On 1 April 2011, the Ministry of Corporate Affairs (MCA) in India posted a circular on its website mandating a certain class of companies (Phase 1) to file balance sheets and profit and loss accounts for the year 2010-11 onwards by using eXtensible Business Reporting Language (XBRL). The financial statements required to be filed in XBRL format will be based upon the taxonomy on XBRL developed for the existing Schedule VI and non-converged accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended).

A detailed reading of the circular yielded a number of key areas outlined in our Supplement to Assurance Eye: MCA mandates XBRL filing for Phase 1 Companies, upon which further clarification from the MCA would be critical. Companies are strongly encouraged to reach out to the MCA in order to obtain further guidance on such topical issues. The underlying taxonomy is central to the preparation of XBRL format financial information. The MCA has released draft taxonomy, with a comment period deadline of 30 April 2011, with regards to commercial and industrial (C&I) entities.

Outlined below are some key steps, which companies should consider when deciding on the appropriate strategy for complying with the MCA requirements. These steps are important as there is potentially very limited time, given the 30 September 2011 filing requirement in accordance with the circular to prepare XBRL information.

The first step is to build an understanding of XBRL within the organization.  The next step is to identify which entities within the group would have to prepare XBRL information. The criteria are outlined in the circular issued by the MCA:

(i)         All companies listed in India and their subsidiaries, including overseas subsidiaries

(ii)        All companies with a paid up capital of 5 crores and above or a turnover of Rs. 100 crores or above

Having understood what XBRL is and how it applies to the company or group of companies, the final step is to build a strategy for compliance. The appropriate strategy will depend on a number of factors such as the availability of resource within the organization with the right skillset, the complexity of the financial statements and the existing information technology environment in the company. Broadly, there are three primary solution strategies:

1. Outsourced tagging

  • Outsourcing the tagging of the statutory accounts to XBRL
  • Could also be done concurrently with outsourcing financial statements preparation

2. Partially “integrated” solution in ERP

  • Provides tagging within the ERP environment
  • Aims to implement automated financial statements production
  • Some manual tagging of non-financial data may be required

3. Data warehouse solution

  • Separate software that tags general ledger reports

4          One-time mapping required

  • Some manual tagging may be required

Software development, integration and testing as well as training of relevant staff on the new requirement may be difficult to execute within the available time-frame, at least in the first year.

While there are a number of key areas, which require further clarification, it is essential that corporate entities begin to educate themselves with regards to these new requirements and assess the appropriate strategy for compliance.

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