Guidelines for organizations preparing for XBRL implementation
As India gets ready to build a foundation for digitalization of financial reporting there are many things that need to be considered. There is bound to be a lot of inhibition and uncertainty with any new innovation. XBRL might be perceived as a regulator driven phenomenon right now but once the companies adopt and embrace it, the advantages will be manifold.
Based on what we have seen in the countries which have already implemented XBRL, there are certain challenges right from raising awareness and initiating an XBRL project to its implementation and realization. We believe that every organization needs to follow these guidelines to gear up for XBRL implementation.
1. XBRL Knowledge - Everyone concerned should know what XBRL is, how it works and what problems it solves.
2. Proactive dry run – A voluntary filing by companies will provide a good exercise in experiencing the new filing format even before the MCA mandate.
3. Tool selection and implementation – XBRL filers should spend time on education, awareness, preparation and planning about the available implementation options.
4. Choosing the right people – XBRL filings require a cross functional team from the accounting, finance and technology departments of a firm.
5. Plan and support ongoing maintenance – The initial obligation of most companies will be to make themshelves compliant with the MCA mandate but they should also be ready for taxonomy changes and prepare for maintenance of source data, instance documents and all other related XBRL data and documents for future years.
6. Tagging – Selecting the appropriate taxonomy applicable to the specific industry is the most important task because it is the basis of tagging data in an XBRL document. Organizations should take the time to review and understand the taxonomies to avoid errors in tagging and reporting data. The effort associated with tagging involves detailed accounting knowledge and the exercise of careful judgment by financial reporting specialists.
7. Taxonomy extension – Extension of taxonomy documents are as important as instance documents. If the XBRL preparation has been outsourced it is important to work with the provider to understand the process of taxonomy extension. For this year MCA would not accept any taxonomy extension, all XBRL filing should adhere to the base taxonomies released by MCA. In future, companies filing with MCA will need to create extension taxonomy for their own unique disclosures and this will need a cross functional team.
8. Report generation – XBRL is designed to define the content of a document separately from its formatting. Hence, there is a need for a presentation format to operate in conjunction with the unformatted XBRL to enable human readability of the filings. Presentation layer plays an important role in XBRL based reporting.
9. Ensuring quality
- The tagging process should be validated by a CA to ensure the proper mapping of data elements
- Making sure that the MCA defined taxonomy is used for generating the instance document
- Rendered XBRL documents should be checked for accuracy and consistency
- Filers should involve their auditors for assurance regarding the XBRL filing
10. Leveraging XBRL for internal reporting – Organizations adopt XBRL as a strategic decision or as a requirement of a regulator like MCA. It would be wise for organizations to decide to leverage the mandate and use XBRL for their internal reporting as well.
Companies in India will be better prepared for their migration from the traditional paper based financial reporting and filing to the more interactive and technology enabled XBRL if these guidelines are adhered to from the onset itself.
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