Posted on Monday, December 23, 2019

Part 2 of a 2-part blog about the work of the Financial Accounting Standards Board (FASB) on the US GAAP Taxonomy

Donna Johaneman, Senior Project Manager XBRL, FASB; and Louis Matherne, Chief of Taxonomy Development, FASB

XBRL is a data standard that has structure to efficiently transport financial data (in addition to other types of data). When a piece of financial information, like “assets” is reported in XBRL format, it carries with it metadata that consistently conveys the data field name, definition, time period, currency (units), level of precision (decimals), reporting entity, and potentially other information that helps the receiver understand the exact meaning of the data point.

But XBRL is not an accounting standard, like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). As a data standard, it is designed to support an existing accounting standard by unambiguously conveying details about that accounting standard reporting requirement. For example, a term like “assets” when used in a financial statement prepared using GAAP, has a pre-specified definition, an allowable period type (instant), a data type (monetary), and a balance type (debit) in the related taxonomy. The definition comes from the GAAP standards.

XBRL, combined with standards like GAAP, enables the creation of consistent, transportable, unambiguously understood data. The accounting standard and the data standard make a powerful combination.

A coordinated approach to building standards

The US GAAP Financial Reporting Taxonomy (Taxonomy) is a comprehensive set of standardized data fields that are digitized through the XBRL data standard. Since 2010, the Financial Accounting Standards Board (FASB) has had a team of accounting and technology staff in place, responsible for expanding on, and maintaining that Taxonomy, which is used today by 6,000 public companies reporting to the U.S. Securities and Exchange Commission (SEC). FASB Taxonomy Staff work closely with the FASB Project Staff, which is responsible for projects setting the accounting standards.

Project Staff review issues received, conduct research, consider feedback, present options to the Board, and ultimately make recommendations on new or revised accounting standards that handle various issues that may arise. The Board deliberates on these recommendations and will commonly ask for additional research over the duration of the project. Deliberations of a proposed change may occur over a year or more, before the proposal is balloted for exposure as an Accounting Standards Update (ASU). The proposed ASU is exposed to the public for review and comment for a typical 60- or 90-day period. Depending on the feedback received, the proposed ASU could be modified and may even result in re-exposure to the public. Ultimately, the proposal, potentially with modifications, will become a final amendment to the accounting standards.

The Taxonomy Staff works hand in hand with the Project Staff from the start of this process, leveraging XBRL corporate data for analysis to support Project Staff research. Moreover, the early evaluation of a potential accounting standard improvement allows the Taxonomy Staff to timelier assess the impact on the Taxonomy. Working closely with the Project Staff is essential to make sure Taxonomy improvements reflect GAAP reporting requirements as well as provide feedback to the Project Staff when concerns are noted from a structured data perspective.

In January 2018, the Taxonomy Staff began exposing proposed Taxonomy improvements concurrent with the public exposure of the proposed ASU. This allows the Taxonomy Staff to better inform the Project Staff about the effect improvements to the accounting standards may have on the Taxonomy, on constituents, and on the resulting data from a machine-readable perspective.

Today, the processes of the Taxonomy Staff and the Project Staff are closely integrated. By the time the amendments to the accounting standards are finalized, the Taxonomy Staff has already discussed the effect of these changes on the various constituencies and been able to resolve issues before the amendments to the accounting standards and the Taxonomy are finalized.

Exposures to the public of Taxonomy improvements take place throughout the year and are conducted for each ASU. If the ASU is exposed for 60 days, the corresponding Taxonomy improvement is also exposed for 60 days. By year-end, all changes have been through public review and are then aggregated into a final version of the Taxonomy. The annual update of the Taxonomy (Annual Update) is submitted to the SEC which reviews and accepts the Annual Update, revises the EDGAR system as needed, and then announces to the public that the Annual Update is available for use.

Public companies and vendors can use the newly approved Annual Update and the one prior Annual Update for an overlapping period. For example, when the 2019 Annual Update was approved, SEC filers were able to use either the 2019 or the 2018 Annual Update to prepare their financials. The 2017 Annual Update was still available for use but soon “retired” and could no longer be used. This option gives filers and vendors time to make the transition to the latest Annual Update.

FASB Taxonomy Team

The Chief of Taxonomy Development, who reports to the FASB Technical Director, has responsibility for the Taxonomy as required by the SEC for use by their registrants. The Technical Director has overall responsibility for the FASB’s technical accounting and research activities and Project Staff; including the Taxonomy Staff and Taxonomy.

The Taxonomy Staff are responsible for the day to day execution of Taxonomy development and maintenance including the creation of supporting guidance and outreach. They are primarily accounting subject matter experts, CPAs, or professionals on track to become CPAs. This expertise is of paramount importance. While a working knowledge of the XBRL technology can be taught to CPAs in a relatively short period of time, the same cannot be said for teaching technologists a working knowledge of accounting and the complexities of financial reporting. Most of the technology behind the Taxonomy operates in the background and is relatively static.

When the Taxonomy Staff was first put in place, all the accounting subject matter experts were generalists, but today they specialize in Topics of the FASB Accounting Standards Codification® (ASC) which makes development more efficient and effective when addressing proposed Accounting Standards Updates or Topic related efforts, and when working with Project Staff.

The Taxonomy Staff includes a Software Developer, who manages the Taxonomy development platform, publishing scripts, and validation processes; as well as various software tools used by the Taxonomy Staff and the public. The Software Developer builds tools to perform bulk uploads, export data to Excel, and other tools to make the Taxonomy Staff more efficient as well as tools for public use, i.e., Taxonomy Change Application (TC App).

A Data Analyst is also on the team, to perform financial data analysis based on XBRL filings to support the Project Staff, and related Board level research needs for proposed standard setting. Research conducted by the Data Analyst supports the ongoing development and maintenance of the Taxonomy and helps the team tackle challenges confronting users of the XBRL data and potential Taxonomy improvements.

Taking a coordinated approach to development, of both ASUs and the Taxonomy that supports those accounting standards, ensures that all stakeholder needs are considered.