2011 Taxonomy Updates — Did You Notice?
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.