The International Financial Reporting Standards (IFRS) are accounting standards that describe a firm’s financial performance and are required in over 140 jurisdictions across the globe. They are published by the IFRS Foundation and its International Accounting Standards Board (IASB). Accounting standards allow company statements to be intelligible and comparable across geographies. They stipulate how transactions and other occurrences should be identified, measured, stated, and disclosed. They are generally only applicable to entities that have shares or securities listed on a publicly-traded exchange like the NASDAQ or the NYSE.
The IFRS Taxonomy is the eXtensible Business Reporting Language (XBRL) analog of the IFRS. It is issued by the IASB and 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 reviewed and revised every year, not just to keep up with the IFRS but also updates to the XBRL standard. Wide-ranging international consultations and meticulous processes are at the core of IFRS Taxonomy development. This is vital to ensure maximum transparency as well as conformity with global accounting best practices.
The 2021 IFRS Taxonomy
The IASB evaluated over 400 electronic filings and added over 100 tags across 5 IFRS Taxonomy updates for the development of the 2021 IFRS Taxonomy (link). These 5 updates can be bifurcated into two general types:
- Updates indicating new or amended IFRS standards, and
- Common practice & general enhancements
The first type has 3 major updates concerning changes in the IFRS. These are:
- Changes in rent owing to the global pandemic forbearers of a property lease.
- Changes aimed at guiding companies towards implementation of IFRS 17 Insurance Contracts and describing their financial performance and those in IAS 16 decreasing diversity in accounting for earnings from selling items produced while preparing an asset for its proposed use.
- Changes aimed at aiding companies in offering valuable information to investors about the effects of interest rate benchmark reform on their financial statements.
The second type includes a couple of major updates relating to information in primary financial statements and employee benefits. These are:
- Changes focused on the statement of financial position, financial performance, cash flows, and changes in equity as well as earnings per share (EPS)
- Amendments in presentation and disclosures related to defined benefit plans.
Both these updates speak to issues raised by stakeholders and reflect the findings of a review of extensions used by companies applying IFRS standards and filing with the US SEC.
Why is the IASB making these changes?
There are several motivations behind these changes to the IFRS Taxonomy. Here are some of them:
- These changes allow commonly reported company information not explicitly required by the IFRS to be brought under the ambit of XBRL.
- They try to decrease entity-specific elements, i.e., extensions to enable more consistent tagging between firms.
- Most of the changes are pitched towards enabling support for high-quality tagging. These include:
- Labeling changes to elucidate the accounting meaning of an element.
- Augmenting guidance labels to clarify the proper use of the element.
- Improving IFRS Taxonomy modeling to lessen diversity in tagging.
The result of all these changes underscores some actionable insights for issuers. These are investigated in our next section.
Effect on issuers
These modifications and enhancements in the IFRS Taxonomy are intended to facilitate improved XBRL reporting across the board. However, it also means that issuers need to pay attention to a few key matters with the new iteration of these standards:
- Issuers need to examine whether any entity-specific tags need to be supplanted with newer IFRS Taxonomy 2021 tags.
- Due to alterations in modeling with respect to the IFRS Taxonomy, issuers need to assess whether tagging will be different than that used in previous filings. Due to clarifications made in the IFRS Taxonomy, some common tagging errors identified by the IASB may require correction.
- An abundance of resources is 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 penultimate section.
Useful IFRS Taxonomy resources
The announcement of a new taxonomy is followed by the IFRS Foundation and IASB providing references, documentation labels, and guidance labels related to each element within the new IFRS Taxonomy. These labels are available in the IFRS Taxonomy Illustrated (ITI) document that the foundation has published. Click here to find updates, versioning information, and the preparer’s guide
The way ahead
As a result of its flexibility, the XBRL standard provides an excellent framework for the digitization of the IFRS accounting standard across the globe. As we move into the age of big, structured data, having such a robust and comprehensive electronic standard is bound to usher in a new and improved information highway where there are no speed limits. A seamless expansion into tagged non-financial data seems to be our next target.