XBRL

What is XBRL?

XBRL (eXtensible Business Reporting Language) is a standard for submitting financial reports in machine-readable form. It is based on XML, a widely used format for structured data. Every item carries a unique identifier from a defined catalogue of line items, so that software recognises a value as revenue, provisions or equity without human interpretation. Marking up the values with these identifiers is called tagging. This is comparable to a form in which every field carries a fixed number: anyone who knows the number finds the value without having to read the text.

The standard is developed and maintained by the non-profit organisation XBRL International. In Germany, companies encounter it in three places. With the E-Bilanz (the electronic tax balance sheet filing), the balance sheet and the income statement (profit and loss account) are sent electronically to the tax office (Finanzamt). XBRL is also used for the publication of the annual financial statements in the German Company Register (Unternehmensregister) and in the reporting of listed companies. For most GmbHs (German limited liability companies), this runs in the background, because tax advisers and accounting software generate the files. XBRL gains importance where financial statement data is analysed, for example by the tax authorities, by banks or by buyers in a transaction.

Structure of an XBRL file: taxonomy and instance document

An XBRL report consists of two layers. The taxonomy is the catalogue of permitted line items. It defines the name and meaning of each item, its order in the presentation and the calculation relationships between the items, for example which sub-items add up to a total. The instance document, the actual XBRL file, contains the specific values of a company. Each value is provided with a context, which states the company and the reporting date or period, and with a unit such as euros.

Because the calculation relationships are part of the taxonomy, software can check a report for completeness and arithmetical accuracy before it is submitted. A pure XBRL file becomes readable for humans only with a display program (XBRL viewer). With Inline XBRL, by contrast, the identifiers are embedded directly in a readable document, so that the same file can be read by both humans and machines. For large data tables, there is the variant xBRL-CSV.

XBRL in the E-Bilanz under Section 5b EStG

Companies that determine their profit by accounting submit the content of the balance sheet and the income statement electronically under Section 5b of the German Income Tax Act (Einkommensteuergesetz, EStG) in an officially prescribed data set. This data set is an XBRL taxonomy of the tax authorities, which is updated regularly. Besides the core taxonomy for most companies, there are sector-specific and supplementary taxonomies for certain branches of the economy.

Either the commercial balance sheet is submitted with a reconciliation to the tax values, or a separate tax balance sheet. The taxonomy is structured in finer detail than the layout scheme under commercial law. Certain items must be filled in as mandatory fields; where the bookkeeping does not provide a breakdown, fallback items are available. To avoid undue hardship, the tax office can waive electronic submission on application. The structured data allows the tax authorities to carry out automated comparisons over time and across sectors.

XBRL in public disclosure and capital markets

For publication in the Company Register, the accounting documents can be submitted in structured form; common programs generate an XBRL file from the financial statement data for this purpose. The published financial statements can be retrieved publicly, to the extent prescribed by the size class. Data providers analyse them and make key figures on companies and sectors available.

Issuers whose securities are admitted to a regulated market in the EU publish their annual financial report in the European Single Electronic Format (ESEF). The report is a file in the web page format XHTML that can be opened in any browser. The information in the consolidated financial statements under International Financial Reporting Standards (IFRS) is tagged in it with Inline XBRL. The auditor also checks whether the presentation complies with these format requirements.

XBRL data in due diligence and valuation

Structured financial statement data makes comparisons easier. Banks classify borrowers on the basis of sector key figures, and investors and buyers form peer groups for the business valuation. Published financial statements of a target company are often analysed before the first conversation. What is stated there should therefore match the figures in the teaser and the management presentation.

In tax due diligence, the submitted E-Bilanz filings with their reconciliation calculations are among the documents requested. Buyers check whether the commercial and tax balance sheets are reconciled in a traceable way and whether changing allocations have produced anomalies that could lead to questions in a tax audit (Betriebsprüfung).

Practical example: XBRL mapping in the E-Bilanz of a software GmbH

A software GmbH books cloud infrastructure, freelance developers and software licences on one shared account for external services. For the E-Bilanz, the tax advisory firm has to assign every account in the trial balance to a taxonomy item. The collective account cannot be split cleanly and ends up in different items every year under slightly different criteria. In the time series, this produces jumps in cost of materials and other operating expenses that have no factual basis.

Before a planned funding round, the company sets up separate accounts for the three cost types and records the mapping to the taxonomy in writing once. The E-Bilanz, the published financial statements and internal reporting have been based on the same mapping since then. In due diligence, the expense items can be compared over three years without any rework.

Distinctions: XBRL, XML, E-Bilanz, ESEF and chart of accounts

• XML: general markup language for structured data. XBRL is an application of XML with defined rules for financial reports.
• E-Bilanz: the tax submission obligation under Section 5b EStG. XBRL is the technical format in which it is fulfilled.
• ESEF: European reporting format for annual financial reports of listed issuers, which builds on Inline XBRL.
• Chart of accounts: the structure of a company's own bookkeeping. It is reconciled to the taxonomy by means of a mapping table.

Common mistakes

• Not adapting the chart of accounts to the taxonomy. The mapping work then repeats every year and ties up time in bookkeeping and tax advice.
• Changing allocations every year. Changing allocations produce jumps in the time series that have to be explained to the tax authorities, the bank and buyers.
• Overloading fallback items. What ends up in collective items cannot be analysed meaningfully, either internally or externally.
• Treating publication as a formality. Published figures are public and are read by competitors, banks and potential buyers.

Frequently asked questions

Does the management have to deal with XBRL itself?

As a rule, no. The tax adviser generates and submits the files. What does have to be decided is how the chart of accounts is structured, because the quality of the mapping depends on it.

What is XBRL tagging?

Tagging is the marking of each value with the appropriate identifier from the taxonomy. For the E-Bilanz, it is done by mapping the bookkeeping accounts to taxonomy items. For annual financial reports in the ESEF format, the preparer marks the figures in the readable document with Inline XBRL identifiers. A wrong tag causes software to evaluate a value incorrectly, even if the readable document is correct.

Which companies have to submit an E-Bilanz?

All companies that determine their profit by accounting, which includes every GmbH. Anyone who determines profit by a cash-basis profit calculation (Einnahmenüberschussrechnung) submits the EÜR annex instead.

Can competitors see the figures of a GmbH?

Where they have been published, yes. Small companies publish only the balance sheet and the notes, and micro-entities (Kleinstkapitalgesellschaften) can deposit their balance sheet, in which case it can be inspected only on request. From the medium-sized company upwards, the income statement and the management report are public as well.

Is the E-Bilanz public?

No. It goes exclusively to the tax authorities and is subject to tax secrecy. Only the published commercial documents are public.

The Roemer Capital view

Before a sale process begins, Roemer Capital checks what a buyer can already learn about the company from the Company Register. This includes the size class, the scope of the published documents and the development of the published key figures. If these figures deviate from those in the teaser or the management presentation, Roemer Capital explains the reconciliation before the question is asked.

Roemer Capital draws on published financial statements of comparable companies as one of several sources to place a client's key figures in context. The technical preparation of the files remains the task of the tax adviser.