“Tagging” of financial information by using eXtensible Business Reporting Language, an accounting specific mark-up language creates XBRL financial statements which can be stored in a financial database such as MCA-21. XBRL tagging process converts the financial information contained in document in PDF, Word or Excel format to a document or file with electronic codes which makes the document computer readable as well as searchable. Once the tagged financial statements are stored in a financial database like MCA-21, not only the financial data in those XBRL financial statements can be compared or analysed by use of computer systems but investors, investment analysts or other users can also download it and carry out comparison and analysis more quickly and efficiently than with data stored in traditional formats such as PDF.
Many people have a misconception that tagging of financial information/data in XBRL is similar to converting a Word document into PDF format and that tagged financial information/data is as accurate as the underlying information/data in the source documents. This is an inappropriate analogy, because the process of tagging financial information involves judgment of the person creating XBRL financial statements and there is a potential for intentional or unintentional errors in the XBRL documents which could result in inaccurate, incomplete or misleading information. This is a problem because it is the XBRL tagged data which not only will be used by the regulators e.g. Ministry of Corporate Affairs, for comparison & analysis purpose but will also be used by investors, investment analysts etc. Therefore, completeness, accuracy and consistency of XBRL tagged data is of paramount importance.
As with any new technology, XBRL, a new financial reporting technology also brings new risks. XBRL can’t be read by the human eye. The data in XBRL is filtered through rendering applications or viewers to visually present tagged data. Companies can easily underestimate the challenges posed by XBRL and make mistakes along the way. This article describes common errors appearing in XBRL financial statements filed at MCA-21 and how these can be prevented. Practitioners can use this information to get an insight into the challenges of XBRL Instance creation and providing assurance over XBRL financial statements being filed at MCA-21.
To gain a better insight into the challenges faced by the companies in XBRL filings, we examined the XBRL financial statements of a few listed Companies on a test check basis. As a part of this initiative, we downloaded Form 23AC-XBRL & Form 23ACA-XBRL of the Companies from MCA-21 and detached XBRL financial statements attached to these forms and then compared XBRL financial statements rendered by MCA Validation Tool with the financial statements in traditional format, tracing the errors to the XBRL documents containing the computer code.
Completeness Errors
The Company’s XBRL financial statements are required to fairly present the audited financial statements in traditional format. Therefore, all information and data that is contained in the audited financial statements or additional information required to be reported under the scope of tagging defined by Ministry of Corporate Affairs needs to be formatted in XBRL financial statements.
Examples
Some examples of lack of completeness are: (i) Financial information/data of all subsidiaries not formatted in XBRL financial statements. (ii) Financial information/ data of all related party transactions not formatted in XBRL financial statements. (iii) Parenthetical information, for example tax deducted at source on rent, not tagged in XBRL financial statements. (iv) Detailed Tagging of Notes to Accounts wherever required, if not done also falls under completeness error. (v) Not tagging complete “Cash Flow Statement.” (vi) Not tagging the “Foot notes” in financial statements. “Foot Notes” in financial statements provide additional information which helps in having a better understanding of financial information. The absence of “Foot Notes” in financial statements can not only make the task of understanding the financial information difficult, but user could also reach erroneous conclusions.
Solution
A careful tracing of all financial information/data from source documents to rendered XBRL financial statements can detect many such errors. However, this cannot detect all completeness errors because there is some information/data which is required to be formatted in XBRL financial statements, but the same is not reported in traditional financial statements.
Accuracy Errors
Accuracy of numerical data including amounts, signs, reporting periods and units of measurements is critical for the reliability of data in XBRL financial statements. Accuracy errors, though less common than other type of errors, are more serious in nature because the erroneous data not only distorts the financial statements but is also not suitable for downloading in software for comparison and analysis purpose. In a closed taxonomy environment, XBRL Instance documents cannot truly present the audited financial statements, because many times reporting entity may be required to tag a line item in the financial statements with the residuary tag or club two or more line items together. Although, this doesn’t affect the mathematical accuracy of the financial statements, the data may not be suitable for comparison and analysis purposes.
Example
Data entry errors in reporting amount of Profit & Loss Account under the group heading “Reserves & Surplus” and “Loans & Advances” in the Balance Sheet. Duty Drawback”, “Export Incentive” “Other Claim Receivable” all clubbed together and tagged with “Other Receivables”.
Solution
A careful tracing of all financial statement data to the rendered XBRL financial statements can detect errors in values. However, attribute accuracy needs to be checked by verifying all contextual information. A foot note can be added in XBRL financial statements which can provide a break-up of all line items clubbed and mapped with one taxonomy element or with the residuary tag.
Mapping Errors
Mapping is the process of selecting the right element in Indian GAAP Taxonomy for each line item in the financial statement. Mapping errors can result in misleading information and the user of data could reach to an erroneous conclusion.
Examples
“Loss on Sale of Fixed Assets” tagged with “Loss on Sale of Long Term Investments” although a tag “Loss on Sale of Fixed Assets” is available in the taxonomy. “Interest Accrued but not due on Fixed Deposit” tagged with “Other Cash Bank Balance”. Another example of mapping error is “Deferred Tax Liability (Net)” tagged with “Net Deferred Tax Assets” with a negative sign or vice versa. Although, it doesn’t create any mismatch in the assets & liabilities, it distorts the view of the Balance Sheet.
Solution
Although good XBRL Tools have an in-built feature for searching taxonomy element which can assist in mapping, the importance of judgment involved in the process can’t be undermined. A precise understanding of the Company’s financial statements and of Indian GAAP Taxonomy is required to ensure the correct mapping of line items in financial statements with taxonomy elements.
Validation Errors
The final step in preparing XBRL financial statements for submission to MCA-21 involves:-
(i) Validation Test and
(ii) Pre-scrutiny Test
MCA Validation Tool checks and identifies most, but not all, errors. For example, it does not check the financial information/data in ‘Block Tagging’. It verifies the mathematical accuracy and mandatory information/data in XBRL financial statements.
Pre-scrutiny Test conducts server side validation of the data in XBRL financial statements. An XBRL financial statement must pass the “Validation Test” before the “Pre-scrutiny Test” can be conducted.
Examples
Corporate Identity Number (CIN) of an Associate entity not provided in XBRL financial statements. Another example of validation error is “Basis of Presentation of Accounts” not tagged.
Solution
Validation Test on XBRL financial statements should be conducted on the latest available MCA Validation Tool. In case the validation test throws any errors, the same should be removed before uploading at MCA-21. After the XBRL Instance passes the validation test, Pre-scrutiny Test should be conducted and if there are any errors, the same should be removed before uploading of XBRL financial statements at MCA-21.
Rendering Errors
'Rendering’ is a necessary evil. Tagged data needs to be rendered in order to see it. This puts undue focus on presentation vis-à-vis MCA compliant XBRL and use for financial analysis. This is contrary to the original purpose of XBRL. Many filers have noticed during the last filing year that XBRL rendering has not been as accurate as they would prefer it to be. We tend to think of financial reporting in a visual way – in a way we can view it. That is the old way of thinking about financial reporting. “Tagging” of financial statements provide a choice to the users to grab the entire financial statement or individual values in isolation.
Examples
Financial information/data in “Block Tagging” is not properly rendered making the information illegible e.g. information/ data in foreign currency transactions in Notes to Accounts. Another example of rendering error is of certain foot notes attached to the values which are visible in XBRL Viewer but not rendered in the PDF file.
Solution
Rendering errors are mainly related to XBRL software used in generating XBRL financial statements and vendors of software need to look into this aspect. Rendering engine also needs improvement to properly render the information in XBRL Viewer as well as in PDF files. However, the preparer can also improve the formatting of information/data in XBRL financial statements.
Conclusion
It is of prime importance for companies to be aware of these potential errors, whether their XBRL financial statements are prepared in-house or prepared by a third party service provider. There is a legal liability attached to XBRL mandate for companies and its officers in default for submission of inaccurate or false data in XBRL financial statements. There is also a provision for disciplinary complaint against the practitioners to the professional bodies for deficiency in certification of XBRL financial statements. The deficiency in XBRL financial statements could invite avoidable litigation and adversely affect company’s goodwill
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