ThinkTWENTY20

When Christopher Cox, then chair of the U.S. Securities and Exchange Commission, was introducing the new XBRL (Extensible Business Reporting Language) regime for financial reporting, he joked that he didn’t want to mention the XBRL term “taxonomy”, because people hate the word “tax”. Indeed, there is an obvious chasm between the worlds of financial statements and tax, and often between financial professionals and tax professionals.

This gap needs to be bridged to move to tomorrow’s world of reporting as, in most cases, the two areas rely on each other. What good is real-time reporting for companies doing business in direct taxation countries without consideration of their taxes, which has a significant impact on the bottom line?

I come from a direct taxation country and – although a recovering auditor –started in taxation at a Big 8 firm, working on tax provisions for our corporate clients. I have always questioned the gap between the two areas. Financial statements are important to tax authorities. Tax implications are important to financial reporting. I moved on to a large local firm, where taxes were an even more important part of our services to our review clients.

It was because of that work that my XBRL Global Ledger Taxonomy Framework (XBRL GL) seeks to capture book and tax information simultaneously, including book and tax differences (permanent differences, such as penalties that impact net income but are not deductible for tax purposes, and timing differences, such as accelerated deprecation for tax purposes). I am not aware of any other specifications that tracks and reconciles parallel methods of accounting.

Blockchain, continuous audit, analytics … all can benefit from financial reporting and tax working hand-in-hand, and not tax only as an afterthought. This is a story I have been telling for 15 years, such as in Tax Executives Institute, Inc.’s magazine*. I was trying to get the word out that holistic standards like XBRL GL could be instrumental in bringing the (closer to) real-time planning and management of direct and indirect taxation into the same world as financial reporting.

* Cohen, Eric E. 2006 Interactive data and the tax executive: why tax standards setters are paying attention to XBRL (and why you should, too!). The Free Library (May, 1), https://www.thefreelibrary.com/Interactive data and the tax executive: why tax standards setters are ...-a0149851808 (accessed January 11 2020)