Foreign institutional investors (FIIs) would soon have to follow a new data reporting format known as eXtensible Business Reporting Language (XBRL). This format is being followed by domestic mutual funds.
The Securities and Exchange Board of India (Sebi) plans to implement this move as one of the measures to strengthen the know-your-customer norms for FIIs and to bring in more transparency on the use of participatory notes (P-notes) in Indian markets.
Implementation of XBRL, say experts, will help Sebi spot FIIs inconsistent in reporting data regarding their investments, involving various parameters. Verification and counter-verification of claims with regard to business or financial reporting would become easier for Sebi.
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XBRL, the use of which was pioneered in 2005 by the then US Securities and Exchange Commission (SEC) chairman, Christopher Cox, played a major role in detecting big companies involved in the backdated stock option scam. Under Cox, the SEC investigated at least 160 stock option backdating cases, aided by the fact that the reporting forms for stock option disclosure were among the first to be mandated in an ‘interactive data’ format.
Some of these cases were noteworthy for their size. In December 2007, for instance, the agency won $468 million in a settlement for stock options backdating against the former chairman and chief executive of the UnitedHealth Group.
Use of P-notes to invest in equity markets has been widely criticised, as it is believed to involve ‘hot money’. P-notes have been used to play Indian markets for nearly a decade, but Sebi has been unable to track the ultimate beneficiaries of these instruments. This is mainly since FIIs, which issue P-notes, have been inconsistent or vague in their reporting on these instruments. XBRL should help contain this menace.
How it works
XBRL converts the financial statements and other business information into an electronically readable (machine readable) format. Explains Ernst &Young, instead of treating financial information as a block of text, XBRL provides a computer-readable tag to identify each item of data. By doing so, a business reporting document becomes ‘intelligent’ data, allowing the exchange of business reporting data by encoding the information in a meaningful way.
Hence, XBRL is also a global standard for easy exchange of business information between different government departments and regulators, under which financials are filed in an XBRL syntax as an .xml file, instead of uploading the records in .doc or .pdf format.
It allows access to business and financial information through use of existing desktop tools, such as MS and Excel. Thus, for instance, if an FII claims it had issued a P-note to a Mauritius-based company, which in turn has issued this to another company, Sebi would be able to check with its counterpart and get details of the other company in a day’s time or even on real-time basis.
“Each regulator has its own format in which information is filed, leading to a mismatch. XBRL allows dissemination of varied data in a uniform format between such regulators, which is crucial for accurate and faster data collaboration,” said an expert working with Sebi on implementation of XBRL.
Apart from mutual funds, around 1,000 listed companies follow this format to provide their financial details to stock exchanges. The ministry of corporate affairs expects about 800,000 companies to file their financial statements using the XBRL format over the next couple of years in India.
