By Jen Stretch, Manager, Compliance Services
In part one of our blog series on the Financial Accounting Standards Board’s (FASB) invitation to comment, we addressed common quality issues in XBRL data. If you missed that post, you can find it here.
In part two, we’ll discuss the current taxonomy update process, identify areas of concern around this process, and discuss several suggestions for potential improvements. But first – a small bit of background.
The Taxonomy Staff at the FASB is responsible for the development and maintenance of the US-GAAP Taxonomy. This includes updates resulting from Accounting Standards Updates (ASUs), Securities and Exchange Commission (SEC) and stakeholder feedback, and internal FASB reviews. Currently, the feedback is addressed in an updated US GAAP taxonomy, released on an annual basis. However, the latest Invitation to Comment solicits feedback on this process, which will ultimately be up for discussion during the July 18th public roundtable, hosted by FASB.
Under the current process, the Taxonomy Staff is responsible for monitoring FASB’s standard-setting process from start to finish. While FASB is researching a codification update, the Taxonomy Staff is usually researching the related taxonomy modeling changes, and when an Exposure Draft is issued, the Taxonomy Staff will follow-up with exposure of a related topical document. This happens independently of actual taxonomy development, which does not begin until the ASU is final. When the ASU does become final, the taxonomy staff conducts further research – if necessary – approves changes to the taxonomy, and incorporates them into the development taxonomy. This is the working version of the US GAAP taxonomy that is available for public review and comment throughout the year.
In September of each year, the development taxonomy is finalized as a draft taxonomy and an official, 60-day public comment period begins. The SEC then provides its comments in mid-December and approves the taxonomy during the first quarter of the following year. Since the draft taxonomy is only approved by the SEC once per year, ASUs that are effective immediately or allow for early adoption may not be supported in the approved taxonomy by the time filers begin incorporating the ASU changes into their financial statements. This is the most prominent area for concern regarding the taxonomy update process. Several others potential issues are also noted in the Invitation to Comment including concern over the length of the public comment period and the possibility for last-minute changes resulting from SEC comments occurring in December.
What has FASB suggested to address these matters? The first is that the Taxonomy Staff aligns their process more closely with the process followed for codification updates. This means that the FASB would issue proposed US GAAP taxonomy changes at the same time the associated proposed and final ASUs are issued. Also, instead of a 60-day comment period, proposed taxonomy changes would be published for comment as they are made. This would give FASB the ability to collect feedback and provide changes to the public and SEC more quickly, preventing filers from having to create custom elements for data related to recent accounting pronouncements.
Have other ideas for how FASB can attack these concerns? As mentioned previously in this article, FASB will be holding a public roundtable to discuss the feedback on this subject on July 18th. For more information or to get involved, click here.