What XBRL Means for Corporate Tax Departments

A BizTaxBuzz guest blog by Brad J. Monterio, chair of the XBRL Committee for IMA, a worldwide association for accountants and financial professionals working in business.

Extensible business reporting language (XBRL) is a global information standard that makes business and financial information readable by computers easily, accurately, and quickly. It's already impacting millions of corporate tax departments around the world today. It will affect your company soon, if it hasn't already.

Why is that?

First, some context. Tax authorities in several countries have either mandated XBRL for tax filings or begun voluntary filing programs using XBRL for tagging the information.

In the United Kingdom, for example, all companies — both private and listed — will be required to file their tax returns, beginning in the first half of 2011, in XBRL format. Similar requirements or voluntary programs exist in Germany, Denmark, Japan, China, and the Netherlands. In total, millions of companies are impacted, and this number will continue to grow.

Tax authorities in other countries, including the United States and Ireland, are also exploring the benefits of XBRL for the tax preparation and filing processes. These benefits include streamlined reporting processes (for both the corporate preparer and the regulatory consumer of the data) and a reduced reporting burden. The growing trend among tax agencies of requiring XBRL for tax filings indicates that corporate tax departments will soon find themselves in need of XBRL solutions to help them prepare, analyze, and share their tax information with stakeholders (for example, their company's executive team, the finance department, and the Board of Directors) as well as regulators.

Also powering the rise of XBRL: support from OASIS (Organization for the Advancement of Structured Information Standards) Tax XML, a group dedicated to promoting XML-based standards and interoperability among tax authorities and the stakeholders with whom they exchange information. XBRL has also received support from the OECD's Taxpayer Services Subgroup, which represents tax authorities from leading nations.

With this context, we can now look a bit more closely at what XBRL means for the corporate tax department. Three principles to bear in mind:

Knowledge is power. Tax executives will need to tag their data with XBRL, prepare internal reports and external tax forms, and share relevant reports and forms with stakeholders inside and outside the company. Finance and corporate tax staff will need XBRL training. XBRL for tax is here to stay; there's no looking back. The sooner you understand XBRL, and more importantly, the benefits it drives (e.g., streamlined data gathering, analysis, and reporting; enhanced analytics; and improved transparency and risk management), the more power you have to convert that knowledge to bottom-line improvements.

Find a solution that suits you. There's no right or wrong way to select an XBRL solution for your tax reporting needs. In some cases, companies are tagging their tax information through a “bolt-on” solution — i.e., software that tags the data after it's gathered for reports but before sending it to the tax authority.

In other cases, tax departments are choosing to integrate an XBRL solution that tags the information at the internal source. This allows you more flexibility to output reports for any number of needs without having to worry about tagging the data in XBRL once it's ready for distribution.

This makes a lot of sense. Remember the original UPC or bar coding model? Bar codes used to be placed on products at the retailer after they were shipped by the manufacturer. That model has evolved as supply chain participants realized that it was incredibly more efficient and cost-effective to tag the products at the manufacturer's front-end. Doing so allowed the data contained in the bar code to be carried reliably throughout the distribution process, no matter where the product was shipped or to which retailer it went. This brought consistency and standardization to the process, and it saved money along the way.

The solution you choose should align with the complexity of your corporate structure — whether you're a listed company, a local small business, or a multinational — and of your tax reporting requirements. XBRL is not a one-size-fits-all scenario. Do your research. Find what suits your company.

Time is money. One of the most important benefits of XBRL for the corporation is its ability to streamline processes, including information gathering, aggregation, preparation, analysis, and reporting. Because XBRL makes information machine-readable, it makes it more easily discoverable by your own internal information reporting systems and analytical tools. And it does so reliably and without errors, in a sort of straight-through processing of information; there's no cutting and pasting, and no costly errors introduced by manual manipulation of data. This streamlining also helps lower the burden, both human and financial, of gathering tax information and preparing it for internal and external users. In the case of multinational organizations, for example, XBRL can help the company better manage its resources across operating entities and country-specific tax-reporting requirements. It can also boost the productivity of the corporate tax department staff. All of this contributes to time and money saved.

XBRL has one more key advantage for tax departments: It can help them to integrate better with the organization at large. I'll tackle that topic in an upcoming blog. ###

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