The Securities and Exchange Commission has approved both the 2018 GAAP Financial Reporting Taxonomy and the new SEC Reporting Taxonomy as prepared by the Financial Accounting Standards Board.
The annual GAAP taxonomy overhaul contains updates for accounting standards and other recommended improvements. The new SEC Reporting Taxonomy contains elements for financial schedules that are required by the SEC, condensed consolidating financial information for guarantors, and disclosures about oil and gas activities. It also contains dimensional elements for items commonly used by GAAP filers but not specified under GAAP.
Companies use SEC-approved taxonomies to select the tags that are attached to each piece of data and textual information in financial statements for their XBRL filings. Tag selection by preparers is a critical step in making XBRL data searchable and sortable, especially in assuring users can access comparable pieces of financial statement data across listed entities.
One of the biggest areas of change in the 2018 GAAP taxonomy are those updates to reflect the new standard on revenue recognition, which took effect for public companies on Jan. 1, says Mike Starr, vice president at Workiva. Another area of update in the 2018 GAAP taxonomy is an increased emphasis on adding references to U.S. GAAP into the taxonomy, he says.
In a review of the efficiency and effectiveness of the GAAP Taxonomy, the FASB heard feedback that preparers and users of XBRL data would value efforts that would make tag selection more consistent across companies, which would improve the accuracy and comparability fo data in the XBRL repository. That’s been a common problem that slowed user migration toward data presented in the XBRL format, which has been accumulating based on XBRL submissions and filings for more than 10 years. The FASB submitted a plan to the SEC for making changes to the GAAP taxonomy that are geared toward improving data quality.
One change FASB has already implemented is to move away from annual updates to the GAAP taxonomy, instead proposing and making updates to the taxonomy as changes to accounting standards are approved. With the 2018 GAAP taxonomy the last that will be produced via the annual update process, the board has already issued some proposed future taxonomy updates based on changes the board has already made to accounting standards.
The ongoing update process will make it easier for companies to digest and assimilate change, says Starr, and it will make appropriate tags available sooner for entities that elect to adopt new standards early. “It brings the two processes closer together,” he says. “It eliminates ambiguity in element selection.”