Abstract
In this paper, we discuss the dual power of XBRL to standardise and/or accommodate firms’ financial reporting practices. We first develop a conceptual framework for understanding which factors may affect the adoption of XBRL and, in turn, standardise or customise financial reporting. We then examine the XBRL implementation models adopted in two countries: Italy and the US. In Italy, XBRL is required through the application of a standard taxonomy (the Italian GAAP Taxonomy), without the ability to create and submit taxonomy extensions. Conversely, in the US, XBRL is required through the application of a standard taxonomy (the US GAAP Taxonomy), along with the ability to define individual extensions to be submitted to the SEC. We discuss the potential effects of taxonomy application on the representation of financial information. The application of a taxonomy on a “blind basis” (extensions not permitted) leads not only to the full comparability of financial data but also to a loss of idiosyncratic information. The application of a taxonomy on a “minimum basis” (individual extensions permitted) preserves specific information, but causes a potential loss of data comparability.
Highlights
The eXtensible Business Reporting Language (XBRL) is a language for the electronic communication of business information, providing major benefits in the preparation, analysis and communication of business information
The most interesting aspect of this, today, is the growing adoption of XBRL in conjunction with the worldwide movement towards International Financial Reporting Standards (IFRS): having a unique framework for financial reporting would allow the definition of a global standard XBRL taxonomy, including a unique set of element names aimed at standardising the financial information reported by firms (Bonsón, 2001; Efendi et al, 2011)
The latest version accepted by the Securities and Exchange Commission (SEC) is the 2012 US Generally Accepted Accounting Principles (GAAP) Financial Reporting Taxonomy, which consists of the following main modules: 1) Banking and Savings
Summary
The eXtensible Business Reporting Language (XBRL) is a language for the electronic communication of business information, providing major benefits in the preparation, analysis and communication of business information. The definition of generally accepted, XBRL-based taxonomies allows the further standardisation and harmonisation of international business reporting standards (Premuroso and Bhattacharya, 2008; Weber, 2003). From this perspective, standard setters and regulators play a relevant role in defining (and requiring) well-structured taxonomies based on GAAP. The IFRS Foundation itself recognises that “Both IFRSs and XBRL are intended to standardise financial reporting in order to promote transparency and to improve the quality and comparability of business information.” (http://www.ifrs.org/XBRL/XBRL.htm) In spite of this common belief, the actual application of XBRL taxonomies raises a problem in terms of accommodating financial reporting practices to user demands at the country, industry or firm level.
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