The recent iXBRL mandate by Her Majesty Revenue & Customs (HMRC) requires that all statutory business tax returns be filed electronically using a technology called iXBRL or inline XBRL. After 31 March, 2010, paper filings will not be sufficient, and companies filing after this date must submit their tax returns online through the Government Gateway.
The transition to iXBRL has been the source of much confusion and anxiety, with businesses unsure how to effectively estimate the efforts and costs associated with compliance. The purpose of this solutions memo is to present the challenges surrounding iXBRL compliance, so that business reporting managers can make well-informed decisions about a path forward.
What is iXBRL?
The HMRC mandate dictating the use of iXBRL is yet another in a series of regulations aimed at increasing transparency in business reporting. Typically the business reporting process is a time-pressured one which is highly dependent on a small but mighty group of individuals who manually gather the needed information from a large number of stakeholders, ensuring the appropriate rules are applied and financial documents are delivered in the required formats.
XBRL – eXtensible Business Reporting Language – is a data technology designed to increase interoperability of information between computer systems. XBRL essentially applies contextual information to data – or metadata – which helps systems parse through what might otherwise be confusing tables of raw, and meaningless, information. XBRL has been increasingly adopted by financial institutions and governmental departments across the globe, because its flexibility and interoperability provide unparalleled transparency and insight into business filings.
Because XBRL was designed to facilitate computer-to-computer interaction, however, it can often be difficult for mere humans to parse the output created by systems using the language. XBRL data, while powerful, is quite weak in terms of capturing the rich presentation semantics surrounding business reporting information.
Enter iXBRL, or “inline XBRL”. iXBRL is an evolution of XBRL which contains additional information about how XBRL data should be presented: onscreen, in a statutory account, in a tax filing, or on a printed page. iXBRL essentially merges the formatting of a document with the application of the XBRL metadata, making it much easier (for humans) to view financial data. At the same time XBRL data can be extracted from an iXBRL document, hence preserving the best of both worlds – presentation for humans, and structured data for machines.
Inline XBRL
iXBRL allows humans to interact with XBRL-enabled financial documents in a more user-friendly manner.
The HMRC Mandate
The mandate specifies the minimum acceptable content for a statutory business tax return. For all accounting periods ending on or after 1 April, 2010 and filed on or after 1 April 2011, company tax returns must be filed electronically. HMRC have issued guidance on the requirements for filing iXBRL online, which can be found here: www.hmrc.gov.uk/ct/ct-online/file-return/switching.htm.
The final required filing will be comprised of an iXBRL computation file and statutory accounts file, both of which are attached to the electronic version of the CT600. The mandate covers approximately 1.5 million businesses, and does not affect submissions to Companies House.
Tagging Statutory Accounts with XBRL
HMRC continues to examine the available tags as the XBRL standard evolves, and to update published taxonomies annually as needed. They have also published a minimum set of tags to be used by companies filing according to UK GAAP or UK IFRS standards, with additional tagging requirements to be phased in several years from now (most likely from April 2013). Companies will not need to use each of the tags listed in the minimum tagging requirements taxonomy – only those which apply to the labels in your statutory accounts will be required.
However you choose to tackle compliance, the importance of the “Map >> Tag >> Validate” lifecycle cannot be overstated. Initial mapping is done outside of any software solution by a cross-functional team. Mapping tags to your unique business conditions will help your team size the effort required, and the number of tags you will be required to apply to your statutory accounts. As tagging begins, it is important to validate that the output is what you’ve intended: validate early, and often.
For most companies, adapting to iXBRL requirements will be a catalyst for a re-evaluation of your statutory accounts production processes and systems. And although iXBRL rules increase your reporting requirements, they do not increase the time available for filing. For many companies, periodic filing windows have decreased by a not insignificant amount. Your company can’t afford to sacrifice time from the accounts production process to make up for the increase in reporting effort due to iXBRL.
From a pure business perspective, XBRL’s transparency offers few immediate benefits to filing companies, and plenty of immediate challenges. Depending upon the type of solution you implement, recurrent tagging, validation, and filing requirements can easily overwhelm your business reporting team – especially for businesses filing large numbers of statutory accounts. Strategic solutions will allow XBRL taxonomies, business reporting templates, and specific tags to persist from period-to-period – possibly even featuring shared tag libraries to be used from one statutory account to the next. These time-saving features will significantly reduce compliance efforts after the initial filings are complete, saving valuable time and effort for the ongoing maintenance of any compliance effort. More inexpensive, “quick fix” tools will do just the opposite – placing the greater part of the tagging, validation, and XBRL tag maintenance efforts on your staff, and requiring a greater overall cost of ownership in subsequent periods.
It is becoming clear that simply increasing staff or work hours to handle the increased work will not be a sustainable or strategic solution. Additional staff adds to the cost and complexity of the entire process and the manual effort doesn’t scale. Overworking existing staff adds risk and delays from the inevitable creation of and correction for errors. The challenges are made more complicated when a company has a huge number of statutory accounts.
iXBRL compliance is a recurring technical requirement, and consequently requires a technical solution to achieve strategic goals. That solution is to automate as many of the recurring and repetitive processes required for tagging of statutory accounts content as possible.
Types of Solutions Available
There are three basic avenues to iXBRL compliance:
- Bolt-On Solutions
- These “helper” software tools allow businesses to apply XBRL tags after statutory account data has been compiled. Bolt-on capabilities are widely available, offer what seems to be low-cost entry into iXBRL compliance, and provide a baseline level of features and functionality to get your team started. Bolt-on tools allow tagging at a near-final step in the business reporting process, but do not allow tagged data or taxonomies to persist from period to period, however (or even from one version of a document to another), and so can require additional manual effort if your team is often editing the data contained within your statutory accounts; for these reasons, total cost of ownership is much higher than the price of the software itself.
- Embedded Solutions
- The more strategic alternative to a bolt-on tool is an embedded, automated solution. Embedded or “built-in” iXBRL software solutions often integrate XBRL functionality with broader financial governance, risk management, and compliance feature sets, allowing tags, taxonomies, extensions, and even statutory account templates to persist from one period to another. After the initial compliance effort, the efforts required in succeeding periods is often much smaller with an embedded software solution.
- Outsourcing
- Many businesses offer a combination of software and services which makes it possible to outsource the entire iXBRL compliance effort. However, the expertise required and the multiplier effect seen by businesses filing multiple statutory accounts can make this option expensive and time-consuming.
The Embedded Approach to iXBRL Compliance
The embedded model represents the future of XBRL/iXBRL compliance. It’s true that the other models do have an initial appeal: the lower initial entry fee of a bolt-on tool will win many over in a trial mode for initial compliance, while the hands-free outsourced model provides an illusion of reducing the pressures felt by your business reporting team. But companies with a strategic outlook will seek to own control of the iXBRL tagging process (difficult if not impossible using an outsourced model, as the knowledge surrounding compliance is never captured by the business), and leverage the HMRC mandate to increase the efficiency and reduce the total cost of business reporting efforts (also difficult using a bolt-on tool, as the manual effort to tag, validate, and manage your iXBRL must be repeated from period-to-period, and often from one statutory account to the next).
The embedded approach, on the other hand, allows business to bring iXBRL compliance efforts in-house and – more importantly – to control the strategic decisions surrounding tag management, which will have a positive impact on productivity and reduce costs in successive periods.
Immediate and Recurring Benefits
IMMEDIATE BENEFITS:
- Reduce Manual Labor
- Increase compliance
- Tag once
- Tag at the source
- Validate early and often
- Manage complexity
Embedded solutions provide both immediate and recurring benefits. Immediate benefits include a reduction in repetitive manual labor, increased compliance, the ability to tag a document once rather than having to repeat the tagging process as edits to the document are made, an ability to apply XBRL tags as close to “source” data as possible, and support for frequent validation.
But the recurring benefits are where an embedded solution really begins to pay off for the business.
First, it’s essential that previous XBRL tagging efforts can be carried over to subsequent reports. While the information in each subsequent business filing varies, the output structure and source data are typically very similar. Effort that has gone into tagging these elements and their attributes should be retained across periods as much as possible. Look for the ability to assign tags as meta-data to enable efficient roll-forward.
Also, as described above, consider whether tags can be assigned to the source of data, rather than to output. When an item such as “Gross Annual Revenue” is tagged at the source, an embedded system should be able to automatically fill-in rounding, currency, year, and other related tag parameters.
Secondarily, the ability of the system to adapt to changes over time will greatly affect its long-term benefit. The number of disclosure items required to be tagged could increase dramatically, and the automated system should gracefully expand to support that additional detail. Similarly, the system must adapt to the evolving changes in XBRL taxonomies, and provide tools to help users apply these changes appropriately.
Another important consideration for an XBRL compliance system is its integration with your other financial systems and processes. Beyond the fundamentals of XBRL tagging, some automation systems offer components or extended capabilities that provide additional benefits for more efficient and better-managed business reporting.
One example is workflow management, which enables improved collaboration and “parallel progress” towards tagging, through all the complex iterations of statutory account creation. Other important background capabilities that could benefit your company include automated security, permissions and approvals for creation, deletion and revision of document content, with built-in audit trails and version tracking.
Automated production of the final, formatted statutory account, with support for common file types such as PDF, Microsoft Word, and HTML adds further benefits in efficiency and reduction of errors.
Automation can begin even further upstream, enabling similar efficiencies, cost reductions and error reduction. Automation also allows you to redirect resources to more meaningful analysis of the financial results, providing enhanced information and analysis to executives for more informed decision making and more accurate commentary on performance to the financial markets. In fact, automation can begin at account reconciliation and carry seamlessly through to business reporting, compounding benefits along the way.
Conclusion
In reviewing the capabilities and potential benefits of the two categories of XBRL automation, bolt-on and embedded, the limitations of the bolt-on approach become more apparent.
ASK YOUR VENDOR:
- How does your solution scale to manage a large number of statutory accounts?
- Does your solution maintain tag libraries from one period to another? How are changes to XBRL taxonomy or individual tags managed from one period to another?
- Does your solution allow multiple users to work on the same document at once, regardless of geography or time zone?
- Does your solution support document tagging and tag management for multiple entities?
- Does your tool offer a single repository for multiple reporting entity filings?
- How does your system integrate with other back-end systems?
Bolt-on XBRL solutions, by their nature, yield lower immediate benefits other than a low initial purchase cost. As they are not closely integrated with business reporting systems, they are often more complex to use. They are dependent on the business report as their data source, and typically require more manual re-keying and tag assignment, particularly as the statutory accounts are revised. Bolt-on solutions may require delaying application of tags until the statutory account is final, preventing distribution of the workload, adding a great deal of risk for meeting filing deadlines, and little room for correction of any errors discovered in the process.
Bolt-on solutions also yield fewer recurring benefits, as relatively little of the tagging effort from previous documents carries over to future accounts.
In contrast, embedded XBRL solutions offer far greater immediate benefit, and nearly all past tagging effort applies to future reports. Further, embedded solutions enable other efficiencies and error reduction through sharing of tagging effort, context-awareness of source data to assist in tag selection and validation, and presentation through a software interface that’s already familiar to your users.
The primary advantage of a bolt-on solution — a lower initial cost — is very quickly lost when compared to the higher immediate and recurring benefits from an embedded solution.
By: Dave Tomlinson
This article was syndicated via RSS from: http://www.trintech.com/2010/07/complying-with-the-hmrc-ixbrl-mandate/
