[By, Adam Morgan]
In June 2011, the Securities and Exchange Commission (SEC) required all corporate filers reporting under Generally Accepted Accounting Principles (GAAP) to provide a copy of their financial statements written in Extensible Business Reporting Language (XBRL).
The new method for reporting was seen as a huge step in enhancing the comparability of companies by applying standardized computer “tags” to each piece of data and text block on the faces of electronic financial statements.
XBRL sounds complex, but it is really quite simple. It allows users to create a computer-generated instance report by applying tags to pieces of data and text blocks.
When filing annual financial statements, companies originally retrieved tags from the 2011 U.S. GAAP Taxonomy, acting like a large dictionary of the 17,000 valid words in the new business reporting language.
Suddenly, a figure that once had no context could immediately be identified as “cash” or “income tax expense” by any computer using XBRL programs. Users then query specific pieces of data and the computer pulls the information that directly matches what the user requests.
The result is an instance document that provides all necessary financial data in a format that can easily be transferred to familiar applications like Microsoft Word or Excel. Computer programs even sprouted up that allow users to select multiple companies and extract desired information based on the tags, creating reports of great comparative value.
Each financial statement filed with the SEC is stored in the EDGAR online database. However, according to an Accounting Today article published on April 5, the SEC announced that its updated financial statement database – EDGAR 13.1 – will no longer support the original 2011 U.S. GAAP Taxonomy.
Instead, filers are encouraged to make the switch to the most recently updated 2013 U.S. GAAP Taxonomy for all XBRL statements filed after the April 29 launch date. Updated taxonomies are created each year and can be thought of as a dialect of the same XBRL root language; however, the SEC now wants everyone speaking in the most contemporary version.
What will this switch mean for companies? They will now be forced to use only tags found in supported taxonomies from 2012 or later. While there are costs associated with learning the new tags and applying them, the focus is on users of financial statements.
The goal is to streamline cross-company data analysis to make investment decisions easier. Also, the 2013 U.S. GAAP Taxonomy reflects tags associated with recent changes in accounting standards.
Given the Financial Accounting Standards Board’s (FASB) convergence projects of U.S. GAAP with International Financial Reporting Standards (IFRS), use of the most recent taxonomies that reflect new joint standards will aid in international investment strategies.
Information from Accountingtoday.com and a lecture by John Carroll Accountancy professor, Patti Weiss, CPA, was used in this report.