Olivier Servais is Director of XBRL Activities at the IASC Foundation, which is responsible for the development of the IFRS taxonomy. He has been European Director of XBRL International and has served as a member of the XBRL International Steering Committee, the Consultative Working Group of CESR Transparency, and the Eurostat XBRL Pilot Task Force. He is the author of various publications about XBRL.
This is the first part of a two-part interview. The second part of the interview contains question 8 through 14.
(1) In one of your presentations you state that the mission of the IASC Foundation XBRL Team is “to provide users an IFRS XBRL taxonomy with the same quality, in the same languages, and at the same time as the IFRSs are available.” What are the greatest challenges you face in achieving that mission, and what are the greatest satisfactions?
I joined the IASC Foundation two years ago and the objective was very clear: develop the International Financial Reporting Standard (IFRS) Taxonomy as a framework for the consistent adoption and implementation of IFRSs. Timeliness and efficiency were key considerations. Business and technical requirements were also high priority, along with global usability, interoperability (between different software platforms), extensibility, comparability, and stability.
In 2008 the IFRS Taxonomy was released together with the IFRS Bound Volume. Despite this and other achievements, we are conscious that there is still much to be done, such as securing the recognition of the IFRS Taxonomy by the IASB, and implementation of the taxonomy in countries where IFRSs are adopted, and we are continuing to work toward these and other goals.
(2) The IASB website states “The mission of the XBRL Team is part of the IFRS adoption and implementation strategy and is fully integrated with the IFRSs development.” Could you explain to readers some of the IASB’s thinking in choosing to align IFRS development so closely with XBRL? What are the advantages of this approach for IFRS development? Do you see disadvantages as well?
Today, IFRSs are permitted or required in over 110 countries around the world, and many more have already communicated a roadmap to adopt (or to converge with) IFRSs in the next few years. Interestingly, in most cases XBRL is considered the enabling technology to ease reporting of and transition to (and also the understanding of) IFRSs.
It’s hard for me to tell you if there are disadvantages. All that I can say is that in order to provide a high quality taxonomy we work closely with the technical staff of the IASB to ensure that their concepts are accurately reflected in the Taxonomy, and also to ensure that XBRL is integrated in the development of accounting standards.
(3) In a recent article you wrote for IR Magazine, you state “It is no coincidence that the main expected benefit of Belgium switching to XBRL [as the format for her 270,000 companies to file its annual accounts with the National Bank of Belgium] was to ease the transition to IFRS.” Could you expand on that and explain how XBRL smoothes the changeover to IFRS?
In that article I was referring to public statements made by the management of the National Bank of Belgium, which clearly indicate that one of the reasons for moving to XBRL was the prospect of moving to IFRSs in the future. I remember a senior level representative of the European Commission remarking a number of years ago that XBRL is able to provide the structure and flexibility required to present financial statements in IFRSs. Being able to map concepts between different sets of generally accepted accounting principles (GAAP) is clearly an asset of XBRL.
(4) Traditionally, there has been the assumption that US GAAP is “rules based” while IFRS is “principles based.” Is that distinction still accurate or useful? If so, has it had an impact on the nature of the taxonomies that have been created for each set of standards?
It is important to remember that the IASB / IASC Foundation is not a regulator but an accounting standard-setter. The IASB’s predecessor, IASC, actually started as a think tank producing International Accounting Standards. The IASB’s International Financial Reporting Standards were adopted in 2002 by the European Commission for implementation by public companies in 2005. Today, the IASB continues to develop and publish accounting and financial reporting standards that are now adopted (permitted or required) in over 110 countries around the world.
Since the beginning, the IASB has chosen to provide principle-based standards. By creating an IFRS Taxonomy that is consistent with the IFRSs, we have identified and tagged the elements available in the annual IFRS reference document known as the Bound Volume. The result is that the IFRS Taxonomy reflects the Bound Volume, standard by standard. Today, we have an IFRS Taxonomy that contains approximately 2,700 elements that are generally regarded as high quality.
(5) In a recent interview with this blog, Gerald Trites of XBRL Canada discussed some of the issues surrounding taxonomy extensions:
….Too many extensions by different companies contribute to noncomparability, because each company is likely to do an extension for basically the same problem in a different way. So the results become difficult to compare. One way to address this is to develop very robust taxonomies, such as those in the United States. However, the problem this creates is that the more robust the taxonomy, the more difficult it is to do the mapping required. So robust taxonomies can be an impediment to adoption.
Do you see the same tradeoffs Mr. Trites sees in taxonomy creation? How have these factors influenced the choices you’ve made in creating the IFRS taxonomy?
As mentioned, one of our basic requirements was to remain true to the IFRSs and in particular to the Bound Volume. Some might consider the level of detail contained in the IFRS Taxonomy insufficient for company filings, for example, with the US SEC. However, we have multiple cases of company filings in IFRSs where the number of extensions is less than 15 percent of the total number of elements required by, for example, a Form 10-Q. Nevertheless, facilitating extensions of the IFRS Taxonomy was also a key technical requirement when building the architecture of the 2008 version. Today, we receive comments from many preparers around the world that extending the IFRS Taxonomy and creating an Instance Document is quite easy, especially when using our IFRS Taxonomy Guide, without necessarily encountering incomparability. However, the outcome isn’t always perfect comparability and providing a set of common industry standards and extensions could help to increase comparability.
(6) There’s been much discussion about how XBRL will change the nature of financial reporting by facilitating EBR, real-time delivery of KPIs, and enhanced narrative reporting. How do you see the impact of XBRL on innovative methods in financial reporting? How does that effort dovetail with your work in IFRS taxonomy creation?
Our mandate is clear: produce the Taxonomy in line with the Bound Volume, and this remains our focus. However, there are some initiatives – such as WICI, EBR, or GRI – that we are paying attention to, even though most of them relate to nonfinancial information. Therefore, though our priority is to provide the IFRS Taxonomy, we endeavour to ensure that the taxonomy is flexible enough to integrate such new reporting mechanisms in the future.
(7) Besides creation of the IFRS taxonomy, the XBRL team at the IASC is involved in numerous projects that readers might not be familiar with. Specifically, could you describe your team’s work with ECCBSO and IFAC/IPSAS?
One of our key challenges was to make our Taxonomy global. Learning from the experiences of European Companies Registrars like ECCBSO, CEBS, and the FINREP taxonomy, or from public authorities using the IPSAS set of reporting (which is based on IFRS) was a great help to ensure flexibility. Furthermore, we participate in working sessions and receive feedback, comments, and suggestions. In order to fulfil our mission statement, we also provide tools, guidelines, and translations, which these organisations also help us to improve.