requires the basic input from your end but is far more cost efficient.

According to the CIPC, there are currently numerous service provider companies able to assist companies needing to file. When investigating their solutions, ensure you enquire about costs, process and time frames upfront. As with any new market, there are a number of players looking to capitalise on the opportunity, some of whom will use uncertainty around this new requirement to drive fear and inflate prices, so ensure you investigate your options thoroughly before choosing a service provider. Also, try to find a South Africa-based service provider that will best serve you in our local business environment.

F.R. (Rhys) Robinson, PhD is Executive Director, Infinitus Reporting Solutions (Pty) Ltd, an XBRL Solutions Provider