The Companies and Intellectual Property Commission (CIPC) introduced digital financial reporting via XBRL (eXtensible Business Reporting Language) on July 1, 2018.
From this date, it became compulsory for all public, state-owned, non-profit and qualifying private companies as well as Close Corporations (CCs) – as mandated by the CIPC – to submit their annual financial statements (AFS) to CIPC in XBRL. Previously the CIPC received all AFS in PDF format and analysis was a very time-consuming task undertaken by an analyst.
The aim of CIPC’s XBRL programme is to reduce the administrative burden on businesses when reporting financial information to government for regulatory compliance.In this feature we take an in-depth look at XBRL, how qualifying businesses need to respond, what it takes to comply, and the opportunities and challenges that XBRL presents.
XBRL to standardise business reporting in South Africa
XBRL is an open international standard for digital business reporting, managed by a global not-for-profit consortium, XBRL International.
The introduction of XBRL, the new annual financial statement (AFS) reporting system, in South Africa is linked to a bigger project of standardising business reporting across the country. The idea is that entities will be able to report once for regulatory purposes, potentially using the CIPC as a central hub, and that other regulators will be able to use these same AFS, with potential unique extensions, for their own purposes. It is a standardised way to communicate and exchange business information between different business systems. At present, CIPC is the only regulatory body that requires submission of AFS in XBRL format.
Hennie Viljoen, CIPC’s XBRL Programme Manager, Corporate Disclosure Regulation and Compliance Unit, says XBRL will put an end to inconsistencies in business financial statement information reported to various government agencies and will help in reducing duplication.
Speaking at the launch of XBRL in June 2018, Minister of Trade and Industry Dr Rob Davies, said XBRL simplifies the preparation and analysis of data associated with financial reporting and can ensure that there is integrity in the financial reporting mechanism to different agencies in government. “It supports greater transparency and improves efficiency of capital markets by assisting analysts, financial and security regulators, business registrars, tax authorities and other users to access relevant facts.”
Zimkita Mabindla, Senior Executive: Corporate Reporting at The South African Institute of Chartered Accountants (SAICA), says XBRL offers many advantages over traditional business reporting methods because information will be submitted once and the potential for manipulation and distortion will be greatly reduced.
“Accountants have always produced one full set of annual financial statements and XBRL will not change that. The current system necessitates multiple submissions to different authorities, which takes preparation and administration time and can significantly add to the cost of compliance. Once XBRL is adopted by all SA regulators, it is anticipated that regulatory information could potentially be submitted once and will be usable by all relevant parties.”
Once this happens, says Mabindla, XBRL can then be used for exchange of financial information, for regulatory filings, for the preparation of tax returns and business, management and accounting reports, and for the creation of information for use by other stakeholders such as investors.
Viljoen adds that despite an ongoing communications campaign there are still some entities and accountants who are not ready to implement XBRL, and others who remain unaware of XBRL and the requirement to submit AFS in XBRL format.
Adiebah Moruck, Senior Manager of Quality and Risk Management at Mazars, has welcomed the introduction of XBRL in South Africa. “In light of the recent fraud and corruption scandals involving some of the country’s biggest corporate players, introducing measures to align South Africa’s financial reporting with the rest of the world, should be embraced by all local businesses.”
What is XBRL?
XBRL (eXtensible Business Reporting Language)is a global standard for exchanging business information, based on XML (Extensible Mark-Up Language) that is used to encode financial documents. Inline XBRL (iXBRL) is a development of XBRL that both humans and computers can read and analyse. CIPC requires the use of iXBRL format for submission of AFS.
Before XBRL became compulsory for qualifying companies on July 1, 2018, the CIPC did a pilot study with 120 JSE-listed companies, which were invited to participate in order to test the XBRL solution.
The CIPC taxonomy, published in August 2016,covers reporting requirements for domestic entities as prescribed by Companies Act, No. 71 of 2008 and the Close Corporations Act 69 of 1984. Apart from the SA-specific requirements, the taxonomy also includes the IFRS (International Financial Reporting Standards) taxonomy – IFRS Full and IFRS SME – as developed by the International Accounting Standards Board.
A taxonomy is essentially a dictionary of terms used in financial statements and their corresponding XBRL tags (electronically readable codes for each item of financial statements). There are 31 mandatory fields built into the CIPC taxonomy but according to Chris Williams, Executive: Information Technology at Xpert Decision Systems (XDS) – part of EOH Group, an average financial report has about 3,000-line items.
Each line-item in a financial statement – for example, ‘revenue from sale of goods’ or ‘analysis of income and expense’ – is defined and tagged and can then be used by an XBRL-compatible programme. The tags enable enterprise systems to recognise the data, and automatically store, select, analyse and present information.
Sunet Leimecke, Solutions Manager at Synergy,says companies are required to ‘map’ their annual financials (and some non-financial information) to the CIPC taxonomy. “The mapping of this data is based on different entry points defined by the CIPC. Based on how companies produce their financials, a specific combination of entry points will apply, which will guide entities as to which version of the taxonomy – IFRS-Full or IFRS-SME – to use.”
Issues solved by XBRL
With financial data previously transmitted in print or electronic format such as PDF, recipients who wanted to use computer-assisted analysis or electronic storage, had to manually transfer the data from the document into their systems – a laborious, time consuming process that was prone to error, says Celeste Herbert, Sales Manager: CaseWare Africa, Adapt IT.
“XBRL-enabled software reads XBRL-tagged data and imports information directly. It enables data to pass between disparate computer systems with human intervention needed only in the case of exceptions. The resulting efficiency reduces the cost of communicating and maintaining financial data while improving its usability, integrity and compliance to a multitude of stakeholders,” says Herbert.
CIPC may in the future maintain a common taxonomy on behalf of other regulators like SARS, the JSE and investors, which will all have access to the same data as required by the CIPC.
This automation and standardisation, adds Herbert, results in a more transparent view of AFS, which in turn has an impact on the accounting process. “Accounting standards can more easily be scrutinised – internally by FDs and CEOs, and externally by investors, banks and regulators.”
Entities required to submit AFS using iXBRL
Any entity that is required by the Companies Act to submit audited financials is mandated to use XBRL.
About 100,000 of the 1.8 million active entities registered with CIPC are therefore required to submit their AFS to CIPC in iXBRL format.
In terms of Section 33 of the Companies Act 71 of 2008, and regulations 28, 29 and 30 of the Companies Regulations of 2011, this includes…
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