Analysis of Indian Taxonomy - Deficiencies & Implications

Dear Friends,

MCA has released the Revised Taxonomy on August 27, 2011. It has rectified Taxonomy Element related deficiencies reported by various stakeholders. However, the following deficiencies in Indian GAAP Taxonomy reported by us to MCA still continue in the Revised Taxonomy:-

General Project related remarks - lack of technical documentation - e.g. guidance on taxonomy architecture, rules & principles used during development - lack of business documentation - e.g. guidance on making extensions for filers, which will be allowed next year; scope & content of taxonomies - no documentation on long term project objectives was found (no information about plans related to taxonomy - e.g. its future reporting scope) Because of lack of abovementioned documents it will be hard to determine whether the taxonomy satisfies all expectations and requirements of regulator.  Taxonomy Architecture related remarks - missing Reference Link base - label called "Definition" is useful & helpful, but it can't replace Reference Link base  - Dimensions are not used, though there is a great potential for it  - potential for deeper modularization is not yet exploited - e.g. by sectors or standards themselves - lack of noticeable entry point schemas - contextual labels are greatly underused e.g. net Label - business rules are documented but Formulae is not implemented in the taxonomy 

Here are the implications of deficiencies in Indian GAAP Taxonomy:-

Missing Reference Link base

Reference Link base provides reference to the Accounting Standard or Statue where the element in taxonomy has been referred too. In US GAAP Taxonomy and IFRS Taxonomy each tag has been provided proper reference to accounting standards and then paragraphs of the standards.

Here are some examples of Labels called “Definition” used in Indian Taxonomy which don’t provide sufficient information for making judgment about selection of a right tag :-

Element Label: Income Tax Policy

Documentation: No Documentation is available for all the policies.

Element Label: Interest Accrued Due Debentures Unsecured

Documentation: No Documentation is available for this element.

Element Label: Share Secured Loans JointVentures

Documentation: Share of entity in the secured loans of its joint ventures.

Element Label: Secured Loans

Documentation: Borrowings backed by or secured by collateral

In the absence of Reference Link base in Indian GAAP Taxonomy, not only making a judgment about selection of right element in the taxonomy for a line item in the financial statement will be tough, but providing assurance on XBRL Instance Document will be a big challenge for the auditors.

Missing Formula Link base

Calculation Link base in taxonomy validates simple calculations Viz.: Addition & Subtraction only. More complex and user defined calculations are controlled by Formula Link base e.g. EPS= Net Profit/Number of shares etc. Calculation of EPS in Profit & Loss Account is a statutory requirement. In the absence of Formula Link base in Indian GAAP Taxonomy, calculation of EPS will not be validated.

Missing Dimensions

Dimensions are very much useful in case of tabular data The use of Dimensions provides more flexibility, better extensibility, comparability and more consistent extensions. This has been the experience of XBRL implementation in Europe (COREP & FINREP) and Japan (EDINET). Dimensional modeling, if appropriate can significantly support tagging. Exemplary table is Changes in PPE or Changes in Equity. Formulas can support tagging extensively (review of tagging). Example here is existence checks (used among other for UK taxonomies).

Indian taxonomy was created in 2009 when Dimensions were already available for 3 years. More importantly the IFRS XBRL Taxonomy was available back then in its 2008 version and 2009 version both dimensional and supported by extensive documentation like Taxonomy Guide and ITA Filing Manual.

Use of Tuples in Indian Taxonomy

Detailed analysis shows that Tuples should not be used in taxonomy since it greatly complicates any approach to reconciling document and data oriented perspective - particularly for any kind of narrative disclosures. Moreover mapping is more challenging for software, comparability is not robust & extensibility is poor in case of Tuples. Most published taxonomies worldwide avoid the use of Tuples because of these limitations.

In 2009 the XBRL community (including IFRS Foundation, US SEC and JFSA) already agreed on ITA architecture that does not use tuples for financial reporting taxonomies. This decision for the Indian GAAP taxonomy made it different architecturally from major international taxonomies

Technical Documentation, Business Documentation & Long Term Project Objectives

These documentations Viz.: Taxonomy Guide & Technical Documentation are available for all published taxonomies worldwide viz: US GAAP Taxonomy 2011, UK GAAP Taxonomy 2010, and IFRS Taxonomy 2011. In the absence of any Indian Taxonomy Guide, users will find it tough to use the taxonomy. Moreover, in the absence of any business documentation and long term project objectives, it will be hard to determine whether the taxonomy satisfies the expectations & requirements of regulator. I am sure, these deficiencies & its implications will help you to have a better understanding of the quality of Indian GAAP Taxonomy.