ESEF Quality Series – Checklist For The Right Software ( Contd…)

December 4, 2020by Team IRIS CARBON

In our last article, we focused on some of the external validations you should look for while selecting software. In this article, we focus on the questions you should ask your software provider and things you should ensure as you start getting deeper into your evaluation process.

Seamless integration between Disclosure Management and XBRL

While there are disclosure management solutions and there’s XBRL software, the best fit for you is a solution that seamlessly integrates the two functions. This means that any changes in your document should automatically reflect in your XBRL output. Conversely, any changes in your XBRL tags should automatically reflect in your document. It must not seem like you are working on two separate pieces of software. Remember, there are solutions that are strong in one aspect and have simply ‘patched on’ the other, perhaps to help clients fulfill a mandated requirement.

It would help you to ask for a demo to experience the collaborative aspect of the disclosure management solution, while also seeing how smoothly the XBRL layer is integrated. Simulate the way you would work – make changes in your document, create versions, and see what happens on the XBRL side. This solution will be core to your financial reporting team, so the more comfortable and simpler it feels to them, the better.

The Right Degree of Automation in XBRL

The act of applying machine-readable tags to your document involves –

* Understanding your document

* Understanding the tags in taxonomy and what they mean

* Applying the tags, and the corresponding XBRL attributes (units, scales, labels, calculation relationships, and more)

If you are integrating XBRL across your document – which is what we recommend – not only must your key numbers be tagged, but also your text (and, in fact, even tables and numbers within your detailed disclosures). Automation in tagging is possible to an extent in XBRL. However, be careful of solutions that promise to automate the entire tagging process. Remember, tagging is partly based on judgment, where one must learn to choose the right tag out of a thousand plus elements and fit it with the right extensions. The most recent IFRS taxonomy has over 5,000 elements. To compound matters, many tags look similar and the differences between them are minute. By using automation blindly for 100% of your tagging, you run the risk of your information being tagged the wrong way.

An intuitive system is one that can both identify the relevant numbers for tagging with 100% accuracy, as well as make suggestions in cases where it is unsure of the right tag. Your finance teams can then navigate through this system, armed with an understanding of your financials, and can review and edit the tagging as appropriate. In short, while automation is great, watch out for solutions that promise to automate everything for you. The note of caution is — to watch out for over automation.

Visibility of the XBRL tagging

As you evaluate the software’s XBRL aspect, make sure that as much of the XBRL layer is visible to you as possible. There are solutions that will claim to handle all of that in the backend without your needing to look at it. That’s both dangerous and counterproductive. And it doesn’t serve the purpose of your quality journey.

Your report is unique. And while solutions can offer automation, you need to retain the ability to see what XBRL tags are being applied to different numbers or parts of your document. You also need the ability to change things on the XBRL side with ease. You may add a disclosure in your report at the last minute and introduce the corresponding tag. You may also want to insert new calculation relationships as part of validation and consistency checks in your XBRL layer. Or you may make wholesale changes across the document, but with the XBRL tagging remaining intact throughout.

Whatever be the reason, reserve the right to have complete visibility and control over the XBRL side of the solution. Remember, it is your quality journey. And just like you control your report, you also need to control your XBRL layer.

Is your software future-proof?

A solution for the XBRL layer of your financial statements must not only handle tagging of numbers in a few main statements but also take care of detailed disclosures that include text blocks. While such a feature moves beyond Phase 1 of the ESEF mandate, it would help you from a quality perspective.

Check if the software under consideration can support you through the many taxonomy and mandate revisions that come up through the years, or even support mandates in various regions where you have a presence. There’s no point in choosing a vendor who would have to be replaced in a year or two.

Met the folks backing the software?

A very important factor is the credentials of the firm whose solution you are considering. How many years of experience do they have? How many clients, and across how many markets? In terms of XBRL, what kind of expertise do they bring? How many XBRL mandates have their solution catered to? Will they handhold you through the transition into the world of financial reporting and XBRL?

A little help as you begin to enter this new world can go a long way. You don’t want to settle for outsourcing your filing process or your XBRL tagging to someone else in toto. On the other hand, you don’t want to be left figuring it all out by yourself.  The ideal software vendor is one who would let some of his knowledge and expertise rub off on you. Maybe offer you services support until you feel comfortable in the saddle, or allow you to understand what happens at his end as his team helps you through the transition, and makes sure you’re invested in the process.

The final word: Support — whenever you need it

In case you opt for a vendor located in a different country or continent, you must find out how they can support you when needed. Ask for the support turnaround time. While one can be flexible about getting issues resolved during normal times, the turnaround time becomes a vital factor when you’re racing against a compliance deadline. Ensure you choose a vendor who can be available at short notice in the crunch season.

Here’s hoping that our checklist for picking the right software helps you. In our next article, we will venture into a few vital aspects to bear in mind through the filing process, which your software or service provider should guide you through

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