Seriously…Do Tax Pros Need Another Acronym?!

Posted by Kelley LearcloseAuthor: Kelley Lear Name: Kelley Lear
Email: kelley.lear@redmoonsolutions.com
Site: http://blog.redmoonsolutions.com
About: Kelley is a member of the executive leadership team and leads our sales and marketing efforts at Red Moon Solutions. Kelley’s extensive experience in project management, product management, and consulting with Fortune 500 and Global 1000 clients is extremely important in this role.See Authors Posts (127) on Jan 26, 2011 | 2 comments

Ahhh…it looks like we tax professionals will soon be adding some more acronyms to our already full pallet of “alphabet soup”. We recently added IFRS, FIN 48, and UTP…now we will be adding a new acronym, XBRL.

But wait, haven’t we heard this strange group of garbled letters before? Yes my friends, you may have heard it at the water cooler or coffee machine while finance and accounting were putting together their annual filings. 

XBRL has been in place for some time now for finance and accounting, and it is now on the table for tax.

For those of you who don’t know what it is…XBRL (eXtensible Business Reporting Language) is a freely available, open, and global standard for exchanging business information. XBRL is XML-based. It uses the XML syntax and related XML technologies such as XML Schema, XLink, XPath, and Namespaces to articulate this semantic meaning. In other words, instead of treating financial information as a block of text (that a computer would not know what to do with) – as in a standard internet page or a printed document – it provides an identifying tag for each individual item of data. This is computer readable. For example, company net profit has its own unique tag. The idea here is to cut laborious and costly processes of manual re-entry and data comparison/reconciliation. Computers can treat XBRL data “intelligently” as they can quickly identify information in an XBRL document, select it, analyse it, store it, exchange it with other computers and present it automatically in a variety of ways for users.

One common use of XBRL is to define and exchange financial information, such as in our financial statements. Today standard setting organizations and industry groups use this standard regularly, such as the FDIC, the SEC, the FAF (Financial Accounting Foundation) for use in GAAP Financial Statement Standards, the IFRS Foundation, and other bond and stock rating agencies.

The XBRL Specification is developed and published by XBRL International, Inc. (XII) the global standard setting organization, which is a not-for-profit consortium comprised of more than 650 public and private sector organizations from more than 30 countries that collaborate to improve decision making across business and government by enhancing the way that performance information is defined, prepared, exchanged and analyzed.

“Governments and tax authorities are increasingly recognizing the power and value of XBRL in streamlining the gathering of information from the public and businesses and sharing that information across agencies efficiently and cost-effectively,” said Anthony Fragnito, CPA, CEO of XBRL International, Inc. “…as we have seen with the SBR programs in Australia and the Netherlands. Ireland’s Revenue Commission recently announced that it is planning to use XBRL for tax reporting; the U.K. HMRC requirement for tax reporting using the inline XBRL standard goes into effect next April; Germany, Denmark and other countries are also using XBRL for tax reporting. In total, millions of listed and privately held companies are using XBRL today for tax reporting. Look beyond that to XBRL requirements for listed companies, and the market is now seeing financial information in XBRL format from companies representing more than 75% of the world’s total market capitalization.”

More recently, the China Ministry of Finance just released a national General Purpose XBRL Taxonomy by which they will mandate XBRL across all banking, insurance, capital markets, taxation and audit in China; which represents the largest scale integration of the standard to date in the world. With all this global exposure, the blogs posts are starting to pick up this topic and run with it, and soon your tax consulting firms will be coming to serve you up proposals for assistance in setting this up.

With all this being said, it is yet another thing that may eventually lead to some great benefits to organizations, but in the short term, could end being another headache for tax to get their arms around. Data will need to be tagged using taxonomies specific for Federal and State taxing jurisdictions. Federal and International would take quite a bit of work to implement, never mind states and localities (if they could ever come up with standard taxonomies at all). The implications are a bit overwhelming. It will also require some additional homework, collaboration with Finance and IT… I know how much you like that…and of course, time and effort to implement. Can we send back this “alphabet soup”, and just order a glass of red wine?