Getting ready for iXBRL

iXBRLGetting ready for iXBRL

XBRL (eXtensible Business Reporting Language) is a language that allows the presentation of financial information in a computer readable format by marking or tagging pieces of financial information about a business. iXBRL is a human readable version of XBRL presenting the financial data in a normal document format but with XBRL tag embedded in the soft copy document. Tagging enables the data to be analysed automatically by software.

Section 133 Finance Act 2012 amended Section 884 TCA 1997 to extend the definition of a Tax Return to encompass financial statements required to be prepared under the Companies Act. This change effectively established the statutory basis for the mandatory submission of iXBRL financial statements as part of the tax return.

All companies (including a branch, permanent establishment or agency) required to prepare financial statements under the Companies Act 1963 are required to file financial statements whether audit exempt or not. Unlike the UK, the filing of financial statements in iXBRL format with Revenue will have no impact on the Companies Registration Office current filing process.

Dormant companies will not be required to file in iXBRL and Revenue has recently set out the criteria they will use in determining whether a company is dormant, together with their regular updates and technical material on iXBRL at www.revenue.ie/en/online/ros/ixbrl

Revenue has indicated that the roll out of mandatory iXBRL filing will be applied on a similar phased approach as was used for the mandatory ‘Pay and File’ on ROS.

The optional phase begins in November 2012 for Corporation Tax payers. From 23 November, all Corporate Tax cases will have the option to submit iXBRL financial statements via ROS. In October 2013 the process of mandating begins, with those companies in the Large Cases Division, filing on or after 1 October 2013 in respect of accounting periods ending on or after 31 December 2012.

Revenue has confirmed that all non-LCD companies will be required to file accounts in iXBRL format in Phase 2 unless they satisfy all of the following 3 criteria:

  1. The balance sheet value of the company does not exceed 4.4 million
  2. The amount of the turnover of the company does not exceed 8.8 million;
  3. The average number of persons employed by the company does not exceed 50.

The timing for mandatory iXBRL filing for all other Corporation Tax taxpayers is expected to be determined thereafter. There will also be an opportunity from January 2013, for Income Tax filers to submit accounts in iXBRL.

Taxpayers filing financial statements in iXBRL will no longer have to complete the accounts menus pages on the ROS Returns. It is generally accepted that the experience to date with the accounts menus for Revenue, taxpayers and agents has been mixed (at best!).

For practitioners and taxpayers, these menus meant the re-entering of data from the financial statements with the related risk of error. Also, there has been feedback from Revenue, that the details provided in these menus probably hampered their capacity to analyse taxpayer data in certain circumstances.

Revenue envisages that the use of iXBRL will allow them to improve their risk analysis and profiling function. Revenue’s capacity for risk analysis and case targeting is driven by their REAP (Risk Extraction and Analysis Programme) system. REAP, a software “inference ENGINE”, tests facts against a rule base and assigns scores based on the results.

The rollout of iXBRL will greatly enrich this risk analysis process, allowing Revenue to correlate accounting data with tax return information, eliminate low-risk cases and to focus on areas of concern. Comparisons can instantly be drawn between similar businesses and unusual patterns in a business’s financial and other information will be readily identified. For compliant taxpayers, this should result in fewer audits in the future.

It is important that all practices seek to implement a suitable plan of action in relation to the introduction of iXBRL

Practitioners need to be sure that where they opt to prepare the filings themselves, as opposed to outsourcing the process, that they will have the resources and particularly the time available to prepare and review the files before submission.

The extent of knowledge a taxpayer or practitioner will need about iXBRL will depend on the choice of approach taken to preparing iXBRL financial statements. That choice is between manual tagging and iXBRL-enabled accounts preparation software

Manual tagging involves assigning tags to each relevant fact in the financial statements using “drag and drop” software. Revenue has mandated with full tagging of financial statements including the Directors Report, Auditors Report, Profit & Loss account, Balance Sheet, Notes to the accounts, Cash Flow statements and Statement of Total Recognised Gains & Losses (this list is not exhaustive). Notes on Pensions and Financial Instruments do not have to be tagged. Therefore, manual tagging will require the user to develop familiarity with the relevant “taxonomies”, the term used for the dictionary linking each tag with the concept it identifies.

iXBRL-enabled accounts preparation software, by contrast, will generate the necessary iXBRL tags as part of the accounts process. Ultimately, the choice of approach will depend on factors such as the type and scale of the practice, the range of financial statements being prepared and clients’ technology choices

It is widely accepted that iXBRL represents a significant change for taxpayers and practitioners. The main message from the UK experience and indeed the Irish Revenue, is to prepare and plan ahead.

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