Now that the SEC has received the first wave of IFRS XBRL filings, it’s prudent to sit back for a moment and reflect on what occurred – from a filer perspective, from a standard setter perspective and from a regulator perspective. Let’s spend a moment.
SEC Foreign Private Issuers (FPIs) that use IFRS were mandated to file XBRL financial statements along with their traditional paper-based financial reports for fiscal periods ending on or after December 15, 2017. Many of the annual reports were due at the end of April 2018, so the XBRL has been filed and is publicly available. There are some things that can be learned from the filings…and improved.
A filer’s perspective
Some filers got surprised. It was more work than they anticipated – or were told it would be. Preparing or reviewing the tagging required a fair amount of detailed work, which had to be done within a specific deadline. And the deadline coincided with the same deadline as producing the paper-based annual financial report.
Other filers gained a false sense of confidence from a service provider that wasn’t aware of the challenge - or didn’t inform the company of what level of knowledge was needed by the service that was being delivered.
And some filers took a casual attitude toward the quality of the XBRL tagging, since they didn’t understand the consequences of filing substandard data with the SEC – data that is publicly available for all to see.
As a result, the overall quality of the data in the IFRS XBRL files was less than desired. Some filers simply failed in doing the XBRL right. They succeeded in submitting an XBRL file to the SEC. But the XBRL failed to tell the same information as the traditional financial statements - which was the goal.
Fortunately, not every filer submitted substandard XBRL. I have seen and been involved with filings that are top-notch with proper XBRL quality. It is very feasible and achievable to produce good XBRL files that communicate the appropriate financial information, as required by the SEC. Getting all filings to this level of quality is urgently needed.
A standard setter’s perspective
The standard setter in this case is the IFRS Foundation, which produces the IFRS Taxonomy. This was the first time the IFRS taxonomy was used extensively - it was taken out for a real drive. There had been some short trips around town, but the SEC’s mandate for FPI’s to file IFRS XBRL was a full-on road trip for the IFRS taxonomy. The taxonomy performed well.
Yes, there were plenty of situations where there wasn’t an appropriate tag in the taxonomy for a given disclosure, so a unique tag, or extension, was required to be created by the company. But it’s important to remember that the taxonomy is a reflection of the IFRS accounting standards; it isn’t a reflection of every disclosure of every reporting entity. I expect these unique tags will be reviewed to determine if it’s appropriate to create any new tags in the IFRS Taxonomy.
From the perspective of the IFRS Foundation, the road trip provides the best input and learning on how to improve. As a member of the IFRS Foundation’s IFRS Taxonomy Consultative Group, I am aware that the IFRS Taxonomy team is open to improvements. The taxonomy hasn’t stood still in the past, and won’t stand still in the future. Improvement will continue.
A regulator’s perspective
The SEC will benefit significantly from the IFRS XBRL filings. The detail of the data is rich and the SEC staff is becoming proficient at efficiently consuming the data for its internal purposes.
But the SEC staff, as well as analysts and data aggregators, will be negatively impacted by the IFRS XBRL errors. Good analysis needs good data. The increased use of XBRL by the SEC staff will create SEC awareness of the filers that have submitted substandard XBRL.
Will the SEC ramp up enforcement of quality for IFRS XBRL tagging? The SEC created the rule, so shouldn’t they insist on compliance with it? If speed limits on the roadway weren’t enforced, I believe many of us would drive much faster, despite the rules that exist. And unfortunately, it appears some XBRL filers are following that same approach.
Now is the time
Now that we have “sat back for a moment”, it’s important to realize that a moment is all the time we have – and that moment has passed. Now it’s time to get back to work and improve. There’s a lot of digital financial reporting to do. And we must get it right. Now.