The Financial Accounting Standards Board proposed updates Tuesday to its U.S. GAAP Financial Reporting Taxonomy to reflect a new
Last month, FASB released an exposure draft on the proposed accounting standards update (
On Tuesday, FASB released the proposed changes as they would be reflected in its U.S. GAAP Financial Reporting Taxonomy, which uses data-tagging technology in the form of Extensible Business Reporting Language, or XBRL, as mandated by the Securities and Exchange Commission for financial filings. FASB is looking for public comments on the proposed updates by June 6.
Separately on Tuesday, FASB hosted an online discussion of the U.S. GAAP and SEC reporting taxonomies, led by a virtual "fireside chat" between FASB chair Rich Jones and PwC vice chair and U.S. Trust Solutions co-leader Wes Bricker, who is also a former chief accountant at the SEC and current chair of XBRL International.
"We know investors are consuming the data in digital form," said Bricker. "That means if you're on the company side, or if you're on the service provider side, it's time to really double down on understanding the data quality rules, but also the judgments that sit outside of those rules today. The state of play: it's good and getting better, but there's still more work to do."
"When I think about financial reporting, I often jump to the auditor's role and the regulator's role in the regulatory environment," said Jones. "When it comes to tagging and compliance with what tagging protocols, what is the role of the auditor and what is the regulatory involvement today?"
Bricker pointed out that in the baseline preparation of financial statements, there's a clear role for external assurance that helps provide feedback on material corrections that need to be made before information is issued for general use and reliance, and XBRL practices differ in the U.S. and Europe.
"What about the digital tagging piece?" he added. "For that, I think it's important to understand there's a difference, depending on whether you're focused on the U.S. or in Europe. In Europe, under the European Single Electronic Format, ESEF for short, companies are already required to tag monetary values. They're block tagging narrative disclosure, and there's an assurance requirement, so you have three levels of digital information that's prepared and available together with assurance. In the U.S., the SEC has been clear that the XBRL version of the financial statements is separate from the financial statement audit, as well as being separate from internal control over financial reporting. That goes a bit to the heritage of how tagging came into our system as an exhibit to the financial statements. Today, it's integrated through Inline XBRL, so that gap has sort of narrowed from a U.S. perspective. But from a U.S. perspective, it continues to be outside of the scope of the financial statement and ICFR assurance. I do think it's a good time as a system for us to revisit that, to take a look at what's possible in terms of bringing assurance closer as a means of elevating the quality. That's an important discussion, whether it's the SEC having that discussion, or the PCAOB from an assurance standards perspective. That goes back to my broader point about the importance of coordination and collaboration. None of this occurs in a silo. It's important for it to be coordinated."
He also pointed out that the International Audit and Assurance Standards Board recently had an agenda consultation in which it asked the question of whether it should add a project on assurance on XBRL. "Constituents will provide feedback that will help inform standard-setters on where to focus efforts, how important is assurance to the overall system, and I'd encourage our audience to continue to monitor that space," said Bricker. "Stepping back though, this takes all of us — from preparers, oversight bodies, assurance providers, and of course, investors to understand where quality is being built into the system."
Jones asked about the Financial Data Transparency Act, which Congress approved last December as part of the year-end omnibus spending package and how it might affect SEC filers.
"The scope of the Financial Data Transparency Act is a piece of legislation that is now law in the U.S.." said Bricker. "The scope of it is very broad. It covers eight financial regulatory agencies, and the SEC is one of them. Also think about other regulatory agencies like banking agencies for bank call information around financial services companies. The goal of that legislation and now final law is for those eight regulatory agencies to achieve digitization of current regulatory filings, so as preparers of filings, look at the full scope of things they're doing."
In addition to the SEC, the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, and the National Credit Union Administration are required to develop new data standards for collecting and disseminating information, including common legal identifiers for financial products, instruments and transactions.
Bricker advised financial preparers to look at what they're doing in paper-based form that's covered by this rule and if they need to begin to prepare for digitization of the filing.
"In terms of the allocation of impact, the SEC has probably the most comprehensive impact from that legislation," he said. "The Act directs the SEC to make rules that adopt data standards for a whole range of disclosures. Of course, we're familiar with financial statement disclosures, but that would expand tagging to other current reports. Think of 8-Ks, proxy statements and the content within those."
Bricker noted that for the SEC there's a four-year window on implementation of most of the pieces required under the new law. He advised members of the audience to monitor the developments over time to understand the impact on a given company's compliance obligations. They should also be prepared to provide feedback to the SEC and other federal agencies on the proposed changes to produce a better user experience for users of the reports.
