iXBRL - Engagement Letters

Is anyone updating engagement letters as a result of iXBRL...? Not too much guidance around at this moment!! ICAEW Library unable to locate anything last week......

Suggested text appreciated if necessary.....

Comments

Definitely!

ChrisDL | | Permalink

We will be definitely updating all of ours, but a suitable wording is so far proving to be a problem as far as dealing with the point that we do the tagging, but the client is responsible for it and will not (in most cases) be able to check it.

John Stokdyk's picture

Very good question, Kevin!

John Stokdyk | | Permalink

A cursory trawl around Google suggests that big firms like PKF and PwC have come up with quite detailed letters telling clients what their iXBRL tagging processes will involve.

A March 2010 PKF update provides a good summary of the underlying responsibilities (but no hints on suggested wordings):

Responsibilities of management
Management is responsible for the completeness and accuracy of information filed with HMRC. However, where accounts are prepared (and tagged) by external advisers or where management uses proprietary software with in-built iXBRL tagging, it may not always be easy to establish the accuracy of the tagging. Management will need to consider the extent to which they want to perform or check iXBRL tagging themselves, or whether some sort of external confirmation of the accuracy of tagging should be sought… Should management wish to obtain assurance on this matter from their auditors (or other advisers) they would, therefore, need to request that this be undertaken as a separate exercise to the audit.

Auditors’ responsibilities
Online filing in iXBRL format does not include an HRMC requirement for the entity’s statutory auditors to provide assurance on the iXBRL tagging of the information submitted. In addition, the Auditing Practices Board (APB) has issued Bulletin 2010/1 ‘XBRL Tagging of Information in Audited Financial Statements – Guidance for Auditors’ which explains that iXBRL tagging is not currently within the scope of an audit performed under International Standards on Auditing (UK and Ireland).

Responsibilities of preparers of accounts
Where accounts are prepared on behalf of the company by an external firm of accountants, they may enhance the service they provide by taking responsibility for ensuring that appropriate tagging is applied. This should not, however, be taken for granted: management should ensure that they have a clear understanding of the nature of the work that will be performed in respect of the accounts preparation, the costs involved and the respective responsibilities of management and the accountants concerned. These responsibilities should be clearly set out in an engagement letter to avoid misunderstandings and disputes.

I seem to remember a few mentions of the subject from software suppliers. I'll dig them up and post them shortly - but suspect that members will have to navigate these waters on their own until someone can come up with more respectable sources of guidance.

Paul Scholes's picture

Not sure

Paul Scholes | | Permalink

My first thought is that, even without iXBRL, I'm not sure how many of my clients fully undertsand the numbers thay have just put their signature to and so what's the difference with iXBRL?

I have to agree though that I feel something should at least me acknowledged over this addition to the process and so, given that, at the moment there is no easy way to get the client to run though the tagging and compare it with the MTL I'll probably go with just stating that our software will automatically tag known items and that we will disclose any manual tagging we make to the client adding a disclaimer of some kind over it being new technology and an area of higher risk than before.

Then return to the real world.

daveforbes's picture

Tagging report

daveforbes | | Permalink

I am sure most software (and services) will produce some sort of tagging report . Ours produces it as part of the hard copy transcript at transmission time which I expect many of our customers will get their clients to sign.

May be a separate thread discussing the procedures accountants will have to go through. I would have thought reviewing this report would be best done before the client signs the accounts. Maybe even a test tranmission to HMRC would be advised.

Not so sure

ChrisDL | | Permalink

Whilst I'm sure that the Forbes software does produce a tagging report, there is certainly some that does not.

Although I have found I can interrogate an iXBRL file in Excel to see what tags have been applied, this is not easy and trying to produce a report in format that a client (or a partner who wants to review the tagging) is something which will be a struggle, even if you have a software developer who can understand iXBRL rendering, transformations and stylesheets, which I certainly can't.

It does rather make a mockery of the basis behind iXRBL when I can read it, but my computer can't display it for me.

If you've ever actually tagged a file ....

MBK | | Permalink

.. you will know that 99%+ of accountants will not understand quite a lot of the tags.

So the chances of a client understanding them is acually zero.

I can't imagine a court would pay a moment's attention to  a submission by an appointed accountant / auditor suggesting that a letter of engagement gets them out of any responsibility. I'm quite sure the view would be that there was an implied duty of care which could not be displaced by an engagement letter.

The best I think could  ever be done by an engagement letter would be to point out to the client that the accountant is not an expert in tagging and relies on third  party software to get it right, and cannot be held responsible for any failure on the part of the third party software. So it would come down to an argument about whether the software selected by the accountant was appropriate for the client in question.

The above applies, of course, where the accountant produces the accounts for filing. Where the client produces their own stat accounts there will be a separate engagement with someone (probably not the accountant) to tag the accounts.

 

 

John Stokdyk's picture

Might want to investigate the IRIS OpeniXBRL taxonomy tool

John Stokdyk | | Permalink

Chris and MBK,

The whole point of iXBRL tagging (as opposed to XBRL) is that if it's done right, you should be able to view the accounts in a web browser. Some iXBRL tools will let you click on a figure, and then display the tag alongside the face of the accounts. You might then be able to alter the tags, if you so wished, and this would be the sort of thing that gets logged in the way David Forbes says his software works.

As far as interpreting the tags goes, the important thing would be to ensure they matched the tags in the relevant XBRL taxonomies (available from HMRC's website and XBRL UK).

I haven't looked at it yet, but I think the IRIS OpeniXBRL Taxonomy tool, available for free access via this link, might provide a useful reference source for anyone concerned about iXBRL tag integrity.

John Stokdyk's picture

CCH advice, as promised

John Stokdyk | | Permalink

Just to ensure that nobody thinks I'm promoting one vendor over any other, the most comprehensive info I found on engagement letters besides the PKF briefing comes from CCH. Last year, it surveyed accountants and found 72% did not cover CT efiling in their engagement letters, which CCH warned could leave the advisers responsible for any incorrect submissions.

David Routley, technical product manager at CCHm commented: “Accountants will need to spell out to clients and third parties who will be responsible for ensuring the tagging of data, otherwise they will be left with a much larger volume of work than they expected. They could also be faced with incorrect documents being returned by HMRC and could potentially lose the confidence of clients.”

CCH's iXBRL practice planning whitepaper advises: In order to ensure you are not faced with a last minute crisis when you come to submit the corporation tax return, contact your client to discuss iXBRL and who will be providing the file. Once this has been done update your engagement letter to reflect your arrangements.

Contact your client to discuss the requirement to provide the accounts in iXBRL and to explore the potential options. Once you have agreed an approach ensure you have this documented in your engagement letter.
Whilst no one wants problems it is better to prepare for potential issues in advance and formalise that arrangement. A discussion with a client who produces their own accounts may have resulted in an agreement that they will produce the iXBRL file but they may not understand the process fully or may not be able to provide the iXBRL file when you require it.

Ensure the arrangement is covered by your engagement letter in case of problems further down the line.

Key questions:

  • Do you have an engagement letter in place covering your corporation tax compliance services for all clients for which you submit a corporation tax return?
  • Does your engagement letter include a clause authorising you to file the corporation tax return online?
daveforbes's picture

@chrisdl

daveforbes | | Permalink

If you download the demo version of our software it won't allow you transmit (without paying up!) but it will let you attach other people's ixbrl and view the tagging report(s).

As for the moving the mouse around and seeing the tag in a "flybe tooltip" that is great on screen, but not so hot in hardcopy !

VT also have a free ixbrl tag viewer you can download.

@John

MBK | | Permalink

No matter how good the tag viewer is you still won't be able to review a set of accounts to check that the tagging is correct in many cases.

That approach will work for (I would say) around 60 - 70% of all the tags in a typical set of SME accounts.

For the remainder there are three issues:-

1:  The names of the tags are often sufficiently obscure that you won't necessarily be able to mentally link them directly to the figure in questions.

2: Every tag has a context. If the context is along the lines of "This Year" or "Last Year" then that's fine. But if it's not (and there are many like this) then, unless you also have the definition of the context alongside you, you can't know it's right.

3:  Some tags are also within "Tuples". Again, unless you know that a tag is part of a Tuple set and whether the tuple definition is correct, then you can't know that the tag is correct.

Which is why ALL of the product providers are struggling to provide any meaningful validation tools. And why the post production method of tagging will not survive in the long run - the only way to get tagging (largely) right is to use an accounts production system. The reality is that lots of tags will simply be wrong - and the fact that they are wrong will probably never get spotted by anyone.

And, of course, the main reason why accountants can't commit to checking tagging is the sheer mind numbing tediousness of it!

 

I'm with MBK...

petegjones | | Permalink

I don't think it is a matter for the engagement letter. It is a matter for software to get the tags right, not a human.

I'm with MBK and John

ChrisDL | | Permalink

Although John is perfectly correct that iXBRL means that the accounts be viewed in a browser, that is not the issue. If I view a set of accounts in a browser it shows me everything that is tagged with any sort of tag, XML, HTML, XBRL and displays it accordingly.

The difficult part is extracting and displaying only the iXBRL tagged items in a way that the client / reviewer can understand and thats why at the moment we need software like Forbes or VT (thank you for the tips on those - I'll check out your product as I have already looked at VT)

There is a addon to firefox which sort of does it but there does not seem to be an internet explorer equivalent at the moment.

I tagged up a Word statutory profit and loss account - the word document is one page and the tagged document viewed in XML is 17 pages because is contains all of Word's inbuilt tags as well as the iXBRL tags.

The tagging is extremely complex as MBK says and even in accounts production, I don't feel comfortable with saying that tagging is purely a software issue and therefore has no need for a letter of engagement.

I do think the introduction of iXBRL is causing a revolution in accounts production but people haven't noticed yet. It will require the users of the software to be much more disciplined in how they use it - the current dumping of accounts into Word to finish off some particular piece of disclosure that the user feels is too difficult to achieve in the software will be risky, paritcularly once the soft landing period is over.

daveforbes's picture

@mbk

daveforbes | | Permalink

You are correct - there is a balance. Printing out the extacted XBRL instance is its raw form is complete - but very unreadable. Any re-arrangment to make it more readable could lose information. We have used our reporting tools mainly with ixbrl we have produced ourselves (where we have more information about context). Feedback when used with other peoples ixbrl would be appreciated particularly.

@daveforbes

ChrisDL | | Permalink

I'm happy to run some of my test iXBRL through your program - can you give me some detail of what I need to download and what feedback would help please?

daveforbes's picture

download

daveforbes | | Permalink

tax software is at www.forbes.co.uk/install/10.exe

After installing go into CT software, ixbrl menu is at top.

ixbrl / add attachment

ixbrl / summary        -- produces report that avoids jargon as much as possible

ixbrl / visual tagging -- produces multi coloured display of tags.

ixbrl / advanced / taxonomy browser -- lets you browse the taxonomies, including charities

Enjoy !

 

VT Fact Viewer | Self tagging

vtsoftware | | Permalink

You can use VT Fact Viewer to review and check the tagging in any iXBRL file. VT Fact Viewer can be downloaded free of charge from http://www.vtsoftware.co.uk/factviewer/download.htm

After installation, either:

  • Right mouse click on any iXBRL file in a folder and choose Open With VT Fact Viewer from the pop-up menu; or
  • Start the software by clicking on its program icon on your desktop and then choose the Open command or button

There is no need to attach your file to a corporation tax package first.

I do not agree with earlier comments about self tagging. It is dead easy using VT Final Accounts (see screenshot).

Philip Hodgson
VT Software

John Stokdyk's picture

Thanks all for the ideas and info on validating tags

John Stokdyk | | Permalink

...it's extremely useful stuff, but has taken us away somewhat from Kevin's original challenge about how to document iXBRL efiling services in letters of engagement.

Perhaps "Validation tools and challenges" is a theme for a new conversation. If I can get to grips with my next article on Outsourcing services, I'll kick of a new thread and put in some of the tools and points raised here.

Paul Scholes's picture

Are we making too much of this?

Paul Scholes | | Permalink

Back to Kevin's question. 

I'm in the process of amending our terms of engagement for the above and after several circles (most of which involved trying to explain ixbrl, tagging & taxonomies in two sentences) I read what we say at the moment about the computations, ie that, from the accounts (that we have prepared from information provided) and other information provided we will prepare the computations etc etc.

The client is responsible for submitting accurate and complete computations to HMRC each year but they employ us experts(ish) to do it for them and I don't impart all the tax knowledge necessary to my clients in order for them to check the comps when they sign off, so what's changed?

Similarly, I didn't amend our terms of engagement when we started PDFing accounts from the original IRISd word versions nor when we started preparing comps in ixbrl and so I'm struggling to see why we need do anything now.

Please don't worry about making me look silly by pointing out "the bleedin obvious" as I'm sure I'm missing something.

rockallj's picture

I agree with Paul

rockallj | | Permalink

I think we are making too much of it. Do you all prepare new engagement letters when a new FRS or the FRSSE is used instead? As far as I am concerned, the client pays us to do a job and how we do that job, as long as it is to theirs and the authorities' satisfaction don't see the need to amend an engagement letter. Or am I, like Paul missing something too?

I don't think you are missing anything at all...

petegjones | | Permalink

I think you have both correctly concluded that this is really just a new medium for communicating the same information that you always have done.

 

ShirleyM's picture

Depends on the engagements

ShirleyM | | Permalink

I'm guessing from the postings above, that some accountants are preparing tax, but the accounts are prepared by someone else. In these circumstances I can see that the terms & conditions would have to idenfity who is responsible for the accounts tagging.

Where the accountant prepares both then surely it is just a part of submitting returns online.

coolmanwithbeard's picture

Proper Returns

coolmanwithbeard | | Permalink

Although fearsomely more complex now some of us have been tagging accounts for a few years now - where we submit small company accounts to C House on the PDF system they have.

Where I go from the client's prime records to CH and HMRC with the information I see no difference - I have an agreement with my client to prepare and submit appropriate accounts to the bodies. I have a duty of care to sort this out so that it is done in the best way.

I am informed by my software supplier (Digita) that if I produce a standard set of accounts with no changes to their standard format it will all be tagged correctly - I only need to consider tagging where I add extra information or amend existing information in the accounts. THis solution suits me the best as a sole trader who does everything.

THis reminds me of the original move to e filing of tax returns in the 90's and Idont remember the issues with regard to my engagement changing then either - instead of a paper return I was submitting a tagged tax file to HMRC online.

If we are engaged to submit on behalf of the client then in my view nothing has changed. I would suggest there will be engagements that need to be reviewed where the engagement does not include submission to CH and/or HMRC.

It is that we need to inform clients of this change, perhaps even warn them that it will cost more as some extra tagging takes time. I will also only be responsible for tagging I do from start to submission and clients who aren't prepared to pay for submission will receive printed accounts as they do now

 

ICAEW exposure draft engagement letter

STAH | | Permalink

Did anything ever come from this?

An exposure draft of the proposed technical release for performing agreed-upon procedures engagements that address XBRL-tagged data included within financial statements prepared in an iXBRL format  

Exposure Draft AAF 04/10 

http://tinyurl.com/6gp9t9e

sorry for the tinyurl but the other link is too long

better link

STAH | | Permalink

sorry. found a better link

http://www.icaew.com/search?q=AAF%2004-2010 

 

 

Paul Booth's picture

Yes, something did come of it

Paul Booth | | Permalink

... or, at least, it's ongoing. The exposure draft consultation period ended in December. I gather from my audit and assurance colleagues that there were few comments. The committee that approved the consultation draft is meeting soon (28 March) to consider next steps.

Paul Booth, ICAEW IT Faculty

Thanks

STAH | | Permalink

 Thankyou for the update Paul.

 

I will keep an eye out for any new developments.

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