Donna Johaneman, Senior Project Manager XBRL, FASB; and Louis Matherne, Chief of Taxonomy Development, FASB
Part 1 of a 2-part blog about the work of the Financial Accounting Standards Board (FASB) on the US GAAP Taxonomy
In 2007, the Securities and Exchange Commission (SEC) mandated the use of the eXtensible Business Reporting Language (XBRL) for public company reporting, in a program set to phase in operating companies based on size. The nature of the SEC program, and the Generally Accepted Accounting Principles (GAAP) reporting requirements it needed to reflect, required a flexible, complex set of data standards and implementation program.
At the heart of the SEC program is the US GAAP Financial Reporting Taxonomy (Taxonomy), which is a critical component enabling standardization so that reported data can be automatically and unambiguously consumed. Building a quality taxonomy, and establishing the infrastructure to continuously maintain it, is of paramount importance to a successful financial reporting program for the capital markets, one that produces the desired results of minimizing reporting burden, lowering data collection and processing cost, and creating timely, consistent, and high quality data for consumers.
How It All Began
XBRL US was awarded the SEC contract in 2007 to build the Taxonomy to support the over 6,000 public companies that report each quarter to the SEC. A draft Taxonomy had previously been created by volunteer members of XBRL US which contained approximately 3,000 elements. This draft Taxonomy was used by those companies who filed in the SEC Voluntary Filing Program (VFP) but was clearly not enough for full financial reporting—the final set of standards contained an estimated 15,000 elements.
A core group of individuals managed the project, augmented by as many as 100 additional professionals, primarily accountants and technologists on short-term assignment from accounting firms and technology companies. Additional stakeholder groups were engaged, representing investors, data providers, software providers, and issuers, to provide further input and make sure the Taxonomy met the needs of all stakeholders. The XBRL US Domain Steering Committee (Steering Committee) provided oversight, served as tie-breaker on key decisions, and approved milestone deliverables, before release to the SEC for final approval. The Project Manager shepherded the program through step by step and served as SEC liaison. The Project Lead had responsibility for the entire project and reported to the Steering Committee. The Accounting Lead and Technical Lead had responsibilities for the team and tasks in their respective domains. The project was fast-tracked by the Commission and was completed in early 2008 for the first release.
Maintenance … the early years
In 2010, the Financial Accounting Foundation and the Financial Accounting Standards Board (FASB) assumed responsibility for ongoing development and maintenance. A Taxonomy team was assembled which included staff and accounting subject matter expert consultants to help with the higher volume of initial work required to intensely study how the Taxonomy was being used in the first few years, as the program ramped up. Over time, the team settled into a regular staff of subject matter experts.
The first three years after the FASB took over was an intense period before the Taxonomy reached a steady state. The FASB Taxonomy Team needed to review thousands of registrant filings and XBRL exhibits to understand how the Taxonomy was being used to best identify issues requiring resolution.
New taxonomies commonly have an initial adjustment period. Once preparers start using a taxonomy, they may discover missing elements, structural issues, and definition and label adjustments. Similarly, as software providers begin working with a taxonomy, they may identify architectural concerns that make it difficult to work with the taxonomy or enhancements that improve its suitability for purpose.
During the startup years (2010-2013), the FASB Taxonomy Staff focused on consistency reviews to establish a uniform style, and on improving the Taxonomy for both GAAP reporting requirements and common industry practices.
Continuous maintenance for a mature taxonomy
Today, with an experienced staff and developed Taxonomy, the FASB has an established and smooth-running process. The primary focus is on incorporating Taxonomy improvements for new GAAP reporting requirements and “focus topics” that have been targeted for remodeling or requiring supplemental guidance. Taxonomy-wide projects do occur from time to time when such an improvement is identified as being broadly beneficial and when the benefits justify the cost.
The FASB publishes and delivers to the SEC each year a proposed Taxonomy (Annual Update) to be used by registrants for the next calendar year. The Annual Update is designed to keep the Taxonomy and the SEC Reporting Taxonomy (SRT) current with GAAP and specific SEC reporting requirements for the SRT.
To ensure SEC requirements are met, the Taxonomy Staff participates in regular status meetings with SEC staff. It solicits input broadly during public review periods; and from its Taxonomy Advisory Group (a cross section of stakeholders from preparers to users), various industry resource groups, targeted outreach, and participation more broadly in the XBRL and financial reporting communities, e.g., XBRL US, XBRL International, Inc. and the International Accounting Standards Board.
The demands on the Taxonomy are significant—with numerous stakeholders, from regulators and issuers, to data aggregators and analytical tool providers, to software vendors. Building a taxonomy, and maintaining a taxonomy, requires a skilled team with expertise in standards and modeling, accounting, and technology, and great communication skills.
Check out Part 2 of this blog series, Harmonizing accounting and data standards. Coming soon.