XBRL and the Irish GAAP taxonomy
Author:
Austin McGlade
The winning entry to the 2006 XBRL Academic Competition was based on an assessment of the Irish GAAP XBRL taxonomy. Barry Smith and Austin McGlade outline the nature of the Irish GAAP taxonomy, and explain how it was assessed. Ongoing taxonomy developments are also outlined.
Extensible Business Reporting Language (XBRL) is a standard of communication for electronic business reporting. Whereas business information may be transmitted using a variety of communication standards (proprietary file formats, HTML, PDF, flat text files, or plain hard copy, to name a few), the purpose of XBRL is to provide a single comprehensive communication standard. It is based on the argument that effective communication requires less time and effort if everyone uses the same language.The objective is to facilitate the efficient electronic communication of information by integrating a flexible open-source standard into the business reporting supply chain. For illustrative purposes, this article focuses on XBRL for external reporting, for example filing statutory ‘For illustrative purposes, this article focuses on XBRL for external purposes, using a hypothetical example of filing statutory accounts at the Companies Registration Office’.accounts at the Companies Registration Office. In order to create XBRL file format accounts, a preparer would need to make use of a ‘taxonomy’. More specifically, CRO statutory filings would require reference to the Irish GAAP XBRL taxonomy.
In general terms, a taxonomy is a body of information that is
(i) systematically defined and
(ii) classified into ordered groups according to relationships between the individual items of information.
A simple example of an accounting taxonomy would be a balance sheet template - an abstract body of information made up of constituent elements that are defined and classified so that accountants understand both the meaning of individual line items and the relationships between them. Expanding on this simple balance sheet notion of a taxonomy, the information required to produce full Irish GAAP financial statements (including notes, directors’ report and auditor’s report) may also be represented by an XBRL taxonomy. The elements required to produce an Irish GAAP body of information may be defined and classified in accordance with the Irish regulatory reporting framework; hence an Irish GAAP XBRL taxonomy.
Once a taxonomy is available, an XBRL file may be generated by attaching individual taxonomy elements to identifiable items of business data. This process is commonly referred to as ‘tagging’. Using the simple balance sheet example again, tagging is equivalent to populating the balance sheet template with the amounts to be reported, thereby providing individual and collective meaning to the monetary data.
Correspondingly, tagging the full content of statutory financial statements using an Irish GAAP taxonomy enables the creation of an Irish GAAP XBRL file for submission to the CRO. Furthermore, a single Irish GAAP XBRL file could be used for multiple reporting purposes, for example as parts of returns to tax or financial regulator authorities in addition to statutory CRO filings. The efficient business communication outcome derives from the fact that, because the attributes and relationships defined in taxonomy elements automatically attach to the tagged data items, XBRL file preparers can generate meaningful information without being constrained by data aggregation considerations or particular report formats, and can therefore address multiple reporting demands with a single XBRL file.
The reporting system outlined above illustrates the fundamental role of an XBRL taxonomy. While the construction of a taxonomy for tagging a simple balance sheet is a relatively straightforward task, developing one that substantively describes Irish GAAP is a significantly greater undertaking. The task of building an Irish GAAP taxonomy has however been underway since late 2004. One of the main activities of Business Reporting Ireland Limited (BRIL), a not for profit company established to promote the use of XBRL in Ireland, has been to develop a freely available XBRL taxonomy suitable for use in an Irish business reporting environment. In April 2006, the Irish GAAP taxonomy was formally acknowledged by XBRL International, the consortium that coordinates the global development of XBRL. ‘Acknowledgement’ status confirms that the taxonomy complies with the XBRL standard of electronic communication.
XBRL technical compliance aside, the Irish GAAP taxonomy must of course also describe what its purports to describe, namely Irish GAAP, if it is to be useful. The quality of XBRL-based CRO filings, in terms of complying with Irish GAAP presentation and disclosure requirements, manifestly depends on the quality of the underlying taxonomy. Testing the GAAP taxonomy for completeness and accuracy is therefore a crucial part of XBRL development in Ireland.
While many presentation and disclosure requirements are explicitly set out in legislation and promulgated accounting standards (and therefore easily defined in a taxonomy), the nature and extent of other disclosures in Irish financial statements can depend on particular circumstances (for example materiality, industry norms, size of company, stage of development, etc). Because it is virtually an impossible task to anticipate every type of reporting disclosure that could conceivably arise, circumstantial disclosures are more difficult to define and structure in a GAAP taxonomy. Moreover, the extent to which a GAAP taxonomy should attempt to capture circumstantial disclosures is a debateable matter, lest the taxonomy be perceived to be prescribing rather than describing GAAP. Throughout the period of Irish GAAP taxonomy development, a significant challenge has therefore been to strike an appropriate balance between adequately and usefully describing Irish GAAP but not prescribing it.
The Irish GAAP taxonomy is currently addressed to commercial and industrial enterprises. For our research, testing involved assessing whether complete XBRL financial statements files could be created reasonably easily for typical Irish companies in these sectors. Additionally, because CRO filing requirements differ for different sized companies, one small, one medium and one large company were chosen as the sample. Each of the primary statements, notes to the financial statements, directors’ report and auditor’s report for each of the companies in the sample were, where possible, tagged with Irish GAAP taxonomy elements using XBRL software tools. Disclosures in the financial statements for which no equivalent taxonomy elements were found were subsequently investigated.
A high quality GAAP taxonomy is one that, on average, accurately captures 95% of the reporting disclosures for 95% of the reporting entities to which it is addressed. In these circumstances, to complete an XBRL file may require an extension taxonomy. As the phrase suggests, an extension taxonomy extends the content and structure of a GAAP taxonomy to cater for unique, unusual or infrequent disclosures that have been determined by directors or auditors to be necessarily included in statutory financial statements. Extension taxonomies may be developed by industry bodies and / or individual reporting entities depending on the nature of the particular disclosure. Overall, the research findings indicated that the Irish GAAP taxonomy successfully captured the vast majority of the content of each of the sample companies without difficulty. There were a number of disclosures for which there was no equivalent taxonomy element but which could be considered common enough to justify inclusion in a GAAP taxonomy. Other disclosures were deemed to be particular to the circumstances of the company in question and so most appropriately defined in an extension taxonomy. A second significant finding was the importance of the structure of the GAAP taxonomy. As there are almost 2,500 individual reporting elements in the taxonomy, it will be helpful to further structure the taxonomy to make it as easy as possible for users to identify the elements that are of specific relevance to them. For example, most small company CRO filings will require relatively few taxonomy elements – presenting them together would make it easier for small company XBRL accounts preparers to find the taxonomy elements they need.
A third finding identified instances where more than one taxonomy element could have been used to tag the same item of business data. This has the potential to diminish comparability between XBRL financial statements if preparers make use of different taxonomy elements to capture essentially the same disclosure. The existence of duplicate elements is attributable to the fact that GAAP taxonomy development has been based primarily on the content of actual financial statements. While the advantage of this approach is greater confidence that taxonomy elements reflect the content of real financial statements, a disadvantage is the possibility of duplicated taxonomy elements where similar content has been described differently by various reporting entities. As the GAAP taxonomy is increasingly used, duplicates will be eliminated. During the most recent period of GAAP taxonomy development, a further 150 unnecessary elements were identified and eliminated.
Going forward, GAAP taxonomy development and application testing will continue to be an iterative maturation process. As greater use is made of the taxonomy, its structure and content will be refined and developed with a view to enabling 95% of the reporting content for 95% of reporting entities in Ireland to be captured. Enhancements recently completed or currently underway include authoritative GAAP references for each taxonomy element and links to explanatory notes. These enhancements have the potential to significantly benefit financial reporting by providing definition clarity and encouraging consistent reporting.
In conclusion, the Irish GAAP XBRL taxonomy proved itself well capable of capturing the content of typical Irish statutory financial statements for companies of different sizes operating in the commercial and industrial sectors. This is a significant and positive milestone in the development of XBRL in Ireland. This does not mean however that the Irish XBRL project is complete as Irish GAAP itself is a work in progress. Taxonomy maintenance and development to incorporate new accounting standards and business sectors will be required. But it’s a good start!
Barry Smith is a director of Active Business Reporting Limited and lectures at Dublin City University.
Austin McGlade recently commenced work with Deloitte. This article is based on his MBS in Accounting dissertation completed at Dublin City University