Second draft of XBRL taxonomy provides flexibility to issuers
A second draft of a machine-readable technology taxonomy added 300 concepts, creating more flexibility for municipal bond issuers if they decide to use it in their financial documents.
XBRL, short for Extensible Business Reporting Language, recently released the second draft of its Comprehensive Annual Financial Report taxonomy, incorporating feedback from groups such as the National Association of State Auditors, Comptrollers and Treasurers. The new version builds on an initial release that came out several months prior.
XBRL helps make financial documents machine readable, meaning that a computer can process the information in them. XBRL enthusiasts are trying to bring the computer language into the muni world, though in the past it has received some pushback from the issuer community.
A taxonomy is a definition of terms that could be implemented into a financial document. XBRL produces different taxonomies for different types of financial reporting. The second version of the CAFR taxonomy follows a public comment period that ended in March.
XBRL could benefit investors by making it easier to compare data and making definitions the same across all municipalities. Ten years ago, the Securities and Exchange Commission started requiring private companies to use XBRL with the EDGAR system. On the corporate side, the SEC has the authority to establish a set of standards for issuers, which is not true in the municipal market.
In a comment letter, NASACT asked for more concepts to be included and more definitions for those concepts. Concepts are like inventory that would need definitions added to them, such as revenue. Definitions are then found in references like the Governmental Accounting Standards Board's codification.
The first draft of the taxonomy was primarily modeled off of GASB, and NASACT looked to other sources to add more definitions, said Shannon Sohl, vice-chair of the working group for XBRL U.S.
“A lot of the concepts and definitions were missing from GASB’s codification, so NASACT recommended that we look at other sources,” Sohl said.
The Government Finance Officers Association's Governmental Auditing and Financial Reporting reference was one of those added sources in the second draft of the taxonomy. NASACT also asked for definitions to be simplified.
NASACT wrote that for data to be comparable across agencies, states or other entities they will have to agree on a standardized reporting language and model.
“For state and local governments to embrace such a substantial change to an open data publication format for financial reporting, such as XBRL, governments and stakeholders must recognize the value added from this change,” R. Kinney Poynter, NASACT executive director, wrote in NASACT’s comment letter. “We believe this value is standardization of the data that will promote comparability of state and local government financial data.”
Poynter also asked for a working group to resolve discrepancies and make sure each element in the taxonomy includes appropriate definitions and references.
Marc Joffe, senior policy analyst at the Reason Foundation, said the 300 added concepts provide more flexibility to issuers.
“You’re not required to use any particular element, the elements are just there to provide more flexibility,” Joffe said. “You use whichever elements you need. It doesn’t impose any additional burden on a municipal bond issuer.”
Liz Sweeney, a member of the XBRL state and local government disclosure modernization working group, wants to help show analysts how XBRL would help them work more efficiently among governments.
“An analyst wants to be able to do comparable analysis,” Sweeney said. “They want to be able to look across an entire sector and it makes it hard when they have to look at each one individually and try to translate all those different reporting formats into something that’s standard so that they can do comparable analysis or get a clear understanding of risk.”
In March, California introduced a bill, SB 598, that would require its governments and agencies to provide financial documents to the State Controller’s Office using XBRL. California State Treasurer Fiona Ma has said she supports it, calling XBRL a system that is "more accessible, efficient, and user-friendly."