UK XBRL and GAAP Reporting
The UK Government is working towards imposing the submission of Corporation Tax Returns and accompanying Annual Accounts in XBRL format from 2010 onwards.
Yet XBRL is at this moment is an incomplete standard with very little software able to support it. But academics and large businesses are pushing it forward.
Why?
When XBRL will yield no benefit for small businesses that will be compelled to use it from 2010 onwards! And that is the majority of users, given the large number of small businesses in the UK, compared to large organisations.
Yes - large organisations and stock markets may like it; although the inconsistency of the data will produce a lot of dangerous and unstable business decisions
Yes - large accounting firms and consultancies will definitely love it, as for them it is seen as a brand new income stream
Yes - HMRC may like it as they can reduce manpower in 2010 and beyond when they make it mandatory for companies to submit accounts and Corpn Tax Returns in XBRL format.
But - for 95% of businesses (under 20 employees) this move by HMRC/Companies House to impose XBRL on them for Corporation Tax Returns and Annual Accounts will be a nightmare that will greatly increase the costs of these annual events.
If you look at the development of the XBRL standard, it does not take long to realise that big business, large software houses and large accounting firms (those driving the development of the standards) have a vested interest in making the taxonomy and standards as complex as possible. So that they become the only people who understand it and thereby stand to create a lot of money out of the use of XBRL by small business when Government bodies make its use compulsory.
What is my proof for this - take the XBRL GAAP draft standard published 15 May 2004; using the smallest font size available will still take 700 pages to print the 5 XSD/XML files that specify this standard.
In an introductory document dated 13 June 2004; I quote -
" ... the UK GAAP taxonomy was aimed at a user base which was going to be looking for, say 200-300 key elements out of a generic taxonomy of 3,500..."
That’s less than 10%.
And this for a draft standard for which the previous draft contained 1783 key elements; now at 3,486 key elements. This number will only get bigger as drafts are expanded to handle more business types.
Yet small businesses that can now produce Corpn Tax Returns and Annual Accounts in a day using tools like MS Excel will be expected - no required - to take the time and effort to understand XBRL, its structure and use. Then to troll through 3,500+ key elements looking for those 200-300 elements that they need.
This is a dream - no a nightmare!
I myself have over 20 years experience of software and its development and over 30 years in preparing accounts for large and small businesses. I understand programming, IT analysis, XML, XSL etc. so I am not new to reading such documents. Yet when I look at XBRL I am horrified by its complexity, bloat and its complete un-usability. It also lacks any consideration for the MAJORITY of users that will need to compile and build XBRL documents.
Then in addition, from all this effort, I believe, small business will receive NO benefit at all, other than to satisfy the mandatory demands of Government Departments. I even doubt that the tax inspectors will know what they are looking at when it comes to using the annual accounts submitted in such a manner. For the quality of such accounts will be poor, given the absurdity of the draft standard as it stands.
What I would like to see is some realism in the XBRL standards that are focused on producing real benefits for the majority of future users. That is the small business.
Not XBRL standards derived by those with the most to gain from their imposition on a disparate user base, that at the moment does not have a voice.
Small business must wake up to this threat before the 2010 deadline in order to avoid a major catastrophe.
Yet XBRL is at this moment is an incomplete standard with very little software able to support it. But academics and large businesses are pushing it forward.
Why?
When XBRL will yield no benefit for small businesses that will be compelled to use it from 2010 onwards! And that is the majority of users, given the large number of small businesses in the UK, compared to large organisations.
Yes - large organisations and stock markets may like it; although the inconsistency of the data will produce a lot of dangerous and unstable business decisions
Yes - large accounting firms and consultancies will definitely love it, as for them it is seen as a brand new income stream
Yes - HMRC may like it as they can reduce manpower in 2010 and beyond when they make it mandatory for companies to submit accounts and Corpn Tax Returns in XBRL format.
But - for 95% of businesses (under 20 employees) this move by HMRC/Companies House to impose XBRL on them for Corporation Tax Returns and Annual Accounts will be a nightmare that will greatly increase the costs of these annual events.
If you look at the development of the XBRL standard, it does not take long to realise that big business, large software houses and large accounting firms (those driving the development of the standards) have a vested interest in making the taxonomy and standards as complex as possible. So that they become the only people who understand it and thereby stand to create a lot of money out of the use of XBRL by small business when Government bodies make its use compulsory.
What is my proof for this - take the XBRL GAAP draft standard published 15 May 2004; using the smallest font size available will still take 700 pages to print the 5 XSD/XML files that specify this standard.
In an introductory document dated 13 June 2004; I quote -
" ... the UK GAAP taxonomy was aimed at a user base which was going to be looking for, say 200-300 key elements out of a generic taxonomy of 3,500..."
That’s less than 10%.
And this for a draft standard for which the previous draft contained 1783 key elements; now at 3,486 key elements. This number will only get bigger as drafts are expanded to handle more business types.
Yet small businesses that can now produce Corpn Tax Returns and Annual Accounts in a day using tools like MS Excel will be expected - no required - to take the time and effort to understand XBRL, its structure and use. Then to troll through 3,500+ key elements looking for those 200-300 elements that they need.
This is a dream - no a nightmare!
I myself have over 20 years experience of software and its development and over 30 years in preparing accounts for large and small businesses. I understand programming, IT analysis, XML, XSL etc. so I am not new to reading such documents. Yet when I look at XBRL I am horrified by its complexity, bloat and its complete un-usability. It also lacks any consideration for the MAJORITY of users that will need to compile and build XBRL documents.
Then in addition, from all this effort, I believe, small business will receive NO benefit at all, other than to satisfy the mandatory demands of Government Departments. I even doubt that the tax inspectors will know what they are looking at when it comes to using the annual accounts submitted in such a manner. For the quality of such accounts will be poor, given the absurdity of the draft standard as it stands.
What I would like to see is some realism in the XBRL standards that are focused on producing real benefits for the majority of future users. That is the small business.
Not XBRL standards derived by those with the most to gain from their imposition on a disparate user base, that at the moment does not have a voice.
Small business must wake up to this threat before the 2010 deadline in order to avoid a major catastrophe.
posted by Bob @ 4:54:00 PM
1 Comments:
At February 23, 2007 8:44 PM,
Anonymous said…
I agree that the development of XBRL for regulatory reporting shold include voices on behalf of small reporting enterprises. However, the assertions and proofs offered in your blog don't stack up:
You claim that the cost of compliance will increase and that your proof is the fact that the UK GAAP standard is a 700 page printout. The length of the printout bears no relationship whatsoever to the cost of compliance, and it is misleading to suggest that users would have to familiarise themselves with 700 pages.
In addition, you base your assertions on the current state of software, not that which will exist in 2010. As and when software becomes XBRL-enabled, much of the compliance work should be be procedural - I cannot state that with certainty but I have tracked the developments in XBRL software tools for a number of years and can claim that the progress has been to date substantial. I would like to think that from 2010 onwards, to generate an XBRL report will be no different to printing out an Excel file today.
Lastly, it is incorrect to suggest that users would have to trawl through the full 3,500 elements to find what they need. One of the five files you refer to is a presentation linkbase file - this file allows users to view the taxonomy in a way most useful for their purposes. Any number of presentation linkbase files can be created for a given schema file, one or more of which could capture the 300 odd required by most small entities.
I hope this is helpful. Like you, my focus is on the needs of small entities and this blog is helfpul for that purpose. I do not necessarily disagree with your comments regarding vesated interests but nor do I agree with most of what you wrote about the implications for small entities. The bit I do agree with is that there should be small entity representation on taxonomy development and communication.
In addition I ask you to consider the possibility that almost all the complexity you refer to is due to the complexity of GAAP financial reporting. The taxonomy perhaps crystallises the complexity of financial reporting but is not the cause of it.
Lastly, I am open to the argument that there may be no business case for XBRL for inidividual small companies, but nor is there is business case for current compliance procedures. If XBRL can faciliate more efficient communication of information generally, and more efficient allocations of resources generally as a result, I'm for trying that. An example in a small company context is the possibility of sending one XBRL to meet companies house and HMRC reporting obligations simultaneously. That saves time and form filling.
In conclusion, we have a way to go yet. I would not deny that. But to suggest a catrostrophe for small entities is, in my opinion, wide of the mark.
thanks.
thanks.
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