SEC to FPI: Carry On, But Perhaps For Not Much Longer

As reported by Accounting Today, the SEC is continuing to advise foreign private issuers (FPIs) that no suitable IFRS taxonomy exists which they could use in their XBRL, therefore they continue to be exempt from the need to file. Contrary to the Accounting Today headline, this is not a change. It has always been the case that a suitable base taxonomy for whatever accounting principles a company uses must exist and be approved by the SEC, such approval being signalled by being listed on the approved taxonomies page.

But there is a new exposure draft of the core IFRS taxonomy, is that a step forward?

Looking at the overview document, yes. One of the persistent criticisms of the IFRS taxonomy has been the lack of labels that serve as documentation for the concepts. Not having these labels available is a severe constraint on software trying to assist the user in tagging their documents correctly. These labels help users understand what a tag stands for, and choose the right tag from several alternatives.

At less than 4,000 tags, the IFRS 2013 taxonomy is still much smaller than the US GAAP Taxonomy. But it can be argued that the UGT is too large. My own research has shown that large portions of the UGT have never ben used, or minimally used. As shown during presentations at the XBRL US Data Forum this week in Las Vegas, the UGT contains multiple options to tag the same information – a situation that simply confuses users and makes analysis harder than it should be.

IMHO, this interim draft shows that the IFRS Foundation is listening to concerns and the recent iterations of the taxonomy should be usable by FPI filers with the SEC. Make it so.

 

PS – I apologize for not supplying a link to the original SEC text. Regular readers of this blog probably know and I hope appreciate that I prefer to link directly to primary sources, not other media outlets. If anyone has the link, please send it in a comment and I will add it. Many thanks.

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7 thoughts on “SEC to FPI: Carry On, But Perhaps For Not Much Longer

  1. Totally agree John. My comment about its becoming an economic argument was in response to David’s apparently making it so, not that I believed that was the sole motivation.

  2. John, thank you for bringing in your perspective. The issue of the multiple languages is important to consider going forward. I had had some discussions with other knowledgable parties, who felt the documentation labels issue was more of a deal breaker than the taxonomy coverage issue. I hope that the exposure draft process will help the IFRS Foundation get the feedback it needs on these points.

  3. With great respect to my good friend Hugh, I don’t think the argument about documentation labels aka “definitions” was ever an economic one.

    The IFRS team took the view for a number of years that the short descriptive definitions in the US GAAP taxonomy are summaries and not authoritative. I’m not aware of too many members of the various accounting standards setting boards around the world who would be keen to pull up a copy of their disclosure rules inside Emacs or their favourite Xlink editor. Yes, in shock news, the taxonomies are developed by staff and external experts, not the IASB members themselves.

    For this reason, the IFRS team declined to produce summary definitions on the grounds that, since the taxonomy is published by the IFRS Foundation, the reader might mistake them for part of the standards themselves.

    However, the IFRS team decided to change their approach in this area in early in 2011 and now they have been released. Do notice that the RFC contains the following statement:

    The proposed interim release is not part of the IFRS requirements. The IASB has not considered the matters set out in this document.

    In other words, they are making it very clear that although the staff and any external professionals that have contributed to the taxonomy have very significant expertise, the taxonomy and its definitions are a semantic representation of the disclosure rules and guidance. They are not the standards. If you want the standards, you should refer to the authoritative literature. Which, helpfully, is available in the reference links contained in the taxonomy.

    Publishing these definitions is not a simple commitment for the IFRS staff. Recall that the official version of the IFRS taxonomy has translations being maintained in at least Japanese, Spanish, Arabic, Italian, Hungarian and Ukrainian — and perhaps others that I’ve missed.

    The definition labels are one important part of the IFRS taxonomy puzzle. The other part is the addition of “common practice” disclosure concepts, that don’t appear in the exemplar disclosures in the IFRS Bound Book, but that do commonly appear in real world financial statements published by companies that operate under the IFRS standards. Without a decent set of such disclosure concepts in standardised form, comparing FPI filings at the SEC, (or, ahem, at any other securities regulator that allows extensions) will be nearly impossible, as every FPI will be obliged to prepare their own versions of these common practices. That is neither desirable nor helpful, so this standardisation effort is also vital.

    It’s interesting to note that the IFRS “Industry Practice” project which aims to capture the required common disclosures, at least for a number of industries, has apparently just been reinitiated. My guess is that this project will need to be finalised before the SEC publishes, or links to the IFRS taxonomy for FPI use.

    All of that said, as David mentioned, there is absolutely no new news in the FPI statement. It merely formalises the situation that has existed for some time.

    As an aside, note that the FASB does have deep links direct to their standards, in addition to definition labels. This was the “codification” project and went live a number of years ago.

  4. It isn’t the skill set, it is the need to pass on a charge or eat it. The ISO is decidedly out of step and behind the times in charging for electronic texts, IMHO. The documents don’t even change, once published!
    I think we are both speculating as to the IFRS Foundation’s motivations for not including documentation labels. It obviously wasn’t hard for them to do once they decided to do it. If their motivation revolved around far of lost revenue, I’m saying such a fear is misplaced and misdirected. Misplaced – the FASB has not fallen on hard times because including documentation labels has dried up sales of the Accounting Standards Codification. Misdirected – the revenue stream actually at risk is miniscule compared to the goal of FPIs filing with the SEC using IFRS convincing more entities to use IFRS.
    Yes, the US philosophical position has effected XBRL software. Other jurisdictions have given away tagging software or services, and the US expects companies to buy those items. I suppose the SEC could have set the bar lower, and perhaps the FASB would never have created these labels, and each vendor would have been forced to invent similar but slightly inconsistent versions of the same functionality. Not exactly the best allocation of resources either, IMHO.
    Finally, there are significant pieces of intellectual property that are created without the use of tax dollars and given away by for profit ventures (Bloomberg’s Open Symbology comes to mind) because those ventures realize that giving something away furthers their primary goals. That is the main point here.

  5. Well – following the links is not exactly beyond the skill set of reasonably competent software developers. The argument that has surfaced here appears now to be that of a philosophical aversion to having to pay for information from a standards body. However this is not an unusual situation in this world of ours – one has to look only at the pay for use model from ISO to see that.. Requiring everyone to pay directly for everything instead of indirectly by having “the state” paying for it out of tax revenue (sometimes erroneously referred to as “providing it for free”) actually rather seems to be the model more accepted in the USA than in most of the rest of the world, which makes the position adopted by the SEC somewhat inconsistent it seems to me.

  6. Hugh, thanks for your comment.

    I think “all software had to do” is a bit of an understatement. To actually follow the Bound Volume references in the use case of tag selection would mean that the software either has packaged the BV into their release, or has an online connection. In both cases, they have to have the rights to serve those snippets of the BV. I can think of other alternatives but they all involve paying for BV access. The single user price of the BV is GBP 65. I’m sure a software publisher could negotiate that down, but holding on to a business model that wants even GBP 5 per customer is just counter productive for everyone. The IFRS Foundation is not a bookseller, their core business is unification of global accounting standards – a goal not forwarded by making the BV expensive.

    I agree that there is a possibility of an update anomaly by having text in two places, though I would assume that the IFRS, like the FASB, can republish the taxonomy from the DITA any time they want to, and that all edits actually take place in only one location, via a content management system.

  7. The statement “Not having these labels available is a severe constraint on software trying to assist the user in tagging their documents correctly.” really is not fair. Given that the IFRS taxonomy uses XBRL’s reference linkbase to point to the definitive “bound volume” entries that are the primary source of the definitions for concepts (which is what the reference linkbase was intended for in the first place after all), all software had to do was to support navigation to these references in order to “assist the user in tagging their documents correctly”. I would not call this a “severe constraint”, it’s just a piece of functionality that was envisaged in the first place when the reference linkbase idea was designed. The SEC, however, apparently insisted on redundancy by requiring that the same information be repeated in documentation labels in order to conform to their view of how they would like things done. I would imagine that this was partly because US GAAP does not have a single, definitive, hyperlink-referenceable location on line where it is all nicely documented. A stand-off ensued and finally, it seems, someone at the IFRS foundation probably swallowed deeply, discarded their principles, blinked and agreed to de-normalise their meta-data.

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