eXtensible Insolvency Reporting Language

eXtensible Insolvency Reporting Language

Introduction to XBRL
Growing level of cross-border investment calls for global data standards.

In this increasingly international economy, cross border investors demand the ability to easily, seamlessly, analyze companies across industries and market cap, regardless of geography.

There was an impending need to develop systems that would facilitate business intelligence automation by enabling machine-to-machine communication and data processing for financial information.

It was in this context that (eXtensible Insolvency reporting language) XBRL was developed in order to provide a common, electronic format for business & financial reporting. It enabled communication of financial information between businesses and other users of financial information, such as analysts, investors and regulators.

Most countries, today, have published their version of XBRL taxonomies for financial statements to be prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (IFRS).

Regulatory authorities around the world have adopted rules requiring companies to provide financial information in an interactive, machine-readable (i.e., structured XBRL) format.

Use of XBRL significantly reduces time and cost for preparers and consumers of financial data and enables

  1. The investors to compare financial-health of the companies, from different countries, for cross-border mergers and acquisitions.
  2. The data analysts to capture and analyze information more effectively.
  3. The professionals to automate their regulatory filings and business information processing.
XBRL Implementations
Indian Regulators
Various regulators in India have adopted some form of standardization and require companies to provide information in XBRL format. They include

  1. RBI 1: The Reserve Bank of India has already implemented Capital Adequacy Reporting by Banks as per Basel-II norms in XBRL. It has implemented several supervisory measures with an aim to improve India’s credit risk and financial performance, and to increase the flow of credit to productive sectors of the economy through a number of innovative additions to its existing XBRL-based filing rules.
  2. SEBI 1: The Securities exchange board of India has a project named – “Super-D” for XBRL filing by all Listed Companies and Mutual Funds in India.
  3. MCA 3: The ministry of corporate affairs has mandated that companies whose Balance Sheet date is 31.03.2011 or onwards, need to file their financial statements in XBRL provided they qualify the criteria laid as per Ministry’s general Circular 37/2011 dated 07.06.2011.
  4. BSE 4 / NSE 5: With a view to make reporting more accurate and more efficient, BSE has moved towards the XBRL based reporting. BSE has joined the club of international stock exchanges that have implemented XBRL based reporting. BSE is the first and only Stock Exchange in India to introduce and implement XBRL based reporting 5. NSE has published XBRL taxonomies for its Corporate Governance, Shareholding Pattern, Reconciliation of Share Capital Audit, Financial Results reporting modules 6.
  5. IRDA: Listed insurance companies are now mandated to file their financial results with the exchange in XBRL format.
  6. IBBI 6: In India the Insolvency and Bankruptcy Board of India vide its press release No. IBBI/PR/2018/33 dated 26th November, 2018 published draft specimen of Information Memorandum, Evaluation Matrix, Request for Resolution Plans, and Resolution Plan.

1 XBRL based electronic Filing platform https://secweb.rbi.org.in/orfsxbrl/
2 XBRL projects under SEBI
3 Guidance Note on Certification of XBRL Financial Statements
4 BSE – XBRL taxonomies https://www.bseindia.com/static/about/xbrl_info.aspx
5 NSE - XBRL filing https://www.nseindia.com/companies-listing/xbrl-information
6 IBBI - https://ibbi.gov.in/webadmin/pdf/press/2018/Nov/PR-Specimen-compressed.pdf

Global Regulators

North America: The Canadian Securities Administrators 7 have a voluntary XBRL filing programme in place for those who wish to file their financial statements using the reporting language.
South America
  1. Brazil has Project SICONFI 8, which has resulted in the development of SICONFI taxonomy by the Brazilian National Treasury. The data collected under this project is used by Brazilian government entities to build a picture of the economic performance of Brazil as a whole.
  2. Peru’s Superintendencia del Mercado de Valores 9 (SMV) has had mandatory XBRL filing for listed companies since 2012, as well as countries such as Panama, where the Superintendencia de Bancos de Panama also makes use of XBRL data.
  1. Japan Financial Services Agency (JFSA) requires XBRL reporting for thousands of publicly listed companies, as well as investment funds. In addition, the Bank of Japan also has a voluntary XBRL reporting programme in place.
  2. Korean Financial Supervisory Commission requires publicly listed companies to file their financial statements under XBRL, and
  3. Singapore, where the Accounting and Corporate Regulatory Authority (ACRA) requires companies to file financial statements using XBRL.
Europe: From HMRC and Companies House in the UK and the German Ministry of Finance, to Spain’s Ministry of Economic, National Accounting and Auditing Institute, and the European Banking Authority, there’s no shortage of institutions that have recognised the benefits that XBRL reporting can bring.

7 The Canadian Securities Administrators https://www.securities-administrators.ca/search.aspx?searchtext=xbrl
8 SICONFI taxonomy by the Brazilian National Treasury https://siconfi.tesouro.gov.br/siconfi/pages/public/conteudo/conteudo.jsf?id=362
9 Peru’s Superintendencia del Mercado de Valores http://www.svs.cl/sitio/xbrl/html/index.php
Global Regulators (Insolvency)
Insolvency regulators from around the world have adopted rules requiring insolvency professionals to provide insolvency information in an interactive, machine-readable (i.e., structured XML) format, which inter-alia enables investors to capture and analyze information more effectively as well as help professionals automate their regulatory filings and business information processing, eventually reducing both preparer and investor costs.
  1. In UK10 where Insolvency information is to be submitted by IP’s in XML format using online forms.
  2. In Canada11 where the IPs use insolvency software to generate XML formatted information, which is mandatory for efiling.
  3. In Australia where the Australian financial security authority12 and Australian securities & investment commission13 make extensive use of XML as means of information exchange

10 Insolvency web forms
11 eFiling: Guide for Insolvency Professionals
12 Development Tools https://www.afsa.gov.au/online-services/b2g-system-integration/development-tools
13 Site Search (XML) https://sitesearch.asic.gov.au/s/search.html?query=xml&collection=asic&profile=asic

Extending XBRL
The X in XBRL stands for extensibility, which means that new data-elements can be added to existing XBRL taxonomies (or new taxonomies can be developed using XBRL rules) in order to generate platform independent data in new domains.

eXtending XBRL into the domain of insolvency & bankruptcy would offer the same benefits to IBC stakeholders as are being enjoyed by the financial community. Such extended XBRL taxonomy for the domain of Insolvency and Bankruptcy can be called XIRL (eXtensible Insolvency Reporting Language)

Use of XIRL would enable
  • IBC Professionals
    • to automate the preparation and comparison of CIRP documents using existing XBRL software.
    • to publish CIRP documents and reports with confidence that the information contained in them is complete and ready to be consumed by any existing XBRL software.
  • Resolution applicants
    • to use existing XBRL software to analyze insolvency information in order to understand the relative risk of investing in insolvent companies.
    • to compare potential investments opportunities by analyzing performance across different companies in disparate domains and geographies.
  • Regulators (IBBI / SEBI / MCA etc.)
    • to regulate the performance of insolvency professionals in order to ensure their legal compliance, quality and completeness of insolvency information they make available for international investors.
    • to simplify the process of insolvency reporting to other regulators by harmonising data definitions and consolidating reporting obligations.
  • Data Providers
    • to use performance and risk information published into the market place and create comparisons, ratings and other value-added information products for other market participants.
How will XIRL work
XIRL is proposed as a language for e-communication of financial data for insolvency reporting. It is proposed as a standardized communication language in electronic form to express financial health and insolvency status of a corporate debtor.

XIRL is proposed to work in the following manner
  1. XIRL taxonomy would define the elements and their relationships based on the requirement of the regulator (IBBI).
  2. Insolvency professionals will be required to prepare CIRP instance documents by mapping the insolvency-data generated during their IBC assignments.
Document Creation
During the lifecycle of an IBC process, stakeholders are required to prepare several documents.
  1. Insolvency professionals are required to prepare Investment teasers, Information Memorandum, and RFRP for the consumption of resolution applicants.
  2. Resolution applicants are required to prepare resolution plans for the consumption by IP, COC & AA.
  3. Other professionals are required to prepare documents like asset valuations, forensic audit reports, eligibility verification reports etc.
Most stakeholders are using generic tools like MS-word and MS-excel, convert them into pdf formats and exchange them via emails. Insolvency professionals would use existing XBRL software to create CIRP documents.

Standardized way of preparing CIRP documents will
  1. Simplify the collection of data, by avoiding inefficient, error-prone and time-consuming, data re-entry processes.
  2. Lower the cost and time for preparation of such documents.
  3. Enable automatic validation of the data thereby highlighting errors and gaps which could be addressed while CIRP documents are being created.
  4. Enable automatic data handling thereby cutting out time-consuming and costly collation and re-entry of information.
Document Transmission
The storage, aggregation and analysis of the data contained in the instance documents, as well as the metadata contained in the relevant taxonomy within relevant business intelligence systems. The XBRL API is designed to standardize the method used to request XBRL data from any database containing XBRL-formatted data

Document Analysis
During an IBC assignment lifecycle, several documents are consumed for analysis by various stakeholders

  1. IPs consume financial statements from MCA, documents from SEBI, and Listing documents from BSE/NSE relating to the corporate debtor.
  2. Resolution applicants consume Investment teasers, information memorandum, and RFRP documents.
  3. RP/COC and AA consume Resolution Plans submitted by the resolution applicants for risk analyzing risk in various plans.
XIRL will enable consumers of insolvency documents to switch resources away from costly manual processes, typically involving time-consuming comparison, assembly and re-entry of data. They can focus on insolvency data-analysis, aided by software which can manipulate machine-readable XIRL data in any format desired by the stakeholders.

use of XIRL in data analysis will
  1. Facilitate automatic exchange and reliable extraction of insolvency information across diverse software applications by various stakeholders.
  2. Generate trust amongst disparate stakeholders thus enabling effective cross-border resolutions
Case Study: International Investors
Investors tend to shortlist their target acquisition based on 28-30 data-points which they cull from various documents. There is already a treasure trove of XBRL-formatted information lying unused in the public databases of MCA, SEBI, RBI, and Stock Exchanges. If investment teasers and information memorandums are provided in XIRL formats, investors could pull financial data-points across all such documents and perform real-time online analysis, in order to ascertain investment risks across all investment opportunities available under IBC.

XIRL could help merge multiple XML files for real-time analysis to help investors to conduct due-diligence on companies available through the IBC route. XIRL based CIRP documents on a blockchain will enable local and global investors to get authenticated information ready for instant analysis across all investment opportunities.
Globally available inline XBRL viewer14 will be able to create and handle the information consistently without structural errors. Computer systems will automatically validate and analyze information embedded in CIRP documents, enabling investors from across the world to concentrate their effort on decision-making rather than data analysis.

14 inline XBRL viewer https://www.sec.gov/ix?doc=/Archives/edgar/data/1692819/000169281919000018/vistra-20190930x10q.htm

Technology Implementations

Extending XBRL to CIRP documents (XIRL) will enable its use into new technologies such as blockchain & artificial intelligence.

Data standards are not technologies – they are, however, essential for new data technologies to develop and improve. Data standards facilitate machine-readability. Consistent, unambiguous data is critical for data-analysis using conventional technologies, and is imperative for upcoming technologies like AI and blockchain.

Chartered Accountants and Company Secretaries have been filing financial statements in XBRL formats with the Ministry of Corporate Affairs as per the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015, which mandates the specified class of companies to file their financial statements and other documents under section 137 of the Act with the Registrar in e-form AOC-4 XBRL within 30 days of the date of annual general meeting.

The financial bodies around the world have appreciated the benefits of standardizing the formats of financial documents. Software using XBRL to prepare, analyze and communicate financial documents have resulted in decrease in costs, increased efficiency and improved accuracy and reliability for preparers and consumers of financial data.

XIRL is an extension of XBRL. Existing XBRL software could be used for the purposes of preparation, and analysis of CIRP documents. The following benefits of XIRL can be immediately enjoyed.
  1. Robust and durable format for information storage and transmission.
  2. Common syntax for messaging systems for the exchange of information between applications.
  3. Platform-independence for the data to be structured, stored, shared, and presented.
  4. Automatic extraction of the data from various databases to be shared as-is with stakeholders.
  5. Machine readability of CIRP documents, reports and statements.
Blockchain needs data standards – while both are used to communicate, blockchain uses data standards to record and exchange information. Universal, machine-readable standards are especially essential when automating processes, for example in smart contracts.
XBRL and Blockchain can be used to automate the process of creating smart contracts to improve the insolvency management system. It can be used to automatically verify and validate machine-readable data and eliminate invalid data from the database to reduce errors.

Blockchain can be used only if the data collected is of good quality, consistent, and clean. This can be achieved only with the help of XBRL as it has the ability to streamline and convert a humongous amount of data into machine-readable, unambiguous data that can be easily processed by blockchain technology.

Blockchain Technology is being used for cross-border legal cooperation 15, improving cooperation16, fraud identification17, and commercial disputes18.
Artificial Intelligence (AI) uses probability and statistics, correlations to generate decision patterns around data-sets. It works best when there is a large amount of metadata which can be used for machine-training.
The financial sector has a vast store of high quality, structured, machine-readable data (XBRL). There are several AI models build around risk management, compliance, and general customer facing applications,
Adoption of XIRL would increase the use of structured data and will enable development of AI/ML technology in the field of insolvency & bankruptcy

15 Use of Blockchain Technology in Cross-Border Legal Cooperation
16 cooperation in cross-border insolvency issues by means of blockchain technology
17 Blockchain in cases of fraud and corporate insolvency www.careyolsen.com/articles/blockchain-cases-fraud-and-corporate-insolvency
18 Blockchain-Based Cross-Border Commercial Disputes

Going Forward
Taxonomies take time to mature. Any new taxonomy will have inconsistencies and missing elements that need to be worked over time. The more a taxonomy is used, the more feedback is received, and the better the taxonomy becomes.
XIRL implementations will require:

  1. The preparation and maintenance of a taxonomy that captures and standardises specific reporting requirements.
  2. The publication of that taxonomy so that it can be used by IBC stakeholders that need to prepare reports that comply with those requirements.
  3. The preparation of instance documents by IBC stakeholders that need to comply.
  4. The validation and correction of those documents by their preparers against the constraints defined by the taxonomy.
  5. The transmission by the preparer of the instance document to the relevant recipients.
  6. The receipt and validation of each instance document by the recipient interested in the data contained in the reports.
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