The Role Of FASB
The Financial Accounting Standards Board (FASB) is an independent body that establishes accounting standards for companies and nonprofit organizations in the US to report their financial information in accordance with Generally Accepted Accounting Principles (GAAP). FASB amends and updates the FASB Taxonomies periodically.
What Are The FASB Taxonomies?
The FASB Taxonomies comprise the GAAP Taxonomy and the DQC Rules Taxonomy (DQCRT). DQC stands for the XBRL US Data Quality Committee. The GAAP Taxonomy, in turn, is made up of the GAAP Financial Reporting Taxonomy (GRT) and the SEC Reporting Taxonomy (SRT).
What Exactly Is A Taxonomy?
In simple terms, a taxonomy is a dictionary of financial and non-financial concepts. It is a digital representation of accounting concepts. A taxonomy allows the reporting of financial information in a digital format. Digital reporting involves conveying financial information in a machine-readable format. XBRL or eXtensible Business Reporting Language is the structured data language used to convert information into a digital format through the placement of machine-readable XBRL tags against financial disclosures in a document. The collection of such machine-readable tags is called an XBRL taxonomy.
While XBRL facilitates the creation of reports in a machine-readable format, a more advanced format, Inline XBRL or iXBRL, helps create reports that are both machine-readable and human-readable. The Securities and Exchange Commission (SEC) requires companies to file reports in the iXBRL format.
Taxonomies are classified into different link roles for Financial Statements and Notes to Financials. Each link role is grouped into a list of elements being used to tag financial information. The list includes the links for Financial Position (Classified based on different industries such as Real Estate, Banking, etc.), Statement of Income (Including Gross Margin, Insurance Based, Interest Based), Statement of Comprehensive Income, Statement of Stockholders Equity, or changes in equity and Statement of Cash Flows (Direct Method, Indirect Method, Insurance Based, Securities Based, Real Estate, etc.).
Below is a screenshot of the number of link roles present in the taxonomy:
Linkrole with a group of elements:
The 2022 FASB Taxonomies
The FASB on December 17, 2021, released its 2022 taxonomy updates comprising the GAAP Taxonomy and DQC Rules Taxonomy (DQCRT). The GAAP Taxonomy update further comprises the 2022 GAAP Financial Reporting Taxonomy (GRT) and the 2022 SEC Reporting Taxonomy (SRT), which the SEC is set to accept as final in early 2022.
According to a FASB release: “The 2022 GRT contains updates for accounting standards and other recommended improvements. The 2022 SRT contains improvements for removing references for superseded guidance, adding references to improve the selection of the appropriate element for the disclosure requirement, and adding new abstract elements to provide a complete organizational structure.”
The DQCRT, meanwhile, is uniquely structured from the typical design of XBRL taxonomies because it is narrowly focused on conveying the XBRL US Data Quality Committee’s (DQC) validation rules, predominantly for regulator use, according to the release.
“It (DQCRT) is not intended to be used in SEC filers’ extension taxonomies, the way that the GRT or the SEC’s Document and Entity Information Taxonomy (DEI) is used.”
Advice For Taxonomy Users
If you are a company that uses the FASB Taxonomies for filings with the SEC, what would you take away from this blog post? Here are two things you could do to ensure your iXBRL filings with the SEC are of high quality.
Understand the taxonomy: Preparation of iXBRL reports involves tagging your firm’s disclosures with the correct taxonomy concepts or elements. This requires a good understanding of the taxonomy that your firm needs to use for SEC filings. A poor understanding of the taxonomy can lead to unnecessary use of extension or custom elements – which is often blamed for quality issues in iXBRL filings. Extension elements need to be formed only when appropriate taxonomy concepts cannot be found for certain disclosures. Filers also need to make sure to form all possible calculation relationships between their disclosures.
Take validation checks seriously: Once your iXBRL filings are complete, they need to be run through an XBRL validator to spot any errors and warnings. You also need to check if your filings are in accordance with the XBRL US Data Quality Committee rules. Ensure that all issues in your filings are resolved before you submit them to the SEC.
