Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation Japan Introduces XBRL-Enabled EDINET System for Financial Reporting
Written by Toshinori Kobayashi Posted on May 5, 2008
Toshinori Kobayashi is director for enforcement of corporate disclosure at JFSA (the Financial Services Agency of Japan). He was responsible for the XBRL renovation project of EDINET, the JFSA’s electronic disclosure system.
On March 17, the world’s largest XBRL-enabled public system made its debut: Japan’s Financial Services Agency (JFSA) launched its renovated EDINET system for the electronic disclosure of financial information of listed companies and other business entities.
Based on the results of the Government’s internal review, the renovation project began in August 2006 with the development of the system and taxonomy. As it proceeded, various stakeholders – businesses, investors, analysts, CPAs, and others — weighed in with their input on the deployment. In January/February 2007 and July/August 2007, two test pilot programs took place. There was a high level of interest by Japanese businesses in this project: some 1,200 companies voluntarily participated in the second pilot program.
Development proceeded relatively well; however, as is usual in big projects of this kind, the workload was largest right before launch. Just before the new system went into operation, the project’s engineering staff endured a string of all-nighters. The engineers’ fatigue turned to exhaustion when, on the day of launch, heavy access at start-up and minor programming errors brought the new system down for several hours. However, in the end, mass chaos did not ensue, and the new EDINET system successfully came on-stream. (Please note the new EDINET taxonomy can be obtained online.)
The business entities that, according to Japanese law, must prepare and disclose electronically their annual reports, quarterly reports, security registration statements, and other financial filings total about 5,000 listed companies and 3,000 funds. What’s important about the current project is that, for those entities required to file, the XBRL format is no longer voluntary but mandatory.
NOTE: Currently companies that prepare their statements in US-GAAP or IFRS are not required to file using the XBRL format. Because the systemization of taxonomies for US-GAAP and IFRS in their home countries and areas has not yet been completed, such a requirement would be too much of a burden for the affected companies. When the taxonomies for US-GAAP and IFRS are completed, mandatory filing will be reviewed for the affected companies.
Companies that are filing on EDINET will be required to issue XBRL-enabled financial reports and statements starting in fiscal 2008. Since most firms in Japan have March fiscal year-ends, the large majority of companies will issue their first XBRL reports for the first fiscal quarter ending June 2008. The reports for that period will be submitted in July to August.
As I mentioned at the outset, the new EDINET system will be the world’s largest XBRL-enabled public system; it (1) covers about 8,000 companies (funds included), which is an exceptionally large number; (2) mandates XBRL, and (3) makes XBRL-enabled data public for the use of investors and others.
Although various countries have put into place XBRL systems, I don’t believe there are any that have all three characteristics. Prior to my current post, I had responsibility for software policy inside the Japanese government. I can say that, outside of information appliances, there are not many areas where Japan is a world leader in IT systems. Therefore, this new, leadership position of Japan in the XBRL field is very exciting, and I believe Japan should make efforts to continue that excitement in developing XBRL.
Nevertheless, certain issues do face the new EDINET system:
(1) XBRL adoption is only being effected for the financial statements. The announced US GAAP and IFRS taxonomy drafts cover footnotes, which the EDINET taxonomy currently excludes. A definitive schedule for introducing notes hasn’t been established; at the very least, footnotes should be considered for inclusion soon.
(2) The technologies for versioning, rendering, and formulas are not in place. As work goes forward to decide the specifications for these technologies, a pathway toward implementation must be evaluated.
(3) There is a need to secure US-GAAP and IFRS interoperability. Right now XBRL is being introduced in Japan and the other major securities markets. However, if the technological consistency of the various taxonomies, the method of introduction and application of those taxonomies, rules for instance document generation, expression methods, and so on all differ among Japan, US-GAAP, and IFRS, financial information will be neither interoperable nor compatible.
From the beginning of the project, I have been very concerned about item (3) above. In January 2007, we raised this issue in our discussions with the SEC, and — after several meetings — the IASCF joined in October 2007. Thus, there is a system now in place for the SEC, IASCF, and JFSA to work together on this matter. In December 2007, at the international XBRL conference in Vancouver, the three parties announced their cooperation on this issue (please refer to our conference presentation). Afterwards the cooperation of the EC was secured as well. As a result, there is a system in place for four of the major regulating entities to work together on these issues.
I believe XBRL must become a part of the global infrastructure for securities markets. The impact of XBRL will be enormous not only for investors and analysts, but for the reporting companies as well. From this vantage point, I think securing multinational interoperability is extremely important. I hope to touch on these points in more detail in future posts. My hope is that an understanding of the Japanese experience with EDINET can contribute to the cooperative work of the major regulating entities, and that we tackle this arduous task of promoting interoperability. We are busy working together with the SEC, IASCF, and the EC in preparing to introduce a part of our cooperative work at May’s XBRL international meeting at Eindhoven.