Dear All,
As all know, MCA has mandated for certain classes of companies
for filing of their financial statements only in XBRL Form from the year
2010-2011 and in coming years applicability of filing financial statements in
XBRL forms will be extended to other class of companies as well.
Companies to
whom XBRL was applicable have accepted the new initiative of MCA by filing
their financial statements in XBRL, either
by doing XBRL conversion in-house or outsourcing to a third party service
provider.
Now time has
come for us to analyse the current situation in detail to know where we stand
and what to do next to make the new initiative of MCA a big success in coming
years.
MISCONCEPTION ABOUT XBRL PROCESS
Many
people have a misconception that XBRL process is similar to converting a Word
document into PDF file or filing Income tax return and that XBRL data generated
using software is as accurate as the information in annual report and there is
no potential risk involved in XBRL conversion process.
This
is an inappropriate analogy, because the process of generating XBRL data
involves judgment and there is potential for intentional or unintentional
errors that could result in inaccurate, incomplete, and / or misleading
information. This is a problem because it is the XBRL data that will ultimately
be used by all. Therefore, completeness, accuracy or consistency of the XBRL
data is of paramount importance.
MISCONCEPTION ABOUT MCA XBRL VALIDATION TOOL
Many
people have a misconception that once XBRL instance documents pass validation
and prescrutiny of MCA validation tool, it is perfect for filing. However we
have to understand the reality that MCA validation tool checks only
Minimum/mandatory requirements of MCA which is only a small portion of actual
requirements.
MCA
validation tool has no provision to check appropriateness of information
captured, completeness and reporting different data instead of actually
reported in annual reports etc. Even if we don’t capture any of the contents in
notes to accounts, cash flow statement etc. we can create XBRL documents ready
for MCA filing.
MISCONCEPTION ABOUT TIME & COST REQUIRED FOR XBRL
CONVERSION SERVICE.
Many
people believe that XBRL conversion can be done within hours or in a day. However
a reasonable sized company will take about 20-30 working hours of effort, at the least depending
upon the complexity of financial statements irrespective of the software and
expertise, if quality is the ultimate aim. However there are service providers who
are ringing up saying ‘we can do it in a working day and/or for Rs. 3000 PER
COMPANY…I keep wondering how and why…
The
misconception of professionals and managements about XBRL resulted in some
major issues which should be taken care of in future so that XBRL achieves its
real goal and benefits. Some of the issues faced in first year are given below
·
Noncompliance of MCA XBRL business rules relating to the information
required to be included in XBRL data and the extent of such information. e.g.
(a) capturing of auditors report , directors report and notes to accounts in
detail instead of capturing it as a whole(i.e. block tagging) (b) not capturing
related party transactions in detail in addition to block tagging
·
Incompleteness of financial information of companies in
XBRL format. This was the result of not capturing at all, of some of the
critical information given in annual report.
·
Inaccuracy of financial data by classifying a concept
completely wrong e.g. classifying stock differential as other operating revenue,
other expenses etc.
REASON FOR ABOVE ISSUES
·
XBRL conversion process is handled completely by people
without sound accounting knowledge.
·
Non verification of XBRL documents by the management of
the company before filing with MCA.
·
Unawareness of professionals and managements regarding
XBRL concepts and XBRL business rules of MCA.
·
Lack of training programs on XBRL.
·
Use of Software not having all the features necessary for
making XBRL instances with required quality
STEPS TO BE TAKEN TO IMPROVE THE QUALITY OF XBRL FILING
·
BY
MANANGEMENT
Ø WHEN CONVERSION IS
DONE INHOUSE
§ Selection
of appropriate software having all the requisite features
§ Identifying
right staff having sound accounting knowledge for XBRL conversion process
§ Review
of XBRL converted financial statements by accounts/finance manager to ensure
accuracy and completeness of annual report in XBRL format as well
§ Understanding
of MCA XBRL business rules (the same can be achieved by engaging professionals
having sound knowledge on XBRL conversion and business rules for certification
of XBRL documents for MCA filing.
ØWHEN
XBRL CONVERSION IS OUTSOURCED
§ Identifying
right service provider by looking at the following aspects :
o Accounting
expertise of the team engaged in XBRL conversion process.
o Will
they have a relationship manager who can explain what is done, to the management
/auditor of the company?
o Will
they deliver XBRL files for verification by the management well before due
date?
o Will
they interact with you about the tag selection and will you be allowed to make
some changes?
o Will
they provide support service for solving all the queries/doubts of the
management until management is satisfied?
§ Will the service provider provide sample instance
documents created by them for the initial year to help the management
understand the quality of the service they provide?
§ Have they created documents for ANY other regulator or do
they have people having experience on XBRL conversion process for any other
regulator – it could be RBI, SEBI, HMRC, SEC .some experience somewhere is of
great re-assurance.
·
BY PROFESSIONALS
Ø Acquiring knowledge about XBRL taxonomy, business rules etc.
Ø Developing a team having sound accounting knowledge for
carrying out XBRL conversion services for client.
Ø Review
of XBRL converted financial statements by a qualified professional to ensure
accuracy and completeness of annual report in XBRL format as well, before
delivering the XBRL documents for client verification.
Ø Providing XBRL converted financial statements for
verification by the management.
Ø Incorporating changes suggested by clients if the same is
supported by business rules or providing explanations to the satisfaction of
the management if the suggested change cannot be incorporated.
Ø Filing of instance documents only when the same is
approved by the client for filing.
RESPONSIBILTY AND LIABILITY OF MANAGEMENT AND
PROFESSIONALS CERTIFYING XBRL INSTANT DOCUMENTS.
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LIABILITY CLAUSE FOR MANAGEMENT
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23AC XBRL
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23ACA XBRL
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It is confirmed that the attached
XBRL document(s) are the XBRL converted copy(s) of the duly signed Balance
Sheet and allother documents which are required to be annexed or attached to
the Balance Sheet as required under Section 220 of the Companies Act, 1956.
It is further confirmed that such document(s) have been prepared using the
XBRL taxonomy as notified under Companies (Filing of documents and forms in
eXtensible Business Reporting Language) Rules, 2011
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It is confirmed that the attached XBRL
document(s) are the XBRL converted copy(s) of the duly signed Profit and Loss
account and all other documents which are required to be annexed or attached
to the Profit and Loss account as required under Section220 of the Companies
Act, 1956. It is further confirmed that such document(s) have been prepared
using the XBRL taxonomy as notified under Companies (Filing of documents and
forms in eXtensible Business Reporting Language) Rules, 2011
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LIABILITY CLAUSE FOR PROFESSIONALS
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23AC XBRL
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23ACA XBRL
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·
It is hereby certified that I have
verified the above particulars (including attachment(s)) from the audited
financial statements of ….(Company name) and that all required attachment(s)
have been completely attached to this form. It is further certified that the
attached XBRL document(s) fairly present, in all material respects, the
audited financial statements of the company, in accordance with theXBRL
taxonomy as notified under Companies (Filing of documents and forms in
eXtensible Business Reporting Language) Rules, 2011.
·
It is confirmed that the attached XBRL
document(s) are the XBRL converted copy(s) of the duly signed Balance Sheet
and all other documents which are required to be annexed or attached to the
Balance Sheet as required under Section 220 of the Companies Act, 1956.
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·
It is hereby certified that I have
verified the above particulars (including attachment(s)) from the audited
financial statements of and that all required attachment(s) have been
completely attached to this form. It is further certified that the attached
XBRL document(s) fairly present, in all material respects, the audited
financial statements of the company, in accordance with the XBRL taxonomy as
notified under Companies (Filing of documents and forms in eXtensible
Business Reporting Language) Rules, 2011
·
It is confirmed that the attached XBRL
document(s) are the XBRL converted copy(s) of the duly signed Profit and Loss
account and all other documents which are required to be annexed or attached
to the Profit and Loss account as required under Section 220 of the Companies
Act, 1956.
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CONCLUSION
The
focal point of XBRL is the evaluation of the accuracy and validity of the XBRL
tags applied to the line items in the financial statement of the company. In
order to perform these evaluations, the management, service providers and
auditors need to have the knowledge of XBRL concepts and how financial
information can be converted into XBRL without compromising quality, accuracy,
completeness and materiality.
