From the President’s Desk
Improving Financial Reporting Through the U.S. GAAP Taxonomy
For most people, the coming of September signals fall foliage, a new school year, or the kickoff of another winning football season for the New York Giants (at least it does for me). At the FAF and the FASB, September’s arrival means it’s time to seek comments on our annual update to the US GAAP Financial Reporting Taxonomy.
Although it seems like an arcane undertaking, updating the taxonomy is one of our most important projects. Simply put, the taxonomy is a list of computer-readable financial reporting labels coded in a special computer language – eXtensible Business Reporting Language, or XBRL. XBRL is an open-source language that allows companies to precisely identify and tag the thousands of pieces of financial data included in typical long-form financial statements and related footnote disclosures. The tags allow users of financial statements to electronically search for, assemble, and process data.
In 2009, the U.S. Securities and Exchange Commission (SEC) required all U.S. public companies and foreign private issuers that prepare financial statements in accordance with U.S. GAAP to provide their financial statements in interactive data format using XBRL. A year later, the SEC granted responsibility for the ongoing maintenance of the taxonomy to the FAF and the FASB. A team of FASB staff was assigned to oversee these activities, which focus on updating the taxonomy for changes in U.S. GAAP, establishing best practices in taxonomy extensions, and implementing technical enhancements.
Moving taxonomy development and maintenance responsibilities to the FAF and the FASB helped achieve greater integration with the FASB’s standard setting, codification, and related processes—all of which share the goal of producing standards that result in financial reports that provide decision-useful information for investors.
The benefits provided by the taxonomy to investors are substantial. It gives them the ability to extract very specific, targeted information, making it much easier to compare a company’s performance in one quarter or over a period of years, or to compare the same data across multiple companies. Its uniform reporting structure also is an important tool in developing financial reports that are transparent and comparable across industries and organizations.
While developing the taxonomy, our focus was on meeting the needs of those who prepare financial statements. Now that taxonomy adoption has reached critical mass, our focus has shifted to improving how its information is consumed by investors and other users.
It is vital that investors be able to find and use the information that is relevant to them. While investors agree that transparency and comparability are important, they do not all speak with one voice when it comes to the kind of information they need to achieve this. Therefore, the FASB taxonomy team engages in extensive outreach to hear views from a wide range of investors.
One of the ways we’re getting investor input is through a Taxonomy Advisory Group. The group meets monthly and includes analysts and data aggregators. The FASB taxonomy team also hosts small group and one-on-one meetings with data aggregators and analysts on a regular basis.
The taxonomy also plays an important role in the FAF Post-Implementation Review (PIR) process. As readers of this column know, the PIR process was created to assist the Board of Trustees in its ongoing efforts to measure the effectiveness of the standard-setting process. The PIR team uses XBRL to analyze public company disclosures to see if useful information is, in fact, being presented in accordance with these standards. It makes the PIR process more effective and efficient, eliminating the need to read through thousands of financial statements.
Finally, we’ve made it easier for investors and all taxonomy users to submit comments on proposed updates. Launched in 2011, the Taxonomy Online Review and Comment System allows stakeholders to provide direct, “real time” input on the Development Taxonomy being updated and maintained by the FASB XBRL team.
September is the perfect time to learn about this system. On August 30, the FASB released the proposed 2013 Taxonomy for a 60 day public review and comment period. The proposed taxonomy contains updates for accounting standards and other recommended improvements to the official taxonomy now in use. The comments provided will be reviewed and incorporated by the FASB taxonomy team. The official 2013 Taxonomy is expected to be finalized and published in early 2013, pending its approval by the SEC. (More information is available at the SEC’s portal on XBRL).
I encourage all taxonomy users―including investors, SEC filers, service providers, software vendors, and other interested parties―to participate in this important aspect of our due process. Your input will ensure that our taxonomy continues to improve financial reporting for the benefit of investors and all capital market stakeholders.
FAF President and Chief Executive Officer
Have a question or comment? Contact Terri directly at firstname.lastname@example.org.