Following its successful introduction in the UK by HMRC, iXBRL statutory accounts filing is due to become mandatory for the Irish Revenue’s Large Cases Division (LCD) businesses as of October 2013 with an expected mandatory rollout for all other companies from October 2014. KPMG shares some practical tips.
XBRL (eXtensible Business Reporting Language) is a freely available, open, and global standard for exchanging business information. A primary use of XBRL is to define and exchange financial information, such as financial statements, in a computerreadable format.
iXBRL (Inline XBRL) is a development of XBRL in which the XBRL data is embedded in an XML document such as a published report and accounts. Typically, iXBRL is implemented within HTML documents, which are displayed or printed by web browsers without revealing the XBRL data inside the document.
A combination of improved reporting and analysis capability for tax authorities as well as reduced related costs are probably the main drivers for compulsory iXBRL filing. Revenue will have the capability to perform instant analysis of high-value data using their existing computer systems.
Like HMRC’s computers, Revenue’s computers will be able to immediately scan and record corporate tax values. This data can then be compared with thousands of other taxpayers’ data enabling the tax authorities to compare and contrast similar sized and structured entities relatively easily. This is done while effectively transferring the reporting and data preparation work to taxpayers at the same time, which is quite a neat trick!
Some of our UK clients were initially concerned at what was perceived to be pure compliance work. The consensus was that iXBRL provided little in the way of immediate tangible benefit – especially at a time (March 2011) when there was so much global economic upheaval affecting companies. It was felt that this was perhaps not the best time to be implementing an extra layer of compliance work with all the additional costs and effort that this required.
Having said this, all the clients we have dealt with approached iXBRL filing very proactively and positively. We tried to augment this by reminding them that HMRC had added in a caveat of a “soft landing” approach in the first year of iXBRL. This meant that if taxpayers attempted a “best effort tagging” approach during the embryonic iXBRL reporting period, no financial penalties would be forthcoming. HMRC’s sensible approach was appreciated by vendors and taxpayers and meant there was a bedding-in period in which to develop the new necessary tagging skill sets. Revenue is also promising a “soft landing” implementation approach.
So far, KPMG has not had a single client who has failed to submit their final accounts to HMRC and that is a testament not just to our software but to the diligence of our clients when tagging and reviewing their accounts. We are confident our clients in the Republic of Ireland will fare equally well.
Various iXBRL tools are available on the market and they all do the same things. They import a Word or Excel document (whichever format the statutory accounts are in) and allow a user to attach “tags” from a taxonomy (an electronic chart of accounts) to matching items on the accounts. For example, there is a section in the taxonomy called “Balance Sheet” in which are tags for all the items located in a Balance Sheet such as debtors, fixed assets and share capital. The user transfers the appropriate tag to the appropriate item. The tag attached to the text is usually highlighted so as to indicate that text has been tagged.
So, when the Word or Excel statutory accounts are then converted into a HTML document suitable for submission to a tax authority website – the accounts are still readable and in the same format as the original Word or Excel statutory accounts but hidden in the code is information telling the Revenue Online Service (ROS) that a debtor’s value is, for example, €1 million.
Typically we found that clients initially underestimated the difficulties associated with iXBRL. This is primarily because it seems, at first inspection, to be a simple process requiring no technical skills. In fact, while the physical process of tagging can be mastered very quickly, there is also a real skill in being able to select the correct tags for the correct items on the face of your accounts.
A number of basic errors crop up and most of these will result in an immediate failure when you submit your accounts to the Government Gateway or ROS. Even if the accounts pass this technical test, the error will be picked up by a tax official when they review your accounts.
Some obvious tagging errors include:
HMRC and the Revenue opted for iXBRL over pure XBRL because it provides more flexibility. In XBRL (which is used in the US primarily) every taxpayer is required to extend their taxonomy so that each and every item on the face of their accounts can be tagged. In iXBRL, the expectation is that a maximum of 70 - 80% of items on your accounts can and should be tagged.
The 30% of items left untagged are still readable by a Government tax official upon submission, so no information is lost in the process. iXBRL tagging is quicker and less technically difficult than pure XBRL, meaning it can be used more widely by taxpayers too.
The downside to this approach is that while certain tags are obvious, others are less so. To be “best effort compliant” a tagger needs to know when to tag an item, what tag is most appropriate and when to have confidence that there is no appropriate tag available at all. We recommend that a qualified accountant should perform the tagging. The reason for this is that anyone else will invariably struggle to select the correct tag for the correct item on the face of their accounts. We have been telling our clients for the last two years that it is important to get the tagging right. Interestingly, HMRC has just released a statement noting that partial or inaccurate tagging makes it more likely that a return will be selected for detailed risk analysis leading to a compliance check.
As noted in the Auditing Practice Board (APB) Bulletin 2010/1, ISAs (UK and Ireland) do not impose a general requirement on the auditor to check XBRL tagging of the financial statements as part of the audit.
Because the XBRL tagging is simply a machine-readable rendering of the data within the financial statements, rather than a discrete document, it does not constitute “other information” as defined in ISA (UK and Ireland) 720 Section A. Accordingly, the requirement of ISA (UK and Ireland) 720 Section A for the auditor to “read” the other information for the purpose of identifying material inconsistencies or material misstatements of fact is not applicable to XBRL tags.
The APB Bulletin 2010/1 notes that, subject to compliance with the ASB’s Ethical Standard (ES) 5 (and specifically the management and self review threats) and any applicable SEC restrictions, auditors can provide various non-audit XBRL-related services to audit clients. Such services may include:
Plan in advance and do not leave implementing an iXBRL production process to the last minute. Our clients in the UK who reacted quickly and set up processes and filed early found the overall process far less onerous than the clients who tried to ignore the problem until the last minute. iXBRL filing requires a joined up approach from both the Tax and Accounts departments and getting a process in place to ensure the smooth delivery of your tagged accounts.
Regardless of whether you are tagging your own accounts in-house using a solution or outsourcing the work to an iXBRL vendor to tag for you, you need to give whoever tags the accounts sufficient time to do so. Additionally, it is strongly recommended that someone other than the tagger reviews the tag choices made prior to final submission. iXBRL tagging can be a technically challenging discipline. Reviewing tagged accounts will help ensure consistency in your tag choices and eradicate the opportunity for unnecessary errors. And remember, tagging is a task for an accountant, not an IT person.
Finally, whichever solution or iXBRL vendor you opt for – make sure that their tool and processes include internal-tagvalidation- functionality as standard. Having a tool that performs all the same tests internally that ROS will perform at the final submission stage means you can rest assured that there will be no mishaps which could cause you to incur penalties.
This article originally appeared in Accountancy Ireland (June 2013) and is reproduced here with their kind permission.