The Ministry of Corporate Affairs vide General Circular No.37/2011 dated June 07, 2011 had made it mandatory for certain class of companies to file their financial statements along with Directors and Auditors Report for the FY 2010-11 onwards by using the XBRL taxonomy. Further vide Ministry’s General Circular No. 57/ 2011 dated July 28, 2011, besides signing by signatories as specified u/s 215 of the Companies Act, 1956, the financial statements prepared in XBRL mode for filing on MCA-21 portal would also require verification and certification by Professionals like Chartered Accountant or Company Secretary or Cost Accountant in whole time practice.
To enable filing on XBRL by the practitioners and stakeholders, ICAI has issued the Guidance Note with an objective to provide guidance to the practitioners in certification of XBRL formatted financial statements. The financial statements referred here would mean the balance sheet, the profit and loss account, the cash flow statements and the related notes to account.
The following is the summary of the Guidance Note:
1. What is XBRL?
XBRL or the eXtensible Business Reporting Language, is a language for the electronic communication of business and financial data. It is an open, royalty free, international information format (software specification) developed through a process of collaboration between accountants and technologists from all over the world who came together to form the XBRL International.
XBRL requires that every note in the financial statements should be tagged uniquely and under separate appropriate heads as provided in the XBRL Taxonomy.
XBRL makes the data readable with the help of two documents – the taxonomy and the instance document.
– Taxonomies are dictionaries that contain the terms used in the financial statements and their corresponding XBRL tags (i.e., electronically readable codes for each item of financial statements).
– Instance document is a file that contains business reporting information and represents a collection of financial facts and report – specific information using tags from one or more XBRL taxonomies. It is a computer file that contains entity’s data and other entity specific information and is generally not intended to be read by the human eye. Thus, an XBRL instance document is a business report in an electronic format created according to the rules of the XBRL.
In India, the taxonomy has been developed by the Ministry of Corporate Affairs (MCA), based on the requirements of Schedule VI of Companies Act, the Accounting Standards; and SEBI Listing requirements.
2. Applicability of XBRL Filing
The Ministry of Corporate Affairs, Government of India, vide its General Circular No. 37/2011, dated June 07, 2011 has required the following class of companies (except banking companies, insurance companies, power companies and the Non-Banking Financial Companies) to file the financial statements in XBRL form only from the year 2010–2011:
(i) All companies listed in India and their Indian subsidiaries;
(ii) All companies having a paid up capital of Rs 5 crore and above; and
(iii) All companies having a turnover of Rs 100 crore and above.
3. Objective of this Guidance Note:
The objective of the Guidance Note is to provide guidance to the practitioners in certification of XBRL formatted statements in terms of the requirements enlisted by Ministry of Corporate Affairs (MCA). These rules require that besides signing by signatories as specified u/s 215 of the Companies Act, 1956, the financial statements prepared in XBRL mode for filing on MCA-21 portal would also need to be verified and certified by Professionals like Chartered Accountant or Company Secretary or Cost Accountant in whole time practice. The financial statements referred here would mean the balance sheet, the profit and loss account, the cash flow statements and the related notes to account.
4. Management Responsibility:
The responsibility for ensuring that the financial statements generated in the XBRL format are in accordance with the prescribed taxonomy is that of the management of the Company. Accordingly, the management needs to exercise appropriate controls over the following three areas to manage risks associated with generation of XBRL financial statements:
a) Selecting, maintaining, and testing the taxonomy – Taxonomy is the basis for tagging data into XBRL document. The Practitioner must be aware of the updates in Taxonomy, if any, and ensure the usage of the latest updated version of the Taxonomy.
b) Accurately mapping and tagging data elements to XBRL reports – Organisation requires to review and approve the correctness and accuracy of tagged data under suitable elements in the taxonomy; and
c) Enforcing change management procedures for XBRL processes – It is critical process because of the iterative nature of producing financial reports. If an organization uses an outside service provider, then it will require several iterations of file transfer and tagging operations.
5. Generation of XBRL Financial Statements
The financial statements can be generated by the Organisation into XBRL mode in following ways:
– In-House Conversion
– Outsourcing Services
Generally, creation of XBRL instance document requires the following procedures:
– Obtaining Audited Financial Statements and required information
– Preparing and Mapping the source document under unique tags related to Taxonomy as mandated by MCA for XBRL conversion
– Validating and Pre-scrutinized the mapped document to create an XBRL instance document
– Eliminating errors, if any, while validation and pre-scrutiny process
– Approval of the error-free XBRL instance document by the management of the Organisation before filing with ROC
6. Completeness, mapping, accuracy and structure of the XBRL Financial statements
No matter the Organisation has carried the conversion process in house or outsource process, the management has to ensure the completeness, mapping, accuracy and structure of the XBRL Financial statements.
Completeness means that all required information is formatted at the required levels as defined by the entity’s reporting environment. The instance document should contain only the facts or matters that are included in the source information.
Mapping means that the elements selected are consistent with the meaning of the associated concepts in the source information so that it enable the users to properly analysis and compare the disclosures among companies.
Accuracy means that the amounts, dates, other attributes (for example, Monetary units), and relationships (order and calculations) in the instance document and related files are consistent with the source information in accordance with the requirements of the entity’s reporting environment.
Structure means that XBRL files are structured in accordance with the requirements of the entity’s reporting environment.
7. Responsibility of Practitioner for Certification:
The responsibility of the practitioner in carrying out a certification of XBRL financial statements in terms of MCA is to certify that the said XBRL financial statements fairly present, in all material respects, the audited financial statements of the Company from which such XBRL financial statements have been prepared, in accordance with the taxonomy prescribed by MCA.
8. Procedure for Certification:
The practitioner’s procedures in respect of XBRL financial statements would, ordinarily, be as follows:
– Examination of Source Document with the XBRL rendered document using relevant document reader in human readable form.
– Validation for errors, if any, using the MCA tool.
– Examination of the elements tagged in source document and also the Error, if any, generated while carrying out validation process using the MCA Tool.
– In case the XBRL financial statements have been generated by using outsourcing services, the practitioner can rely on the report given by the former and may specifically request for following areas such as completeness, mapping, accuracy and structure.
– Running the formatted XBRL information using relevant reader to satisfy that no changes have been made after validation before filing.
– Notifying the management of any exceptions observed during the certification have to be brought to the notice of the company.
– Using the relevant reader, satisfying that no changes have been made after validation but before filing.
Any exceptions observed during this process have to be brought to the notice of the management. If the exceptions are significant, they should be communicated to the management immediately for necessary rectification before filing. In case, it is not possible to rectify these exceptions or the management refuses to take necessary corrective action, these exceptions should be reported by practitioner in his certificate giving reasons and whether it would affect the XBRL filing as a whole.
9. Essentials of a good XBRL Certificate:
In respect of the format of the certificate, the certain factors need to be taken care of, including:
– The certificate should, generally, be addressed to the engaging party.
– Specific items covered by the certificate should be clearly identified and indicated.
– The certificate should clearly lay down the responsibilities of the management vis-a-vis the practitioner with respect to the XBRL financial statements.
– The certificate should indicate the manner in which it was conducted, e.g., any specific tests performed.
– If the certificate is subject to any limitations in scope, such limitations should be clearly mentioned.
– Assumptions on which the XBRL financial statements are based should be clearly indicated if they are fundamental to the understanding of these financial statements.
– Reference to the information and explanations obtained should be included in the certificate. In certain cases apart from a general reference to information and explanations obtained, the practitioner may also find it necessary to refer in his certificate to specific information or explanations on which he has relied.
– Since the XBRL financial statements are based on the general purpose financial statements, the certificate should contain a reference to such general purpose financial statements. It should be clearly mentioned that the statutory audit of the aforesaid general purpose financial statements has been completed. Further, it should also clearly mention whether such audit has been conducted by the practitioner issuing the certificate or by some other Chartered Accountant. In case the general purpose financial statements have been audited by a practitioner other than the one issuing the certificate, he should specify the extent to which he has relied upon them. He may communicate with the statutory auditor for securing his cooperation and in appropriate circumstances, discuss relevant matters with him, if possible.
– The certificate should ordinarily be a self-contained document. It should not confine itself to a mere reference to another report or certificate issued by the practitioner or another auditor but should include all relevant information contained in such report or certificate.
– The practitioner should clearly indicate in his certificate, the extent of responsibility which he assumes.
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