ixbrl accounts cutting to the chase

Transcription

1 ixbrl accounts cutting to the chase Tax Automation non-executive chairman Donald Drysdale has been vocal in opposing mandatory use of XBRL for CT online filing. However, there comes a time when reality must kick in, and it seems that nothing will now stop ixbrl-based tax filing from being introduced. Companies not yet ready to comply with the new regime by April 2011 have little time left. Here Donald explores what they should be doing. Background HM Revenue & Customs are moving company tax filing to Inline XBRL (ixbrl) to enhance their risk assessment processes. The move is forcing substantial changes on companies, and many finance professionals still don t fully understand what ixbrl is all about. HMRC gave assurances from the outset that companies costs in implementing ixbrl would be modest and a wide range of ixbrl-enabled software solutions would be available well in advance. I fear that these assurances are being overtaken by events. Is your organisation ready for ixbrl? Earlier this year the Institute of Chartered Accountants of Scotland conducted a member survey to assess the readiness of companies and their tax agents for the new regime. With only a year to go until mandatory implementation on 1 April 2011, half the respondents cited uncertainties about software availability or difficulties in identifying suitable software as the greatest impediments to compliance. With some exceptions, large groups with multiple subsidiaries have complained about the move to ixbrl and the timescale, costs and administrative burdens involved. To be fair, HMRC has met with many of them on a one-to-one basis or through meetings of trade organisations, and this has helped. Despite their reluctance, all companies will have to conform to the new regime and their agents will want to be in a position to assist in this process. Companies may face significant penalties on failing to comply, although these will be applied sparingly during the first two years. As I write this, hard pressed developers are struggling to beat the April 2011 deadline. Some are lagging behind their own development schedules. Where accounts production solutions become available from now onwards, users will have little time for training, testing and preparing generally for the new regime. Vendors are incurring substantial development costs, and HMRC s claims that these will not be passed on to users could be regarded by those of a cynical nature as charmingly naïve. Are your software providers ready? You may have attended one of the events HMRC has hosted this summer and autumn, where developers could exhibit ixbrl-based products and services to companies and agents. I

2 attended one such exhibition in September, and it featured CT computations and online filing solutions, ixbrl conversion tools, tagging services and accounts production software. Given the earlier assurances from HMRC, the exhibition highlighted growing concerns. It was encouraging to see the large number of software vendors attending. However, while a range of applications for preparing ixbrl-compliant CT computations was available, accounts production solutions appeared thin on the ground. Vendors were quick to say their accounts solutions were almost ready or would be released soon, but these assurances seemed unhelpful to companies and agents anxious to make early decisions. For users with non-standard requirements, several ixbrl tagging and conversion solutions were on offer including some from new market entrants. I had thought that more vendors would have rushed to exploit the expected demand for such products, so I was surprised by the number of large consultancy firms not doing so and the vagueness of indications from others that they would sub-contract such work. CT software already widely available Most companies and agents prepare CT computations using proprietary tax software, a wide range of which is already ixbrl-enabled. I believe many packages will fall short of users needs when it comes to tagging non-standard schedules. Some software vendors are offering a tagging review service. In other cases, manual intervention will be required. Organisations will need to be prepared for manual tagging where necessary, and this will require personnel with an appropriate understanding of ixbrl and the taxonomies by reference to which individual data elements are tagged. While specialist industry sectors may face particular issues, the vast majority of large companies and groups will be well served by ixbrl-enabled proprietary CT software. Accounts production not so easy Statutory accounts are a different matter. In this regard the introduction of ixbrl-based tax filing is hitting many large groups quite badly. Proprietary accounts production packages have been available for years, but very few have yet been updated to cope with ixbrl. There are equally few ixbrl-enabled integrated applications addressing accounts production, CT computations and online filing together. Some users may opt for the integrated approach because the actual submission to HMRC must consist of the CT600, CT computations and statutory accounts together these cannot be lodged separately. A range of other accounts production solutions are promised by software vendors, and some are already available. These include software and services to convert (or tag) existing accounts to ixbrl format. Some groups may use these on an ongoing basis others as a stop-gap measure until better solutions become available. Large groups with multiple subsidiaries often prepare statutory accounts using spreadsheet or word processing solutions, or a variety of outsourced or off-shored arrangements, and the advent of ixbrl may persuade them to streamline processes by rationalising their accounts production templates. Many such groups are reluctant to use proprietary accounts preparation Page 2 of 5

3 applications because they believe (rightly or wrongly) that these will not meet their needs. But perhaps they should look again? What I m suggesting is that for large groups who haven t yet determined a clear path towards ixbrl implementation, now might be an ideal time to reconsider the way their statutory accounts are produced and look instead at the potential advantages of using off-the-shelf accounts production software. Assuming, of course, that more of these come to market very soon. If they don t, it might be best to adopt a stop-gap measure for a year before selecting the best accounts production package then available. Preparing subsidiary accounts is often seen by finance departments as unwelcome drudgery forced on them by colleagues in tax, since the accounts are used only for CT filing and Companies House. Stubborn views that proprietary accounts preparation packages will not meet their needs are often based on reluctance to change rather than any objective analysis of the alternative options. HMRC s website (at carries a useful list of software products that are ixbrl-enabled and have undergone minimal testing by HMRC. There is no requirement for software vendors to have their products tested and listed, and some are understood to be offering ixbrl-enabled software that is not on the list. Looking for help? Advice on the choice of software solution can be sought from various quarters. Many of the largest accountancy and consultancy firms either offer their own solutions or are keen to recommend those of particular software vendors with whom they are associated, so some of them may be constrained from offering wholly independent advice. Some advisers may also pander to finance or tax department antipathy towards proprietary packages. Without advice, prospective purchasers might find it difficult to make the right decision for the right reasons especially when the task is to adopt a new and unfamiliar technology format rather than simply replace existing software or working methods. Because ixbrl is so new, the decision is further complicated by the lack of live solutions currently available, and prospective purchasers are having to rely on promises from providers rather than being able to learn from reference sites and (more importantly) the experience of colleagues and friends in their industry. It is all too easy for a software supplier to tell you what you need and then produce a solution that appears to meet those needs. Software implementations are often marred by disparities between purchasers expectations (generally based on assumptions because they failed to ask the right questions) and harsh reality. Once the marketplace offers reasonable choice, it should be possible to choose between a range of different ixbrl-enabled accounts production applications or integrated packages capable of completing the necessary tagging more or less invisibly to the user. Some manual intervention might be required, particularly in the first year and when any major change in accounting standards, accounts layout or content is made subsequently. While the move to a carefully chosen accounts production or integrated package might be the ultimate aim, many groups are faced with the prospect of choosing a stop-gap measure until a better range of solutions becomes available. This could involve applying a conversion or tagging solution to existing accounts while waiting to see how the accounts production market matures. Page 3 of 5

4 Other factors such as the timescale for adoption of IFRS might impact on a group s choice of when they should move to their chosen solution. A word about conversion or tagging solutions. Many of these are web-based or outsourced, requiring accounts in old-style format (either electronic or hard copy) to be passed to the service provider, only to be returned in ixbrl-compliant format. This may warrant an assessment of security risks, and some users might prefer to adopt a stand-alone in-house solution. The software evaluation process While I m suggesting that an accounts production or integrated package may be the right way forward, appropriate care must be taken in the evaluation process. While the group personnel involved may think they know all about software selection, they should recognise that a new technology format such as ixbrl may throw up some unexpected issues not least a possible lack of shared understanding by purchaser and vendor regarding what is required. Some of the basic principles of software selection will stand prospective purchasers in good stead, including the following: 1. Know what you want - prepare well in advance and be clear about the user requirements. This is not always easy, especially when new functionality is involved. 2. Assume nothing. Sales people have no incentive to tell you the downsides software is no different. 3. Allocate the right resources to ensure that you obtain a balanced and impartial view of the options available. Beware of vested interests in the selection team what is best for an individual may not be best for the organisation in the long term. 4. Meet the implementation team, or speak to the support desk of potential providers this will give you insight into how they may treat you once you have signed up. 5. Don t believe everything you re told always apply a reality check to all information provided. An independent view When embarking on this, an ideal starting point would be to establish detailed requirements. To ensure that this is approached in an objective manner, you might find it helpful to involve an independent consultant with experience in group reporting processes, but with no commercial interest in any ixbrl solutions and thus able to offer impartial advice on the various software houses and the range of solutions they offer. This could avoid serious mistakes in terms of cost and functionality and could also save on set-up costs and implementation time. Looking ahead In the longer term many large organisations might benefit from implementing XBRL on a wider basis within their enterprise resource planning (ERP) and accounting systems, but they would prefer to control the nature and timing of this. They see once-a-year tax filings in ixbrl a very new XBRL variant not widely used in any other country and not yet supported by major ERP suppliers as bringing lots of cost and no benefit. Page 4 of 5

5 In spite of a reluctance to have ixbrl imposed by HMRC, I believe that in a decade or so XBRL will be incorporated into all ERP and accounting systems. We will look back and wonder how we ever existed without it. The clock is ticking In the meantime, implementation of ixbrl-based online tax filing is not going smoothly, and yet companies must try to comply with the new regime. For those who have not yet decided how to do so, time is rapidly running out. There is also an increasing question mark over the credibility of software vendors who have promised ixbrl-enabled accounts production software but not yet launched it. Some companies may think that HMRC s promise of a two-year soft landing on penalties will allow them to put off the evil day to defer any decision on how they produce ixbrlcompliant accounts until a wider range of options is available. Don t be misled! The soft landing will only apply to companies that can demonstrate that they have made all reasonable attempts to comply. Contact us Tax Automation has no commercial involvement in any ixbrl solutions for statutory accounts production or corporation tax computations. For more information, please contact us on or sales@taxautomation.co.uk. Page 5 of 5