The Interoperable Taxonomy Architecture project (ITA) recently published The Global Filing Manual (GFM), the first set of aligned XBRL filing rules for global use. The GFM provides guidance on the preparation, filing, and validation of XBRL filings created using the IFRS, EDINET (Japan), or US GAAP taxonomies.
Maciej Piechocki kindly agreed to answer a few questions about the GFM and the ITA’s work. Maciej is a Project Manager at the IFRS Foundation, responsible for the development of the IFRS Taxonomy as well as coordinating other global IFRS and XBRL initiatives including the ITA project. He is also a member of the XBRL International Standards Board.
[The IFRS Foundation is an independent, not-for-profit private sector organization working in the public interest. Its main mission, through its standard-setting body, the IASB, is to develop a single set of high-quality, understandable, enforceable, and globally accepted international financial reporting standards — IFRSs. The opinions expressed here do not necessarily reflect the views of the IASB or the IFRS Foundation.]
1. Could you tell us about the ITA project, including its origins, participants, and objectives?
The ITA is a joint initiative between the European Commission, the Financial Services Agency of Japan, the IFRS Foundation XBRL team, and the SEC. The project was established in 2007 and it aims to converge the XBRL architectures of three taxonomies: EDINET, IFRS, and US GAAP. It is hoped that this architectural convergence will support the analysis and comparison of financial data reported in XBRL format, by enabling software vendors to develop applications for IFRS, Japan GAAP, and US GAAP reporting based on a single XBRL architecture.
The ITA project has made significant progress in aligning the architectures of the EDINET, IFRS, and US GAAP taxonomies, and has also published guidance on how to prepare, file, and check (validate) XBRL documents created using these three taxonomies. The GFM is the first significant effort to align XBRL filing rules for global use and is intended to encourage the consistent implementation of the aligned framework.
Collectively, IFRS, Japan GAAP, and US GAAP are used by 85% of worldwide market capitalization. The bodies involved in the development and implementation of these taxonomies — whether regulators or standard-setters — have the responsibility to ensure the cross-border interoperability of corporate reporting, especially while XBRL adoption around the world is growing. A single, consistent XBRL taxonomy architecture will lead to greater interoperability, which will support global software developers and lead to improved efficiency and a higher degree of acceptance in international markets.
The ITA does not aim, however, to ensure global comparability and alignment for all XBRL reporting. The focus of the ITA is reporting for financial statements where companies provide filings and not just instance documents. The fundamental use case that guides the ITA’s alignment efforts is the publication of a company’s financial statements and the consumption of those financial statements by a broad range of users and software applications.
2. To the extent possible, can you express in layman’s terms the interoperability problems among taxonomies, and how implementing the GFM solves these? What improvements will be seen primarily by XBRL technologists, and which will be apparent to users of financial statements?
Because XBRL is a robust and flexible technology, it can be — and often is — applied to a number of purposes by tailoring its architecture to meet the reporting needs of various information chains. However, this flexibility also poses risks. One drawback of such an adaptable technology is that this adaptability can lead to inconsistencies between different information chains. In the worst case, differences in XBRL frameworks can lead to incomparability.
The ITA project is working to try to mitigate this risk by aligning the architectures of the taxonomies used for IFRS, Japan GAAP, and US GAAP reporting. Put simply, the aim of the ITA project is to support information comparability by removing technical obstacles and frameworks differences that might hinder this comparability. The rules in the GFM aim to facilitate the analysis and comparison of XBRL financial reporting data by computer applications and human readers.
If you imagine trying to compare two sets of XBRL financial statements, one from a US company and one from Chinese company, you have a few hurdles to overcome:
First, there are differences in the architecture of the two taxonomies used to generate the instance documents. If one taxonomy uses tuples while the other taxonomy uses dimensions, you will need to establish a kind of “technical translation” layer, which could be costly. However, if the two taxonomy developers follow the same, agreed-upon, architecture, there is no need to resolve differences in technical frameworks because there are none.
Second, there are differences in filing rules. Even with aligned taxonomy architectures, differences in filing rules can lead to inconsistencies in company-specific extensions and instances, and they present XBRL technologists with a challenge when trying to pool financial information in XBRL from different sources.
Any improvements from this alignment may not be immediately obvious to users of financial statements. The benefits will first be recognized by technology providers, because they will be able to develop applications based on a single XBRL architecture which avoids the development of heterogeneous platforms and software.
Only then will the benefits to others begin to emerge. Preparers of financial information, in particular those managing underlying multi-GAAP reporting requirements, will not have to deal with multiple, heterogeneous filing formats. Receivers and users of this information will be able to use fewer software solutions for cross-border analysis without the need for transferring reported information between different tools.
3. What authority does the GFM have? Will the GFM require significant changes and additions to the EDGAR Filer Manual (EFM) and other authoritative documentation?
The GFM is not really a new document as such, because it leverages existing rules contained in the EFM from the US SEC, the EDINET Corporate Extension Taxonomy Creation Guidelines from the Japan FSA, the IFRS Taxonomy Guide from the IFRS Foundation, and the Financial Reporting Instance Standards (FRIS) from XBRL International. These existing rules were reviewed, aligned, and discussed from a global filing perspective and then amalgamated and documented into the GFM.
Use of the GFM is based on the assumption that filers in a disclosure system will provide their filings by extending a standard taxonomy that is recognized in the disclosure system. The GFM must be tailored for each specific disclosure system.
From the perspective of the IFRS Foundation, the GFM is provided for information purposes only and is intended for use as guidance and not as an authoritative document. Authoritative filing rules should be provided by regulators.
Nonetheless, it is hoped that regulators will recognize the resource and interoperability benefits of aligning their filing rules on existing, publicly available rules where a significant degree of convergence has been achieved.
4. Improving data comparability is one of the three strategic goals underpinning the six initiatives recently announced by the XSB. How does the work of the ITA in general and the GFM specifically align with these efforts of the XSB?
As a member of the XSB I actively participated in the strategic discussion and the setting of the objectives for XBRL as a technology over the next few years. The outcome of this effort by the XSB effort was the discussion document Preserve. Promote. Participate.: Moving XBRL Forward. Although the ITA does not link directly to the six proposed initiatives, it is my expectation that it will make use of the outcomes of the initiatives. The ITA will also be able to contribute to a number of areas, in particular the “Enhance the Comparability” initiative. As noted, by publishing the GFM the ITA seeks to support comparability.
5. With respect to the cross-border comparability of financial statements, how would you assess the significance of differences in the underlying technology of taxonomies versus those in accounting standards? In other words, given the considerable variations that exist among international accounting standards — including various national flavors of IFRS — how much impact can improvements in taxonomy architecture have on cross-border comparability?
Obviously, the ITA cannot resolve issues related to the convergence of accounting standards and how these differences are represented in taxonomy content structures or taxonomy extensions. These differences are the responsibility of the accounting standards setters. Nevertheless, aligned architectures are a necessary prerequisite to recognizing and dealing with such differences.
For example, the latest extension to the IFRS Taxonomy, the Chinese Accounting Standards (CAS) Taxonomy, leveraged the knowledge accumulated by the ITA, and the CAS Taxonomy development team did a fantastic job of following the aligned architecture. This alignment creates a situation whereby software that can analyze XBRL filings from the EDGAR system should also be able to analyze filings created using the CAS Taxonomy. The effect should be the same for taxonomy extensions if they created using the aligned architecture.
6. You say that the ITA does not aim to ensure global comparability and alignment for all XBRL reporting. But do you believe the ITA’s work can have a broader impact beyond financial reporting?
While the efforts of the ITA project are focused on reporting for financial statements where companies provide filings, the lessons of framework comparability and global filing rules learned from the projects could be applied more broadly to general business reporting. Furthermore, preparers, regulators, software vendors, and users who have invested time and resources to understanding and implementing a globally-aligned reporting framework and set of filing rules would struggle to accommodate another architecture and another set of rules, whether for financial or non-financial reporting. Therefore, for other types of reporting, existing systems and principles — and in particular those that have achieved significant convergence — should be leveraged where possible.
7. Where do you go from here? What problems remain in interoperability? What work remains to be done?
The work of the ITA is far from finished. The ITA is currently discussing whether it is possible to develop a conformance suite for the GFM to ensure its proper implementation in software. Furthermore, there may be lessons learned from the SEC filings submitted with detailed tagging, which may require amendments or additions to the rules in the GFM. The ITA has already received a number of comments on the published rules.
Another area which the ITA will be observing with interest over the next year is the implementation of Inline XBRL (iXBRL). Currently, regulators are starting to realize the potential business benefits for iXBRL in financial reporting. The IFRS Foundation recently published a set of illustrative examples demonstrating the use of the IFRS Taxonomy in iXBRL, which is a useful addition to the XBRL technologies.
8. What can the XBRL community do to support you in your work?
Read the GFM and maybe even try to implement the aligned architecture in their own taxonomy. If it works, let the ITA know. If it doesn’t work, still let the ITA know. The ITA is not a regulatory body; it is a group aiming to achieve XBRL convergence for financial reporting for IFRS, Japan GAAP, and US GAAP. Attention, support and emulation from other jurisdictions will broaden this convergence, which can only be a good thing.