CoreFiling Insight Blog
December 1, 2015 11:30 by Steven Hughes
1. The future of taxonomy design
This is the first in a series of articles in which I propose a novel categorisation of accounting taxonomies based on three aspects of taxonomy design: Architecture, Coherence and Extensibility.
In this first overview article I will introduce the three design aspects. In future articles I will cover these aspects in more detail and examine how they apply to the US GAAP, IFRS and UK FRS taxonomies. The series will conclude with a discussion of how I’ve categorised these taxonomies and how this categorisation might inform the current direction of taxonomy design.
2. Why are taxonomies so important?
XBRL taxonomies are the key components of any electronic financial or business reporting system. An XBRL taxonomy is the formal definition of a financial or business reporting vocabulary for a given jurisdiction or reporting domain, imparting meaning to the concepts which describe the facts being reported and providing a framework within which reports are structured. It defines, the “contract” between reporter and regulator.
Just as importantly, it defines what is not permitted, except insofar as “locally negotiated” extensions allow. A taxonomy also defines relationships between reporting concepts, meaning that the “contract” not only defines the reporting vocabulary (the “what”) but also the grammar (the “how”) – how reported concepts can legitimately be combined and related to each other.
It is for these reasons that taxonomies matter in an electronic world. They are fundamental to any financial or business reporting regime and their design exerts a direct influence on the capabilities and expressive power of reporting and analysis tools.
XBRL tools and technologies are still evolving to suit the market’s needs. Experience has shown that deploying XBRL solutions takes a considerable amount of time and effort, and a large portion of this is invested in taxonomy design and development. Taxonomy authors are continually developing new ways to address the complex challenges of financial and business reporting.
It’s clear that XBRL taxonomies are currently undergoing a period of rapid evolution as they colonise a number of new financial niches, with new taxonomies building on the successes – and avoiding the perceived failures – of previous generations. I’m proposing the establishment of a new classification system for taxonomy evolution, with the hope of illuminating the future of taxonomy design.
3. Taxonomy evolution
In the family tree of taxonomies, those concerned with company financial statements can be broadly classified according to three key aspects. This has resulted in taxonomies that can be classified as belonging to one of three generations.
3.1 Aspects of taxonomy design
Some taxonomies model the applicable accounting or financial standards; some model the required reporting documents; and some model the underlying data.
‘Coherence’ is the degree to which a taxonomy “hangs together” and permits the creation of a body of instance documents that are consistent and comparable. At one extreme some taxonomies give the freedom to combine reportable concepts with any dimensions and to combine dimensions freely. At the other extreme such combinations are carefully controlled by the taxonomy.
Some taxonomies are very permissive when it comes to extension, to the point that “anything goes”; some taxonomies provide specific extension points so that extension can be controlled, if not actually defined; and some taxonomies provide specific mechanisms to support extension.
3.2 Taxonomy classification
3.2.1 First generation
First generation taxonomies are literal interpretations of accounting or financial standards, where the filer can do pretty much whatever they please with the base taxonomy, and any additional structured information can be captured as a privately-defined but uncontrolled extension.
3.2.2 Second generation
Second generation taxonomies model not the accounting or financial standards themselves but the regime’s required document structures derived from the applicable accounting or financial standards. Additional structured information can be captured in a private extension that should follow certain rules or guidelines laid down by the taxonomy author.
3.2.3 Third generation
Third generation taxonomies move away from an architecture derived from the accounting/financial standards or reporting document structures and instead simply model the data within the taxonomy. Additional structured data can be captured by ‘extension’ mechanisms built in to the data model of the base taxonomy itself.
All three generations exhibit convergent evolution in that they all provide a document-oriented browsing and presentation view that will be familiar to preparers and accountants, but each is derived in a fundamentally different way.
4. A new taxonomy classification system
The key taxonomy design aspects that categorise taxonomy evolution are summarised as follows:
5. Next article
In the next article in this series I will discuss the Architecture aspect of taxonomy design in depth, with reference to the US GAAP, IFRS and UK FRS taxonomies.
I would like to also thank Andy Greener for his contributions.
May 28, 2015 12:52 by Andrea Whitehouse
In June 2014, to ease the transition to its new CRD IV reporting regime, the Bank of Portugal introduced a free reporting system based upon the completion of Excel spreadsheets. Not surprisingly, very many Portuguese financial institutions took this easy way out and for the past year have been filing their CRD IV returns using this method.
Only XBRL accepted from the end of June 2015
However, as was fully explained at the time, reporting in Excel was introduced as an interim step only, and the ability to use the spreadsheet-based system is about to disappear. From the end of June 2015 the large number of filers currently using the Excel-based reporting application will have to find an alternative approach.
Seahorse, the XBRL lifeline
Seahorse®, CoreFiling’s cloud-based XBRL conversion software, will provide a lifeline to Portuguese financial institutions now that they need to find ways of converting their spreadsheet data into fully validated XBRL instance documents before submission to the Bank of Portugal. Seahorse provides an easy to use, risk-free solution to the problem of complying with the CRD IV XBRL mandate. It is a SaaS-based application, readily accessible from any internet browser. There is no software to install or maintain, and Seahorse requires no effort on the part of the user when taxonomy changes occur, as these are handled behind the scenes.
May 28, 2015 10:04 by Andrea Whitehouse
How do I keep up to date with XBRL taxonomy changes?
The whole process of gathering relevant data and implementing an effective workflow to turn that data into valid XBRL reports is daunting enough, but the challenges do not stop there. What happens when the underlying XBRL taxonomy changes, as it undoubtedly will? What solutions are available to help smooth the reporting process?
The impact of Solvency II taxonomy changes
Without specialist insight into the taxonomy structure it is difficult to understand what changes have occurred from one version to the next and, more significantly, how the changes might impact both technical considerations and the preparation of XBRL reports.
Compliance with EIOPA business rules
The business rules imposed by EIOPA and the NCAs may also be amended from time to time, and this could have a profound effect on the data that needs to be reported. How will your reporting systems cope with frequent updates? How will you make sure that your systems remain current, producing totally valid XBRL documents that will not be rejected at the point of submission?
Some systems rely on hard-coding and may prove inflexible, so you would do well to make sure that you will not incur massive system and cost overheads just to bring your reporting into line each time.
May 27, 2015 11:10 by Andrea Whitehouse
How do I report to my NCA?
Although it remains at the discretion of the individual NCA, many regulated firms will find that they must now submit their quantitative reports in XBRL, which may be an unfamiliar format presenting a new set of challenges, particularly since there is now so much more data to be handled (at a recent conference estimates were quoted at over 10K data items for solo reporting, and 200K for group reporting during the preparatory phase, increasing to around 40K and 800K data items respectively when full scope reporting arrives in January 2016).
Integration or standalone?
How to handle the data is a key issue. Many insurers will have existing workflow and security processes in place, but must now integrate them with the less familiar requirements of XBRL preparation, validation and rendering, so both the IT department and the business will need to engage to ensure that the relevant data can be captured and turned into the required reports.
Decisions need to be made: whether to create a standalone environment or embed reporting into current architecture; whether to rely on process professionals to provide the specialist XBRL capabilities (which may be outside their core competence), or to seek help from a dedicated XBRL technology company.
May 26, 2015 11:34 by Andrea Whitehouse
What do I report?
As mentioned in the previous Blog Post, even firms that begin reporting during the Solvency II preparatory phase will notice a hefty increase in the number of templates they need to complete when full scope reporting arrives in January 2016.
Quantitative and qualitative reporting
Solvency II Pillar 3 brings a huge increase in the amount of data that needs to be reported. For example, for the first time detailed asset data must be included. Firms will also need to take into account a new set of reporting requirements, relating to both quantitative and qualitative disclosures. Under Pillar 3, the main focus is on two particular reports, which require both qualitative and quantitative data:
- SFCR – Solvency and Financial Condition Report
- RSR – Report to Supervisors
Public vs private reporting
Reporting also occurs on two levels – public and private. For example, a few of the quantitative templates and qualitative data will be made public in the SFCR, whereas all quantitative templates and a detailed set of qualitative data must be reported privately to the regulator in the RSR.
Read the rest of this entry »
May 22, 2015 11:31 by Andrea Whitehouse
Do I need to report and when?
In the second of our blog series, we examine which insurance undertakings will have to begin reporting under the preparatory phase that EIOPA has introduced as a precursor to full Solvency II reporting which finally takes effect in January 2016.
While all insurers are expected at least to start preparing for the full implementation of the Solvency II regime, only certain organisations meeting prescribed thresholds will need to report to their NCA during the preparatory phase, but this is due to begin in June 2015, so time is very short.
Interpretation of the EIOPA thresholds
The thresholds specified by EIOPA are:
- Individual annual reporting for firms representing at least 80% of the national market share
- Individual quarterly reporting for firms representing at least 50% of the national market share
- Group quarterly or annual reporting for firms with more than EUR 12 billion (period ending during 2012)
May 21, 2015 11:47 by Andrea Whitehouse
The insurance industry prepares
Although there are still several months to go before full scope reporting begins under the new Solvency II Pillar 3 regime, the deadline for preparatory reporting is imminent for those insurance undertakings included in the first phase.
The focus of Pillar 3 of the Solvency II regime revolves around supervisory reporting and transparency requirements, and will mean a seismic shift upwards in the volume of data to be extracted and reported as well as the frequency of the report submissions.
So that it can manage and analyse the large amount of data reported under Solvency II, EIOPA has specified XBRL (eXtensible Business Reporting Language) as the filing format. Although XBRL is only mandatory between National Competent Authorities (NCAs) and EIOPA, some NCAs are insisting that their regulated firms also submit their quantitative returns in XBRL, with narrative returns submitted in some other electronic format. For example, the Bank of England/PRA requires quantitative reports in XBRL and narrative reports in PDF format. This will, however, vary from country to country.
April 28, 2015 11:39 by Andrea Whitehouse
New Liquidity Monitoring and Supervisory Benchmarking
The European Banking Authority (EBA) recently published version 2.3 of the CRD IV taxonomy. The announcement includes two brand new reports, supporting additional Liquidity Monitoring and Supervisory Benchmarking.
The EBA now stipulates that filings with a reference date of 30th June 2015 or later will need to be prepared against the new CRD IV 2.3 taxonomy.
Rapid deployment team accelerates Asset Encumbrance filing in XBRL for large international investment bank
February 19, 2015 09:23 by Andrea Whitehouse
Asset Encumbrance (AE) reporting seems to have taken a few financial firms by surprise. It is one of the quarterly XBRL reports that must be submitted by all organisations reporting under the CRD IV COREP mandate, and must be filed in XBRL format.
With less than a week to go to the first Asset Encumbrance reporting deadline on 12th February, a large international investment bank requested help from CoreFiling to file their first AE report in due time. Our True North® XBRL processor immediately came to the rescue.
February 4, 2015 12:37 by Andrea Whitehouse
Since the introduction of HMRC’s iXBRL mandate in April 2011, the subject of minimum tagging has been the subject of considerable debate.
Back in early 2013 at the end of the so-called HMRC ‘soft landing’ period it was widely reported that HMRC’s published minimum tagging list, introduced alongside the April 2011 iXBRL mandate, would be abandoned in favour of full tagging of the accounts documents that accompany the CT600 form and computations. Many breathed a huge sigh of relief when that proved not to be the case.
Under UK GAAP and minimum tagging it was possible to tag using only a small subset of the full taxonomy, which, if done correctly, would allow the document to be accepted at the Government Gateway. Read the rest of this entry »