SEC filers impacted by the change
The changes are especially important to companies that file with the U.S. SEC and prepare their financials in accordance with International Financial Reporting Standards (IFRS). In 2018 most of these SEC registrants were mandated to submit, for the first time, financials statements tagged using eXtensible Business Reporting Language (XBRL) along with their annual report filing. In 2019, when most of these companies submit their second XBRL filings along with the annual report, they will likely need to change the tagging of the financials due to the proposed changes in the IFRS taxonomy.
What are the changes?
The IFRS Foundation has proposed additional elements and improved modelling approaches in the taxonomy, specifically for tags related to IFRS 13 Fair Value Measurement. Since IFRS 13 is applicable to many of the IFRS companies that file with the SEC, these companies will need to understand the changes.
The taxonomy changes pertain to three categories of fair value measurement:
- Sensitivity of fair value measurements to changes in unobservable inputs
- Quantitative information about significant unobservable inputs used in fair value measurement
- Other improvements
The reason for the changes
The changes resulted from an analysis of common reporting practice in a sample of IFRS companies. The proposed changes to the taxonomy better reflect common reporting practice – primarily disclosures that are not specifically required in the IFRS standards, but are commonly reported by entities in their financial statements. By adding the common practice tags to the taxonomy, there is a reduction in the need for registrants to create their own taxonomy tags (extension tags), which results in more consistent tagging across companies. Increased consistency makes the consumption of XBRL data much easier.
Over the past several years, the IFRS Foundation has significantly improved the usability of the IFRS taxonomy by analyzing common reporting practice and keeping the taxonomy updated with the findings from the analyses. Fortunately, these common practice tags have resulted in a reduction of the amount of extension tags in SEC filings. In addition, each common practice tag is specifically designated as such in the taxonomy, so these tags are discernable from tags that are explicitly required by IFRS standards.
Comments are welcome
I have been very involved with the IFRS Foundation’s IFRS Taxonomy Consultative Group and, as such, have reviewed and discussed this proposed update to the IFRS taxonomy. The changes will result in more consistent tagging and more efficient consumption of the data. Once approved, these changes will need to be applied to the financial statements of IFRS companies, so the XBRL team at Merrill Corporation will be working closely with client companies to properly make the tagging changes to the appropriate fair value measurement disclosures.
Each IFRS company that is required to submit XBRL financials for SEC purposes, or will be required to submit XBRL starting in 2020 as part of the European Single Electronic Format directive, should consider reviewing the proposed changes and participating in the IFRS Foundation’s request for public comment, which ends on November 19, 2018.
Information for the Proposed IFRS Taxonomy Update can be found here. Read the document to become familiar with the changes and consider sending comments to the IFRS Foundation.
By, Lou Rohman, Vice President, XBRL Services