IASB, U.K. Regulator Grapple With Future of Digital Reporting

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By David R. Jones

June 7 — The use of electronic tags to meet international financial reporting standards has generated benefits, but significant challenges persist, staff of the International Accounting Standards Board said to a board advisory group.

Staff provided updates to members of IASB's IFRS Taxonomy Consultative Group (ITCG) June 7 on how companies and regulators are applying the IFRS taxonomy—a dictionary of electronic markers placed on IFRS financial data (12 APPR 07, 4/8/16)—and the prospects for expanded use.

The ITCG meeting in London followed the June 2 publication of a study on digital reporting by the U.K. Financial Reporting Council, which sets accounting, auditing and actuarial standards for the U.K. and Ireland.

Regulators' Use

Fourteen securities regulators worldwide currently are using the IFRS taxonomy, and the European Securities and Markets Authority and three jurisdictions are considering whether to use it, IASB staff told meeting participants.

There are, however, “significant differences in implementation by securities regulators,” a staff member said. For instance, among the 11 regulators that implemented the taxonomy in which securities were analyzed, five regulators used tagging for both primary financial statements and notes.

Four of the 11 regulators applied the taxonomy only to primary financial statements, and two had no specific requirements.

Financial Statement Users

Staff also recounted their February 2016 discussions on structured electronic reporting with members of IASB's Capital Markets Advisory Committee, which comprises users of financial statements.

“The use of (and the need for) structured electronic data differs among investors and credit analysts,” staff found.

Users currently analyze structured electronic information primarily through data aggregators, a staff paper said, but a few users tap into eXtensible Business Reporting Language (XBRL) raw information as a data source.

Paybacks From Using IFRS Taxonomy

Overall, the IFRS taxonomy “enables reporting of IFRS financial information in a structured reporting format,” according to the staff paper.

Further, staff said, the taxonomy offers a worldwide, agreed-upon standard to mark up IFRS disclosures.

Challenges to Taxonomy Use

IASB's principle-based standards, though, make it difficult to use XBRL, which under the IFRS taxonomy provides a common format to mark up IFRS financial statements filed electronically.

Other challenges, staff said, include:

  •  infrequent updates to the taxonomy;
  •  the potential for inaccurate tagging by preparers;
  •  the taxonomy's lack of a standardized presentation format, which “makes it more difficult to validate the data”; and
  •  how to handle entity-specific content.


Taxonomy and Standard Setting

Incorporating the taxonomy into standard setting carries both risks and potential rewards, staff told meeting attendees.

It could “lead to undue standardization in IFRS financial reporting” and might undercut the usefulness of non-electronic information, producing “less emphasis on the narrative and the story” of financial reporting, staff cautioned.

Assessing Technology Impacts

On the other hand, staff said, incorporating the taxonomy into standard setting could make entity-specific details more accessible.

Staff said they would continue their work in assessing the impacts of technology changes on IFRS taxonomy.

Soliciting Investors' Views

The June 2 study, conducted by FRC's research arm, the Financial Reporting Lab, offered a different perspective on digital reporting.

Digital present: Current use of digital media in corporate reporting—part of the lab's corporate reporting in a digital world project launched in 2014—garnered feedback from eight companies, 15 institutional investors and five private retail investors.

The lab also carried out an online survey that generated responses from 151 retail investors.

Prefer PDF

The analysis found that the participating investors generally favor the use of portable document format (PDF) files for some electronic reporting.

“Most investors prefer PDF for digital annual reports,” as they believe “PDF provides the best mix of attributes of paper and digital,” the study said.

In particular, investors surveyed pointed to the ease with which PDFs can be downloaded and searched.

They also cited the widespread adoption of the PDF format for digital reporting, which enables investors to access and analyze files across companies and over different reporting periods.

Doubts about XBRL

In contrast to the IASB staff paper, FRC's analysis found that many participating investors remain skeptical about the rewards from using XBRL in their analyses.

Investors remain unclear on what benefits XBRL offers, and they don't think XBRL use provides advantages beyond other reporting formats, the study said.

Still, some investors surveyed believe XBRL holds potential, the analysis pointed out, and “the qualities that XBRL represents, in theory: timely, consistent, comparable and open data echo overall the demands of investors.”

Further Innovation?

Investors already have moved to some extent beyond printed documents, showing that they might be willing to adopt further technology advances.

“Because investors value the mix of attributes offered by PDF rather than the format itself, further innovation that builds on those attributes is more likely to succeed,” the study said.

To date, FRC noted, some innovations designed to make digital reporting more useful to investors have fallen short, but the council remains upbeat about the possibilities for technological progress.

“In the next phase of the project, the Lab will be looking at the future of digital corporate reporting and will build on the attributes that have been identified in this report,” FRC said.

To contact the reporter on this story: David R. Jones in London at correspondents@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com