The new CRD IV banking regulation being introduced to bring Europe into line with Basel III regulation is prompting growing debate amongst regulatory authorities and banks alike. Many aspects remain unclear, so it’s timely that a conference providing deep insight into the new regulatory landscape is taking place on June 17th at the London Hilton on Park Lane.
‘Preparing for CRD IV reporting’ is aimed at those involved in both banking regulation and preparing for the new reporting regime under COREP and FINREP and the conference will raise awareness of the issues around the imminent introduction of CRD IV compliance within Europe.
Sharon Bowles MEP, Chair of the European Parliament’s Economic and Monetary Affairs Committee, and a keen proponent of improving banking regulation at the European level, will give the keynote address, and the morning plenary session will include other high profile speakers from the European Central Bank, the European Banking Federation, the Bank of Spain and the International Monetary Fund.
After lunch, the programme will split into separate track sessions catering for delegates whose main interest is either the business or the technical aspects of CRD IV reporting. Contributions from the EBA and top consulting firms will be followed by panel discussions and a Q&A session to broaden the debate.
Full details and registration at http://conference.eurofiling.info
Last week CoreFiling took advantage of an invitation to attend the SME Innovation Expo 2013 in London, organised by HMRC in conjunction with Capgemini. This high profile event gave an opportunity for small and medium IT suppliers to meet with a wide range of people from HMRC and other government departments.
CoreFiling was proud to be chosen to represent the SME community as one of only two companies profiled as ‘exemplars’ of effective working together with government. During the morning plenary session we shared the platform with Skyscape for informal Q & A giving insight into how to work successfully with a government department, the impact it can have on the business and some of the challenges that SMEs face. The role CoreFiling played in the invention and pioneering of iXBRL was also recognised during the presentations, which highlighted HMRC’s Company Tax filing project as the world’s largest, highly successful XBRL implementation.
The Keynote Speaker was Stephen Kelly, Chief Operating Officer at the Cabinet Office, who emphasised that under the Digital by Default agenda, there are excellent opportunities for SMEs to help drive efficiencies and offer cost-effective services.
Mark Hall, HMRC CIO, spoke about how HMRC is being transformed into a digital business, needing a different approach to delivering IT services. Increasingly, this means using a new SME ecosystem that can meet the growing imperative for agility as well as a range of new products and services. The key message was that: “HMRC is open for business with SMEs.”
Bill Cook from Capgemini gave a talk about ‘Supporting the SME agenda within government’, which again emphasised the role that companies such as CoreFiling can now play within government IT and how this aligns with Capgemini’s role as a Solutions and Systems Integrator within the new HMRC structure.
During the afternoon, twelve SME organisations exhibited their products and services to delegates from government departments such as HMRC, Cabinet Office, DWP and Ministry of Justice. CoreFiling and the other exemplar company, Skyscape, were on hand to discuss with other SMEs the keys to engaging successfully with government, and to market our own credentials to the visiting government departments.
This was an excellent, very well attended event. It was heartening to see the government’s increasing commitment to the SME community.
I’m pleased to report on some important steps forward regarding a couple of specifications that are close to our hearts.
On 27th March, EIOPA published the latest draft of the Solvency II taxonomy, making use of both the January Public Working Draft of the Table Linkbase Specification, and the Taxonomy Package Specification.
Moving to a recent PWD of the Table Linkbase specification is an important step for the development of both the specification and the taxonomy, as it means that the taxonomy draft can benefit from improved tool support, and the specification from real world feedback.
Meanwhile, my colleague Jon Siddle continues to work tirelessly with the XII Rendering Working Group to complete the remaining work on the Table Linkbase Specification. The latest edition of IBR magazine included an article by Jon explaining how the specification expands the boundaries of what can be achieved with XBRL (see p27 of the March edition)
It’s also been an important few days in the world of XBRL for Corporate Actions. The final version of the 2012 Corporate Actions taxonomy was published on Monday as a Taxonomy Package. Just a few days earlier, it was announced that Citi have started using the Corporate Actions taxonomy for filing dividend announcements to the Depository Trust and Clearing Corporate (DTCC).
The ‘soft landing’ finally comes to an end next week, so here is the last article in the recent series discussing the consequences and summarising some of the important themes.
A few initial questions:
You may think you’ve conquered the challenge of reporting to HMRC in iXBRL, but have you?
Complying with the mandate
Until now, it’s been possible to make successful filings simply by applying a very small number of iXBRL tags (around 13) to your accounts. Assuming that this has been done correctly, the accounts will be accepted at the HMRC Gateway. You don’t even need to tag to the full MTL, which gives you the choice of around 1300 tags, of which most organisations would normally use around 100.
Many believed that when the ‘soft landing’ comes to an end next week the MTL would disappear and were relieved to find that HMRC decided after all not to abandon it in favour of the full taxonomy containing around 5,000 tags from which to choose.
But it’s not the end of the story. The MTL may remain for now, but the ‘soft landing’ is ending.
The hidden issues behind the end of the ‘soft landing’
Even though the MTL stays and you’ll still be able to use your 13 tags, there are other more important issues to be considered.
In May 2012, HMRC issued an interesting statement* that included the following:
“Some software products already support fuller tagging of accounts than is required by the list of specified information and others are coming to market. More information with XBRL tags helps HMRC’s risk assessment, reducing the demands it needs to make on the majority of companies in assuring compliance with tax obligations.”
How should this be interpreted? Effectively, that tagging more rather than fewer concepts is a way of showing HMRC that the company has nothing to hide. There’s another HMRC statement highlighting the need for accuracy and transparency of reporting: “ …incorrect or missing tags may trigger HMRC’s risk-assessment rules – for example skewing one of our risk ratios…” Together, these statements point towards tighter scrutiny by HMRC and a new regime in which tax inspectors will be less lenient, inaccuracies will prompt further investigation and risk ratios will be used to pinpoint organisations with results outside expected norms.
You can no longer afford to be complacent about your iXBRL accounts tagging.
How Seahorse® can help
Accuracy and transparency of reporting can be achieved using CoreFiling’s Seahorse tagging tool for the conversion to iXBRL of accounts prepared in Word and Excel.
You may choose to continue with your 13 tags to pass the Government Gateway or use the power of Seahorse to achieve greater transparency and avoid unwarranted investigation. Prudent companies will choose to tag at least in accordance with the Minimum Tagging List or, ideally, tag against the full taxonomy. The Seahorse tag suggestions engine makes even full tagging an easy task. It automatically presents you with viable tag options, together with a confidence rating derived from the number of times each tag has been chosen for that particular concept by the community of accounting professionals now using Seahorse to convert their documents. Importantly, the streamlined off-line review process, including free-text explanatory notes, helps to ensure accurate representation of the accounts before final sign off and submission.
Don’t ignore the end of the ‘soft landing’ and leave everything to chance. Let Seahorse help you mitigate the new risks about to emerge.
Much has been written about the end of HMRC’s ‘soft landing’, often promoting the common misconception that it just means the continuation of iXBRL tagging of accounts according to the Minimum Tagging List (MTL), rather than against the full taxonomy.
Whilst it is true that full tagging is not being mandated when the ‘soft landing’ expires at the end of March 2013, as was previously conjectured, there’s much more behind it.
Incorrect tagging is no longer an option
To quote HMRC: “… incorrect or missing tags may trigger HMRC’s risk-assessment rules – for example skewing one of our risk ratios – and this means there may be greater potential for post-submission contact from HMRC. That risk would be greater the less information from the minimum tagging list is tagged.”
The above statement dates from Mach 2011 and it is interesting to note that even at this early stage HMRC highlight the consequences of faulty tagging. More recently (May 2012) HMRC issued a further statement declaring it would be: “… continuing to expand the effective exploitation of XBRL, by quality assurance of XBRL tagging in a selection of returns already received and by development of the effective use of XBRL tags in risk assessment and other compliance work.” This underlines the fact that HMRC intend to use the quality of XBRL tagging to apply greater scrutiny to a company’s accounts.
More tagging rather than less
It’s interesting to note that in the same statement HMRC also pinpoint the risks involved in minimal tagging. The inference is that correctly applying a larger number of tags will actively help companies to avoid unwarranted scrutiny. Completeness is the key.
How Seahorse® can help
With Seahorse you can take steps to ensure that your tagging does not put you under the spotlight. The learning engine assists you in choosing the right tags to maintain tagging accuracy. It presents you with tag suggestions derived from its cumulative knowledge of every tag chosen by all the professionals who have used it to tag individual concepts. It’s been proven that these are not random suggestions, as the product has gained excellent results compared with others, and has reached up to a 99.9% pass rate at the HMRC Gateway.
Using Seahorse, you have the choice whether to apply full tagging or whether to use the Minimum Tagging List.
Whichever you choose, you can be sure that accuracy and transparency are assured.
When iXBRL tagging was first required for Corporation Tax filing and the ‘soft landing’ introduced to allow companies and accountancy firms to understand the new process, HMRC indicated that during the first two years they would exercise some leniency by not investigating companies solely on the basis of poor quality tagging.
However, it can be inferred from this statement that when the ‘soft landing’ does finally expire at the end of March 2013 there will be a tightening of the reporting regime with greater scrutiny and analysis of the tagging.
The need for accuracy and transparency
So, although tagging according to the Minimum Tagging List continues, contrary to what some had predicted, the main result of the expiry of the ‘soft landing’ transitional period will be the need to refocus on the accuracy of the tagging to avoid unnecessary HMRC investigations.
HMRC will expect companies to be transparent in their tax assessment; low quality or limited tagging could be taken as showing a lack of transparency. After March 2013 it can be assumed that HMRC’s risk assessment procedures will be actively looking for anomalies that point towards potential issues.
What are the risks involved in incorrect tagging?
We expect HMRC to use exception-based reporting to identify companies that have ratios well outside the norms for their peer group. If a company is applying incorrect tags to its financials, it is likely to come under the HMRC spotlight in the future.
Minimise the risks with Seahorse®
Using Seahorse companies can mitigate these risks and choose to tag according to the MTL or the full taxonomy. Seahorse makes it easy and the learning engine simplifies the task of choosing the right tag. Speed of tagging and accuracy are the watchwords. We’ve recently seen figures from HMRC reporting that Seahorse reached a 99.9% pass rate at the Gateway, illustrating the accuracy of Seahorse tagging.
With Seahorse you and your clients are in very safe hands.
Here is the first of a series of articles discussing the ramifications of the end of HMRC’s transitional ‘soft landing’ period.
Since April 2011 it has been mandatory to convert all UK Corporation Tax accounts data into the iXBRL (inline eXtensible Business Reporting Language) format prior to filing with HMRC.
Why was iXBRL introduced?
In common with many other taxation, banking and government regulatory bodies throughout the world, HMRC needed to take steps to tighten their monitoring of the financial affairs of the UK corporate world. Given this imperative, HMRC recognised the value of introducing XBRL technology to streamline that process, to simplify financial investigation and analysis, and allow anomalies in financial reports to be highlighted more easily.
Why did HMRC introduce the ‘soft landing’?
As the move to iXBRL represented a radical change in the filing process, HMRC sought to make its new reporting regime more acceptable by introducing a two year transitional period, known as the ‘soft landing’. This was designed to give companies, and the software vendors that service them, maximum opportunity to prepare for the changes. However, this interim period expires at the end of March 2013.
Exactly what is the ‘soft landing’?
There are misunderstandings about what the ‘soft landing’ means for filers. It was introduced as an interim step to allow companies to become familiar with the iXBRL tagging process. HMRC’s main provision was that in the two years following the introduction of the iXBRL mandate they would not investigate organisations solely on the basis of poor quality tagging.
‘Soft landing’ versus the Minimum Tagging List
There has been much confusion about the ‘soft landing’ and its relationship to the Minimum Tagging List (MTL).
First of all, let’s look at the MTL. Be aware that there are three levels at which iXBRL tagging can be applied:
Although HMRC recently announced that it will not be removing the MTL in favour of full tagging in 2013, as was originally expected to happen, the ‘soft landing’ itself will terminate at the end of March 2013.
How does this affect Seahorse®?
Seahorse, CoreFiling’s iXBRL accounts conversion system, covers all the options – and opportunities – that will arise, when the ‘soft landing’ ends. From the starting point in April 2011, the product was fully ready for use, and over the past two years it has progressively been enhanced to give greater usability, time-savings and improvements to the accuracy of the tags being applied. Unlike some competitive products, Seahorse has from the outset offered the opportunity to tag according to the MTL or to use the full UK GAAP and IFRS taxonomies, so users need have absolutely no cause for concern about the future.
Avoid an uncertain future by using Seahorse to tag your accounts.
XBRL International has announced the publication of a new Public Working Draft of the Table Linkbase specification. This specification forms a key component of the Solvency II and CRD IV XBRL reporting projects. This release is the first Public Working Draft since 2011, and represents a significant step forward in the maturity and quality of the specification.
Projects that have looked to adopt the Table Linkbase specification have been held back by a lack of recent public releases of the specification, creating interoperability problems as projects have adopted customised versions of the published schemas and standards.
The latest release of the specification has been driven forward by the efforts of CoreFiling staff, and in particular, Jon Siddle. CoreFiling contributions have included the introduction of an XML serialised “infoset” for defining and testing the conformance of Table Linkbase processors, and the refactoring of the specification into three separate models (Definition, Structural and Rendering) to give a clear separation between syntax and semantics.
These improvements to the foundation of the specification will accelerate the development of the standard towards becoming an XBRL International Recommendation, and will help address the interoperability issues that have beset early adopters of the specification.
In my previous posts, I’ve shown how easy it is to get signs right in XBRL, and looked at some of the reasons why the issue has ended up so confused. Until now, I’ve studiously avoided the topic of balance attributes.
The XBRL v2.1 specification has this to say on the topic of balance attributes:
“The balance attribute is important to applications that consume numbers related to accounting concepts such as asset, liability, equity, revenue and expense. The balance attribute (debit/credit) provides a definitive declaration of how values in XBRL instances are to be authored and interpreted when the debit/credit designation is provided.
Table 5. Correct signage in an XBRL instance
|Taxonomy element||Account balance||Sign of XBRL instance element value|
|balance=”credit”||Credit||Positive or zero|
|balance=”credit”||Debit||Negative or zero|
|balance=”debit”||Debit||Positive or zero|
|balance=”debit”||Credit||Negative or zero|
The numeric representation of a debit or credit item will normally (that is, more often than not) be positive in an XBRL instance.”
This excerpt probably raises more questions than it answers. Top of the list in my mind, is if the balance attribute is so important, how is it that I can tell you exactly how to tag a value without ever mentioning it? For quite some time after I first encountered XBRL I wondered if there was some subtlety to the accounting domain that makes the tried-and-tested approach of simply “giving things clear and meaningful names” inapplicable.
After working with XBRL for the best part of 10 years, I have reached the conclusion that there is not; the balance attribute is redundant.
Of course, redundancy isn’t always a bad thing. On the contrary, it can be useful: credit card numbers all have redundancy built into them in the form of checksum digits that allow the easy detection of errors in the number. Similarly, balance attributes can be a useful cross-check to make sure that numbers are tagged correctly, but I’d argue that they should not be the primary mechanism, and I’ve certainly seen significant confusion result from people trying to assign signs based only on balance attributes.
In my first post, I showed that in order to tag a value correctly, you needed to understand the meaning of the figure you’re looking at (is it a profit or a loss?) and the meaning of the concept that you’re going to use (does it represent profit or loss?) If the two match, tag a positive value, otherwise tag a negative value.
The table in the spec excerpt above shows the same logic being applied using balance attributes, but the inputs that you need to know are the “balance” of the figure you’re looking at, and the balance attribute of the concept that you’re planning to use.
It’s the exact same logic, but as a non-accountant determining the balance of a figure that I’m looking in a financial report is not something that comes naturally to me, and judging by the number of sign errors in filed SEC reports, I don’t think I’m alone. The game becomes more complicated once you start dealing with extensions, and the individual filer has to decide on the balance attribute of the extension concept.
The final problem with the balance attribute approach is that it falls down completely when you encounter a concept with no balance attribute. Louis Matherne at FASB recently stated [of the US-GAAP taxonomy] that “the FASB XBRL Team is making a concerted effort to eliminate elements without balance attributes”. This is a reasonable goal, but there’s a snag: it’s impossible, unless you’re prepared to sacrifice use of the calculation linkbase.
The XBRL v2.1 specification imposes constraints on the valid weights of calculation relationships based on the balance attributes of the concepts involved. The gist of it is, you can add debits to each other and subtract credits, or add credits to each other and subtract debits, but you can’t add debits to credits or subtract debits from debits. It’s much easier to understand with some examples:
|Dr + Dr = Dr||Dr – Dr = Dr|
|Cr + Cr = Cr||Cr – Cr = Cr|
|Dr – Cr = Dr||Dr + Cr = Dr|
|Cr – Dr = Cr||Cr + Dr = Cr|
Now this rule holds surprisingly well in real world financial statements, but if you can remember anything of what they taught you in algebra classes you should have a nagging concern. What happens if you subtract a Dr from both sides of the first valid example? Yep, you end up with the first invalid example. Likewise, subtract a Cr from the second example, or add a Cr to the third, or a Dr to the fourth.
The calculations that the spec tells us are “invalid” are simply rearrangements of calculations that are considered valid!
For the most part financial statements don’t “rearrange” calculations, so we get away with it, but there is a problem: the Cash Flow Statement.
The Cash Flow Statement is essentially a rearrangement of the Income Statement that arrives at a figure for the change in cash for the period (actually there’s a bit more to it than that as it involves some different line items, but the point stands).
In the Cash Flow Statement we take Net Income (a credit), we add back stuff like Depreciation (a debit), subtract stuff like Increases in Accounts Receivable (a credit) and arrive at the Increase in Cash for the period (a debit). In other words:
Cr + Dr – Cr = Dr
It breaks every rule in the book!
Taxonomies such as US-GAAP have a little workaround. Firstly, I over simplified the above slightly. The calculation above typically arrives at a figure for Net Cash Provided by Operating Activities, which in turn contributes to Increase in Cash for the Period. The trick is to not assign a balance attribute to the intermediate concept for Net Cash from Operating Activities, so you end up with two calculations:
Cr + Dr – Cr = [ no balance attribte ]
[ no balance attribute ] + … = Dr
There are no constraints on the calculation weights when one of the concepts involved has no balance attribute, and so the constraint imposed by the specification is bypased. Obviously this is unfortunate if you were relying on the balance attribute was going to help you get the sign of this value correct.
Of course, the sign convention for the concept with no balance attribute is made completely unambiguous by its name, “Net Cash Provided By Operating Activities”. If operating activities provided cash, tag a positive number. If operating activities actually used cash, you should tag a negative number.
Hopefully I’ve demonstrated that balance attributes are at best redundant, and thanks to the fall out from a rather odd constraint in the spec, they can actually contribute to the mystery and the confusion.
If you ask the majority of accountants what effect the second year of iXBRL tagging has had on their business, I imagine that most would respond that it’s still taking an inordinate amount of time and effort and that there’s no appreciable difference from the first year.
Contrast this with the experiences of Seahorse users. Many have discovered that they now need less manpower to complete the conversion of their clients’ second year accounts because of the efficiencies built into the system. Second year tagging is just so much simpler, faster and cost effective.
So, what makes the difference? It’s all down to the Seahorse SaaS approach.
Firstly, there’s the ability to re-use tags from last year’s Word or Excel documents, so you don’t have to start again from scratch. Seahorse indicates where tags have been reapplied as well as automatically making suggestions for any concepts appearing for the first time.
The SaaS approach also means that the suggestions are constantly improving, so you really do reap the reward of having a system that learns from the cumulative tagging decisions of all the accounting professionals who have used it to convert their documents.
Finally, it’s simply a much more agile way of ensuring that any changes to taxonomies or validation rules are implemented immediately and without fuss. Since the mandate came into force there has been at least one corrective taxonomy release plus additional changes to the Gateway process, but as far as Seahorse is concerned any modifications are implemented in the ‘cloud’, so it all happens seamlessly. There’s no new version of the software to download, and no impact on the tagging team.
So, with inbuilt tagging efficiency, constant improvements and an eye toward making things simpler to use, Seahorse is the perfect solution.
Less manpower, greater efficiency. Why use anything else?