Views on improving the integrity of global capital markets
08 March 2011

2011 Taxonomy Updates — Did You Notice?

Posted In: Financial Reporting

For those working for accounting firms or public companies that file with the U.S. SEC, the regulator’s adoption of the 2011 U.S. GAAP Financial Reporting Taxonomy likely appeared on your radar. The same people likely took notice when the IASB released its exposure draft of the IFRS Taxonomy 2011. But for the general and professional investor, both of these announcements were likely immaterial market noise.

By way of background, these taxonomies are the elements used to tag financial information in the increasingly required XBRL (eXtensible Business Reporting Language) reports of many regulators. All companies that file with the SEC, regardless of size or national headquarters, must include XBRL-tagged exhibits in all financial reports after 15 June of this year. Beginning this year, HM Revenue & Customs (the U.K.’s customs and tax department) joins the U.S. SEC and regulators in many other countries — including China, Japan, and Singapore — that already require XBRL structured reports. With the increasing number of companies preparing XBRL regulatory reports, why do these announcements have little meaning to investors?

Much of the advancement within XBRL platforms over the past few years focuses on helping firms comply with their regulatory requirements. Under the SEC’s program, the limited datasets covered by the XBRL reports — number of companies, scope of information, and number of time periods — has led to limited interest among Wall Street to modify its current analytical practices. Add in the fact that the XBRL reports are not part of the companies’ earnings release disclosures, but are provided later with the quarterly filings, the value of the tagged information is reduced because most analysts already have incorporated the new information into their reports from other company-provided sources.

CFA Institute continues to see the potential for analytical improvements as a result of the increased use of XBRL. As discussed in our recently released Compensation Discussion and Analysis Template (PDF), we recognize the benefits of tagging a firm’s CD&A disclosures. Indeed, as all public companies’ XBRL filings are added to the available universe of information and those companies elect and/or are allowed to produce XBRL reports outside the regulatory requirements, this information will become increasingly material to the investment community. Providing tagged information when the analytical update typically begins — with a company’s earnings release — and incorporating operational as well as financial performance metrics should promote usage by investors. But to make this change, XBRL must be seen by all parties as a communication tool as opposed to a compliance practice.

About the Author(s)
Glenn Doggett, CFA

Glenn Doggett, CFA, was a director of professional standards for CFA Institute. His responsibilities included providing member guidance in applying the ethics and standards of practice policies, supporting related educational and public awareness activities, and working with the Standards of Practice Council of CFA Institute on its initiatives. He was a co-host of the free, live, interactive webinars used by CFA Institute to promote ethical decision making and global best practices. Previously, Mr. Doggett, as a member of the CFA Institute Financial Reporting Policy Group, represented membership interests regarding reporting and disclosures initiatives, including XBRL. Prior to joining CFA Institute, he worked in the financial information sector with SNL Financial, where he focused on the real estate and energy industries, directing the development and maintenance of a financial data storage system. Mr. Doggett holds a BA in economics from the University of Virginia. He was awarded the CFA charter in 2006 and is a member of CFA Society Virginia.

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