Required in over 140 jurisdictions across the globe, the International Financial Reporting Standards (IFRS) are accounting standards that describe a company’s financial performance. They are issued by the IFRS Foundation and the International Accounting Standards Board (IASB). Accounting standards allow company statements to be comprehensible and comparable across the globe. They specify how transactions and other occurrences should be recognized, quantified, stated, and disclosed. They are usually only applicable to companies that have shares or securities listed on a publicly-traded exchange.
The IFRS Taxonomy is the eXtensible Business Reporting Language (XBRL) transmutation of the IFRS. Issued by the IASB, it includes the International Accounting Standards (IAS) and IFRS for small and medium-sized enterprises (SMEs) among other things. It was developed to address the need for an electronic global accounting standard.
The Taxonomy is revised and updated annually to keep up with the IFRS as well as updates to the XBRL standard. Broad international consultations and rigorous processes are at the heart of IFRS Taxonomy development. This is necessary to ensure maximum transparency as well as compliance with global accounting best practices.
The IFRS Taxonomy 2021
For the development of the IFRS Taxonomy 2021 (link), the IASB analyzed over 400 electronic filings and added over 100 tags across 5 IFRS Taxonomy updates. We shall divide these 5 updates into two broad categories:
- Updates reflecting new or amended IFRS standards, and
- Common practice & general improvements
The first category has 3 major updates pertaining to changes in IFRS standards. These are:
- Changes in rent for holders of a property lease owing to the global pandemic.
- Changes intended at guiding companies towards implementation of IFRS 17 Insurance Contracts and explaining their financial performance. Changes in IAS 16 reducing diversity in accounting for earnings from selling items produced while preparing an asset for its planned use.
- Changes intended at assisting companies in providing valuable information to investors about the effects of interest rate benchmark reform on their financial statements.
The second category has 2 major updates pertaining to information in primary financial statements and employee benefits. These are:
- Modifications focused on statement of financial position, financial performance, cash flows, and changes in equity as well as earnings per share (EPS)
- Changes focused on presentation and disclosures related to defined benefit plans.
Both these updates address issues raised by stakeholders and mirror the findings of a review of extensions used by companies applying IFRS standards and filing with the US SEC.
Why the IASB is making these changes
There are more than a few reasons behind these changes to the IFRS Taxonomy. We attempt to list down some of them here:
- These changes enable commonly reported company information not explicitly required by the IFRS to be brought under the ambit of XBRL.
- They attempt to reduce entity specific elements, i.e., extensions to enable more consistent tagging between companies.
- Most of the changes are geared towards enabling support for high-quality tagging.
- Labelling changes to clarify the accounting meaning of an element.
- Adding guidance labels to clarify appropriate use of the element.
- Improving IFRS Taxonomy modelling to reduce diversity in tagging.
The culmination of all these changes results in some actionable insights for issuers. These are explored in our next section.
Impact on issuers
These revisions and improvements in the IFRS Taxonomy are intended to enable improved XBRL reporting across the board. However, it also means that issuers need to pay heed to a few things with the new iteration of these standards:
- Issuers need to check whether any entity-specific tags need to be replaced with newer IFRS Taxonomy 2021 tags.
- Due to changes in the IFRS Taxonomy modelling, issuers need to examine whether different tagging will be needed than that used in previous filings.
- Due to clarifications made in the IFRS Taxonomy, some common tagging errors identified by the IASB may require rectification
There are plenty of resources that are made available by the IFRS Foundation on everything pertaining to the IFRS Taxonomy for preparers of tagged financial statements. These can be found in our final section.
Useful IFRS Taxonomy resources
After announcing the new taxonomy, the IFRS Foundation and IASB provide references, documentation labels, and guidance labels related to each element within the new IFRS Taxonomy. These labels can be found in the IFRS Taxonomy Illustrated (ITI) document published by the foundation. Updates, versioning information, and the preparer’s guide can be found here.
The way ahead
The XBRL standard by dint of its versatility provides an excellent foundation for the digitization of the IFRS accounting standard across the globe. As we move into the era of big, structured data, having such a robust and comprehensive electronic standard is going to usher in a new and improved information highway where there are no speed limits. A seamless extension into tagged non-financial data seems to be our next destination.