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XBRL tagging is a unique solution to taxonomy issues that occur in conventional accounting formats. All the filings that the issuer submits must be presented in XBRL formats and each item has to be tagged in detail.
Quality tagging is ensured when the XBRL format delivers the same financial information as the traditional financial statements would do. Quality data should be such that it is easily consumed by the users of that particular data.
The preparation of XBRL should be in proper structure and there should be continuity in presentation with logic.
Quality tagging starts with ensuring that the source of the data acquired is reliable, the financial statements reflect true and correct figures consequently the tagging should be done under the proper head, using proper signs and units of measure.
Quality tagging in XBRL provides companies a competitive edge, as the tagging is not only about compliance, but it’s more like a company presenting its financial story, which should be clear, correct, and not misleading.
Discrepancies in XBRL tagging can raise some serious red flags for the investors and potential investors, and hence maintaining quality tagging throughout is very necessary.
Quality tagging in XBRL prevents users from misinterpreting the financial information and may also compare the data with its peers.
Quality tagging also enhances the credibility of the financial statements and at the same time, it makes good economic sense.
Despite the clear incentives of quality tagging, many companies fail to deliver the required quality while it concerns the tagging process under XBRL.
Various steps can be used to ensure quality tagging under XBRL. Which we will discuss below.
The hiring of the right staff: Quality in any work can be achieved if the person performing it has the capabilities and experience to do so. Staff that is well trained with XBRL and have deep knowledge and understanding of the financials can ensure efficiency for the desired result.
Choosing appropriate software: XBRL formats involve working around computers and technologies. There is various software that can be used for XBRL filings. Choosing the one which ensure smart tagging and inbuilt checks should be hired.
Understanding the requirements of XBRL: Knowledge of financial statements is not enough for bringing quality to tagging process but in-depth knowledge of XBRL taxonomy, tag vales and other related terms is very important.
Review by senior authority: The converted Financials as per the XBRL formats should be reviewed by the senior authority having a deeper knowledge of the financial statements as well as the business of the company. Such a person should be in a better position to detect and correct any misstatements.
Enhances transparency: Error-free and accurate tagging while maintaining the quality enhances the trust of the users of the financial statements while making economic decisions and inter or intra company comparisons.
Quality tagging and correct presentation of financial information are very vital, since these financials are used by various sets of consumers starting from the management, auditors, investors, regulators, credit agencies, and stock exchanges, so any error or compromise in quality can hinder the decision of stakeholder’s and as well as the credibility of the organization is adversely affected.
Companies should adopt various steps as mentioned above to ensure quality and solidity in their compliance.