With XBRL compliance deadline fast approaching (September 30, 2011), data conversion software vendors are mounting pressure on CIOs to buy their products. However, it may be unwise to buy any XBRL software product without assessing if it is able to do the task at hand successfully.
This tip, compiled based on our interactions with experts from KPMG and PricewaterhouseCoopers, can help CIOs and IT decision makers to evaluate the available XBRL software options effectively. The choice of XBRL software should involve assessment of the following factors.
First and foremost questions that you need to ask yourself while choosing XBRL software is: What kind of application does it support? Whether the source document needs to be in .html or .doc or .xls or .pdf, or will the software support any format? For instance if your company's source documents are in .html, will the software directly convert it to XBRL format or will it need to be converted into any other format first (like .doc or .xls) before the final conversion takes place. Such a workaround means that you need another software, as well as tools and manpower resources to check the end-document’s accuracy. Not to mention the additional costs and time. Also ensure that the XBRL software you plan to select can handle both internal and external reports.
Ability to extend the taxonomy:
XBRL tags all elements of a financial statement to a taxonomy or data dictionary. These tags can also include text labels in multiple languages, which makes it possible to read the financial statement in multiple languages (foreign or local). These tags or taxonomies should be extensible in the XBRL software should a company require to add a data specific to the business. For instance, in insurance industry, the term “Embedded Value” is specific to the sector. In some cases there could be a variant used, known as “Court Approved Accounting” which has nothing to do with GAAP accountancy.
So make sure your XBRL software can be extended to accommodate not only current but also future needs. This ability to extend taxonomy in the XBRL software will also help companies should the regulatory bodies in future decide to add any other parameter. So when buying make sure the XBRL software also provides regular patches. You surely do not want your XBRL software vendor failing to give updates for new taxonomies regularly and without hassles.
The XBRL software will have to adhere to the taxonomies issued by local and global regulators. Does your XBRL software conform to the business and validation guidelines issued by regulatory bodies like Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), and Ministry of Corporate Affairs (MCA)? In case your company has to file reports overseas, make sure your XBRL software also complies with the international compliance rules such as IFRS (International Financial Reporting Standards) or as specified by the regulatory bodies.
Training and support:
XBRL is still in its infancy. There are few experts in the technology and fewer still with experience in troubleshooting. So make sure that your XBRL software vendor is accessible at a short notice. Check the support turnaround time of the XBRL software vendor. Ask these questions: What are its support hours? What sort of user-training does the XBRL software vendor provide? What will happen if the software fails?
Since most of the available XBRL software options today are international products, do check if those vendors have any India presence. Although not necessarily a hurdle, this aspect may impact the vendor's support turnaround time. Choose a company that will provide support on a short notice and fix the problem quickly.
How affordable is the XBRL software?
Cost is an important factor; however cheapest may not necessarily be the best. Choosing an XBRL software based on the price is always a catch-22.
The cost of XBRL compliance has two factors: 1) Software and 2) People.
While choosing the XBRL software check how its pricing model is defined. Does the price include comprehensive support where the XBRL software vendor will convert the documents in XBRL and hand them over to you or is it just a license cost to use the software? If so, what sort of training will the software company provide to users and how much is that going to cost? Do not forget to include the annual maintenance cost to it.
Second part is of people, where the cost will include the consultant's fee (including the time-based fees if any), training cost, and number of experts required.
Usually, converting a set of documents take about 2-10 days, so when you are calculating the cost, also estimate the time that the conversion effort would require. This would reveal the number of hours that the consultant will have to spend for your company, thus adding to your costs.
Ease of use:
Lastly, find out how easy it is to use the XBRL software that you plan to buy. Since it is the finance and accounts departments in a company that will be using the XBRL software, it has to be as simple and as automated as it can get. So the factors that will define the ease of use are: How automated the XBRL software is? Whether it has auto-tagging facility or it needs to be done manually? Will it support the existing ERP software and will it seamlessly integrate with the back-end financial system? How easy it is for a non-IT user to put the source file and view the end file. Don't forget to check the integration of footnotes in the XBRL document.
(This tip is based on an interaction with Ramachandra Iyer, Director - Financial Services, KPMG and Debdas Sen, Partner/Executive Director, PricewaterhouseCoopers)