XBRL accounting taxonomy design and categorisation – Part 2: Architecture

In this series of articles, we propose a categorisation of taxonomies based on three aspects of their design: architecture, coherence and extensibility.  Using this categorisation we look at the evolution of taxonomy design through three generations.

1. An example of three taxonomy generations

In this article we look at the architecture of three taxonomies that are good examples of each generation:

2. What is architecture?

The ancient Greeks bequeathed us the word they used for the “chief builder” – architect.  Good architecture manifests itself in perceived simplicity, elegance, or consistency of form; making the best or even inspired use of the available materials and prevailing building techniques; enhancing, working with or at least complementing the environment in which it resides; and performing its intended function effectively and reliably.

In the modern world architecture doesn’t just apply to physical structures. In the software world, it can be applied to any moderately complex logical structure. There is little doubt that an XBRL taxonomy qualifies in this regard, so it is reasonable to apply the principles of good architecture to taxonomies.

3. First generation: standards based – the IFRS taxonomy

The International Accounting Standards Board’s IFRS taxonomy has been in existence for over ten years – its latest incarnation is for 2016. By that measure alone it might be regarded as a first generation taxonomy.

Its architecture is derived from the structure and content of the International Financial Reporting Standards. These standards were drawn up without the knowledge that an XBRL taxonomy would be based upon them.

The IASB was breaking new ground when it first developed its IFRS taxonomy, and to provide the taxonomy with authority it was essential to model the underlying standard as closely as possible.  The design focused on ensuring that each concept in the taxonomy mapped directly into IFRS standard which, while being a good way of reflecting the precise structure of the standard, was not able to benefit from the elements of normalisation common to modern IT data design.  The result is a taxonomy that contains silos of repetitive concept definitions, labels and dimensions.  It is also dimensionally incomplete, using dimensions only where they are absolutely necessary to fully describe data relationships.

Secondly, in limiting the content of the IFRS taxonomy strictly to the scope of the underlying standard, it was unable to provide guidance to the builders of other taxonomies based on IFRS until the creation in 2014 of the IFRS Taxonomy Consultative Group (ITCG).  One consequence of this approach is that taxonomies already derived and extended from the IFRS taxonomy vary markedly from jurisdiction to jurisdiction.  This design freedom has turned out to have a critical side effect, which is that it makes it more difficult to compare financial data drawn up against different IFRS-based taxonomies.

4. Second generation: document based – the US GAAP taxonomy

The US GAAP taxonomy has a rigorous and well-documented three-layer architecture comprising a domain model, a logical model and a physical model, with clean separation between the layers.

Similar to the IFRS taxonomy, the US GAAP taxonomy is the embodiment of a set of accounting standards.  It was modelled on the various kinds of documents that arise from the practical application of a set of accounting standards rather than the standards themselves.

The taxonomy is characteristic of architectures that have to cater for, and are developed by, numerous stakeholders.  Each of these stakeholders works with a variety of different documents each of which need to be modelled by the taxonomy leading to an unavoidable loss of focus.

This document-centric model has influenced the taxonomy in a number of ways. These include a proliferation of one- and two-dimensional hypercubes that closely resemble the tables that typically appear in documents and a requirement for HTML-marked-up “text block” data items.

5. Third generation: data model based – the UK FRS taxonomy

The UK FRS taxonomy is primarily based on the International Financial Reporting Standards (though not the IFRS taxonomy) so one might expect similarities with the IASB’s IFRS taxonomy. However, the architecture is very different.

The UK FRS taxonomy has no formally documented architecture, but nevertheless it does have a design that is modular and consistent.  The approach has been to model the data defined by the standards rather than the documents. This allows the taxonomy to focus on the data rather than document structure or presentation.  The key is in understanding the data and its potential dimensionality.

The taxonomy team at the FRC expended a considerable amount of time working with preparers and consumers to analyse over eight million Inline XBRL financial reports that had been produced in the UK since 2011, tapping into their experience to understand how the data is collected, organised and used. This has resulted in a data-centric architecture with a complete and comprehensive dimensional model.

6. Conclusion

We’ve described three contemporary taxonomies in terms of their architecture and indicated why we think each of them are good exemplars of the changing architectural approaches that characterise each of the three generations.

With each generation the foundation of the taxonomy’s architecture has become deeper and more analytical, moving from a model based on standards, to documents, and then to data. In the process, presentation, as an architectural concern at least, has been stripped away.

In following articles we’ll discuss other aspects of these three taxonomies that reinforce this characterisation.

7. A final thought

It is worth noting that you can arrive at substantially the same conclusion by different architectural routes.

If you look at the Presentation Linkbases of these three taxonomies you’ll see much the same document-centric, IFRS-oriented structure, thanks in part to the alignment of reporting terminology.  However, the underlying architectures differ significantly.

Despite this, the architects of these three taxonomies have arranged for users to see and browse the reporting structures with which they are familiar.  It wasn’t necessary to follow one particular method of deriving a taxonomy to do this.  This is a powerful demonstration that presentation is neither a by-product of design, nor something that has to be “designed in” from the outset.