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Extensible Business Reporting Language in India

Introduction XBRL
XBRL (eXtensible Business Reporting Language) reporting is gaining momentum as a medium of digital financial reporting (, 2014). It is a meta-language, based on XML and used as electronic communication of business information. The primary purpose of XBRL is to facilitate the preparation, publishing, exchange, and analysis of financial statements. In fact, using the framework of XBRL it is possible to facilitate numerous types of reports that can efficiently be parsed by computers (Vasarhelyi and Alles, 2008) and software applications available for the analysis of such information (Silveira et al., 2007). XBRL can be considered as innovation as it is becoming an internet business standardization language (Willis, 2007). A XBRL report does not only contain business and financial reporting information but it also includes attributes that describe that information. It doesn’t change the financial reporting standards but change the way in which business and financial information is reported. Typically, an XBRL report consists of an XBRL instance document containing the financial facts and taxonomies that provide the information about how facts are interrelated in the financial statement. Taxonomy works as a electronic dictionary for business and financial terms within the business realm. Instance documents are business reports that are physically connected to taxonomies. It contains both numerical and non-numerical data and information about the data.
XBRL in India
The XBRL wave started in India in late 2007 when the Institute of Chartered Accounts of India (ICAI) initiated the idea digital business reporting using XBRL with different regulators in India. XBRL implementation can achieve immediate benefits for Indian companies in terms of a more efficient means to file incorporation documents online and a simplified mode of filing of returns and forms. The benefits to Indian capital market include easy access to public information for users at anytime and from anywhere, which may increase information transparency. With increased coverage, it is hoped that the XBRL data thus collected would significantly enhance the Government capability in policy formulation and regulators, corporates as well as public and investors at large. Major regulators involved in the adoption of XBRL in India are Ministry of Corporate Affairs (MCA), Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority (IRDA). From 31st March, 2011, Ministry of Corporate Affairs mandated XBRL reporting (in phases) for companies, who would adopt the Commercial and Industrial Taxonomy developed by ICAI. In the first year (phase 1), the focus was on a certain class of companies who are listed in India, with paid up capital of Rs. 5 crore and turnover of Rs. 100 crores, would have to file their Balance Sheet and Profit and Loss in XBRL format from the FY 2010-11 onwards. The subsequent years witnessed a significant change in the regulatory reporting format and a new schedule VI for improvement in disclosure system for financial statements was enforced by the Companies Act 2013. The taxonomy architecture also underwent considerable change. Companies are also required to file their cost audit report and compliance report in XBRL format. Filers have the option to create their own XBRL documents in house or to convert their financial statements into XBRL format through outsourcing. Regardless of which approach, the first step is to tag each financial element to the published XBRL taxonomy so that accounting information can be converted into XBRL format. Once XBRL instance documents are created, filers need to validate the instance document before filing on MCA portal. Off-line process validates XBRL instance documents for business rules using the MCA off-line tool. Second, for online validation (Pre-scrutiny) the instance documents are uploaded and validated from the MCA21 system (MCA 2012).
The Ministry of Corporate Affairs (MCA) has adopted the XBRL taxonomy for Commercial

Financial Reporting on Goodwill and Intangible Assets

Question 1 Under International Financial Reporting Standards (IFRS), goodwill and intangible assets must be treated separately during a business combination in accordance with IFRS3. Prior to IFRS 3, companies, during a business combination situation, intangible assets and goodwill could be accounted for as goodwill[1].
Under IFRS 3, acquired intangible assets are treated separately to goodwill. With recognised intangible assets, the value of the intangible asset can be amortised over the useful life of the asset. Goodwill is the value difference between the price paid for a business on acquisition and the value of the assets. Unlike intangible assets, goodwill cannot be amortised but needs to be re-measured for impairment, on an annual basis. This impairment value can be included in the income statement as an expense, on an annual basis. This is the critical difference between intangible assets and goodwill[2].
Upon acquiring a business, the acquiring company must assess the fair value of the relevant assets and liabilities including some identifiable intangible assets. This is the only time that these assets can be recognised on the balance sheet. Internally created intangible assets cannot be amortised in a straight line and reduced in this way on the balance sheet unless they are identifiable in terms of a useful life expectancy. Intangible assets that have an indefinite life span cannot be amortised on a straight line basis and must be re-measured for impairment, instead. All internally created intangible assets are re-measured for impairment, regardless of whether or not they are able to ascertain the useful life expectancy of the asset[3].
Goodwill is generally considered as a type of intangible asset; however, for the purposes of IFRS 3, it must be accounted for separately, during a business acquisition, with goodwill never being amortised and intangible assets that can be recognised to have a specific life expectancy can be amortised on a straight line basis. This is not the same for internally created intangible assets which will never be amortised.
Question 2 (a) Gearing is calculated by considering the ratio of debt to equity, which is considered as debt divided by capital employed (or debt divided by debt plus shareholder funds). Intangible assets are often added back on to the shareholders’ funds as intangible assets such as goodwill and are a measure of the history of the company and not its current financial strength[4].
Numbers reported in company’s balance sheet
(733 8585) which is total borrowings divided by shareholder equity / (9318 4013) total debt plus shareholder equity
Adjusted to make goodwill valueless
(733 8585) / (4013 9318 – 4514) goodwill is taken off the shareholder equity
Adjusted to treat both goodwill and intangible assets as valueless
(733 8585) / (4013 9318 – 9974) goodwill and intangible assets are added back on
The higher the ratio or gearing percentage, the greater the company favours debt over equity. A ratio of 100% would indicate that the company has an equal preference for both the use of equity and debt[5]. Therefore, the higher the percentage the greater the dependence and the greater the perceived financial risk. Shareholders will only obtain a return on their equity once all interest payments have been made. Therefore, the higher the reliance on debt, the more volatile the shareholder earnings are going to be. However, the debt repayment is set and, therefore, the higher the gearing ratio, the greater the risk but also the greater the potential return for the existing shareholders[6].
The figure for Allied Boots, for the purposes of this analysis is 105.68%. Any figure over 100% is considered high, which means that there may be volatility for the shareholders, but the profit growth will also be higher.
In this case, the figure with goodwill ignored, has been used as this takes into account the fact that goodwill is largely a measure of historic value. The reason for this is that goodwill is entirely a reference to historic value generated in the business and should not, therefore, be taken into account as part of the shareholder equity. Intangible assets are continued value generating assets and should, therefore, remain in the calculation. For example, the intangible assets could include intellectual property which continues to add value to the business, whereas goodwill at the point of business acquisition is simply a reflection of the value of the business name at that point; no further value will be generated by virtue of this figure[7].
Question 3
In an entirely efficient market, all analysts will have all relevant information available to them, allowing them to makes suitable adjustments to give them the best possible information in relation to the value of the business. Truly efficient figures imply that all figures within the accounts reflect all known information[8]. However, in reality, markets are not entirely efficient as there is information that is not reflected in the financial data. Financial data, by its very nature, is historic and simply reflects what has happened in the past. Values for intangible assets such as intellectual property and goodwill can vary very quickly and are extremely subjective in nature. Goodwill and intangible assets are often based on information that is not publicly available such as internal know-how and, therefore, cannot be suitably analysed to see how realistic they are; this potentially offers considerable discretion for managers in terms of how these figures are reflected in the accounts[9].
Due to the potential discretion in this area, regulators need to lay down certain treatment rules to ensure that the information being provided by the financial accounts is as close to full, true and fair as is possible. This then allows the analysts to make the most suitable decisions for their chosen position.
Bibliography Blake, John, Lunt, Henry, Accounting Standards, Pearson Education, 2001
Dunse, Neil A., Hutchison, Norman E., Goodacre, Alan, Trade-related valuations and the treatment of goodwill, Journal of Property Investment