Remarks of FASB Chairman Russell G. Golden
XBRL US Investor Forum 2019:
Driving Actionable Analytics
New York, New York
November 4, 2019
XBRL US Investor Forum 2019:
Driving Actionable Analytics
New York, New York
November 4, 2019
As some of you may know, my second and final term as FASB chairman ends on June 30, 2020. It will mark the end of a decade on the Board, and a 16-year career with the organization.
It’s been an honor to serve on the FASB. I’ve learned a lot from the people I’ve met and worked with along the way. They include my colleagues on the Board, the outstanding FASB staff, the commissioners and staff of the Securities and Exchange Commission—and, of course, the XBRL community.
As advocates for high-quality structured data, you helped take financial reporting to a higher plane. XBRL has become an important gateway for the use of structured data that benefits investors and our capital markets.
Structured data is—to borrow your conference theme—“driving actionable analytics” in financial reporting. And XBRL is an important vehicle on the road today.
This is due, in no small part, to your support of a strong GAAP Taxonomy.
When I joined the FASB staff in 2004, the SEC had just proposed its voluntary program to allow registrants to file supplemental financial information using the eXtensible Business Reporting Language, or XBRL.
Since that time, XBRL and the GAAP Taxonomy have evolved in tandem with capital market demands. XBRL data has become better, more focused, and more useful to investors and companies alike. It’s become an essential part of financial reporting and standard setting.
But we’ve only just begun to tap into its potential to provide more complete, more consistent, and more timely information to investors and other financial statement users. To realize its full potential, we must continue to work together to improve its machine-readable structure.
That’s what I’ll talk about today.
First, I’ll address the state of the GAAP Taxonomy and the ongoing improvements we’ve built into the system. I’ll look at how XBRL and structured data benefit various capital market stakeholders, and why we must continue to promote it.
I’ll talk about how the FASB is using XBRL data to make better standard-setting decisions.
And I’ll conclude with how we can evolve the Taxonomy to meet future financial reporting needs. Spoiler alert: it includes your continued involvement in our process.
At the end, I’m happy to take your questions. And Louis Matherne will be happy to answer them.
Before I begin, let me pause here and remind you that official positions of the FASB are reached only after extensive due process and deliberations. In other words, what I am about to say are my views and only my views.
So where do we stand with structured data?
In 2010, the SEC moved Taxonomy development and maintenance responsibilities to the Financial Accounting Foundation and the FASB. That move was an important step in aligning Taxonomy development with standard setting.
Since then, our Taxonomy team—led by Louis Matherne—has focused on Taxonomy updates to reflect improvements in GAAP reporting requirements. They’ve established best practices in Taxonomy modeling. They’ve implemented numerous technical enhancements to help preparers use the Taxonomy more effectively and efficiently. And they’ve done it all while working to address end-user needs.
The team has worked closely with the staff of the SEC, XBRL US, Inc., investors, issuers, accounting firms, and other stakeholders to develop the highest-quality updates. Their input has been—and will continue to be—a critical component to a Taxonomy that exceeds market requirements.
Most recently, we collaborated with XBRL US and its Data Quality Committee to include XBRL US Data Quality Rules—or validation checks—with the Taxonomy. Our objective is to increase awareness and compliance to drive improvements in data quality. You may have seen the request for comment we issued a few weeks ago.
The results of these collaborative efforts speak for themselves. Thanks to our XBRL supporters—including you—we now have a wider and deeper set of data drawn from GAAP-based financial statements. Currently, there are more than 200 million datapoints—and we’re adding an average of 28 million datapoints each year.
Today, XBRL is used across the globe, with close to 150 implementations to date. The European Securities and Market Authority, or ESMA, recently announced one of the most important.
On January 1, 2020, all issuers on EU regulated markets will be required to prepare their annual financial reports in accordance with the European Single Electronic Format, or ESEF. ESEF requires companies to prepare their annual financial reports in the Inline XBRL format, which integrates traditional financial reports and structured XBRL tagged data.
Last year, the SEC also required the phased-in use of the Inline format for operating company financial statement information.
These are major achievements—especially considering there was a point in time when many questioned the value of XBRL. Then again, I’m sure almost everyone in this room heard concerns about buying things over the Internet. It comes as no surprise, then, that some would object to the cost or necessity of tagging company disclosures.
But over time, we’ve seen stakeholders across the board embrace the benefits of structured data in general. They’ve witnessed firsthand how structured data can “drive actionable analytics”—in investing, in corporate governance, and even in standard setting.
I, myself, am a convert. I always understood the value of being able to analyze data using XBRL and other formats—at least in theory. But it wasn’t until I started to use the data for analysis myself that I really came to appreciate its merit.
Today, my FASB colleagues and I frequently ask members of the XBRL team for data to help us better understand standard-setting issues.
For example: before the U.S. Tax Cuts and Jobs Act went into effect, the FASB worked on a project to increase transparency around income tax obligations. As a starting point, we needed to understand how companies reported unremitted foreign earnings. XBRL-tagged data provided us with a clearer picture of accounting practice in that area.
We also use XBRL-assisted research for our project to improve intangible asset reporting. At one point, we wanted to determine the amount of research and development expenses that companies were reporting on their income statements. With the help of XBRL, we were able to extract this information covering a three-year period.
In the past, this kind of research would have consumed enormous amounts of staff time and resources. With XBRL, it’s much faster and easier. And it allows our staff to focus on what’s most important: stakeholder outreach, analysis, and implementation support.
I can offer dozens of similar examples. Suffice it to say, XBRL has made a believer out of me.
Granted, not everyone has jumped on the structured-data bandwagon—yet. We still face some knowledge gaps—in academia, for example, which I’ll discuss later. But as acceptance has grown, so has our ability to focus more energy on the quality of XBRL data. We’ve done this several ways.
First, we’ve fully integrated Taxonomy improvements with those made to accounting standards. When we first took over, Taxonomy development was separate from standard setting. We’d propose and then issue an accounting standard. Only then did we consider the changes required for the Taxonomy, usually weeks, if not months, later.
I would describe that approach, at best, as “inefficient.” More importantly, it was a missed opportunity to tighten the relationship between the accounting standard reporting requirements and the corresponding Taxonomy elements necessary for an effective, machine-readable disclosure.
So, we changed our approach. Today, the Taxonomy and standard-setting teams work together to concurrently develop and issue accounting standards and matching Taxonomy improvements. This streamlined process encourages and incorporates more timely feedback from project teams and stakeholders. It allows Taxonomy staff to provide the Board and technical staff with real-time input on how to optimize reporting requirements from a data modeling perspective—incorporating not only how filers may structure their disclosures, but also how those disclosures might be used by analysts. And, ultimately, it results in better standards and better coverage of their requirements in the Taxonomy.
Second, we added direct Codification reference links to the Taxonomy—links that make it easier for preparers to find the most appropriate elements for their disclosures by listing the matching elements in the Codification. The result is an element discovery process that better matches their actual workflow—and eliminates the need to comb through the Taxonomy. These reference links also enable the topic searches now available in the Inline XBRL viewer—allowing analysts to discover all reporting topics with a single mouse click.
Third, we now provide Taxonomy Implementation Guidance in Inline XBRL, Taxonomy Implementation Notes, and Frequently Asked Questions. These resources are an important part of our initiative to provide better implementation support to all stakeholders. This guidance also fuels greater consistency and discipline in Taxonomy tagging and use. And that, in turn, makes it easier for investors to extract the information they need to make sounder decisions.
Finally, we initiated XBRL Post-Implementation Review Projects. These projects help us understand whether the Taxonomy meets our objectives and what areas we may need to improve. They also, as I’ll explain later, alert us to areas of accounting guidance that might need clarification.
Now I’ll look at why we need to continue to evolve and expand structured data.
“Big data” is everywhere. To remain relevant, financial reporting must be part of the new digital reality.
XBRL has been a valuable gateway to the benefits of structured data for companies and investors. XBRL-tagged data allow companies to tell their own stories with “as reported data”—instead of how data aggregators have provided it. The financial reporting data can now be traced directly to the source, even with a third-party data aggregator in the middle.
There are other benefits, too. Companies that approach XBRL implementation as a business solution, as opposed to a “compliance exercise,” see better outcomes. They tell us it results in better internal controls, better estimation processes, better internal communications, and better internal coordination. It fuels what we think of as a virtuous cycle, with continual improvement of each of its elements.
XBRL data also fuels better investor decisions.
Why? Because XBRL-tagged data reduce costs, which improves investor returns. It does so by enhancing productivity, which in turn allows investors more time to do what they’re paid to do: analysis. Less time spent gathering data increases the opportunity for higher returns—because investors can reallocate their time to perform deeper dives into the stocks they follow. And, it gives investors more time and energy to expand coverage into less widely followed stocks. Over time, this has the added benefit of lowering the cost of capital for smaller companies.
For investors, seeing is believing. But not everyone’s a believer yet. That’s why it’s important to continue to communicate the benefits of XBRL with stakeholders.
We’re doing this with academia. FASB Member Christine Botosan is working on hands-on training sessions to help academics use XBRL data in their research and in their classrooms.
There are significant advantages to using XBRL data in academic research. But the use of XBRL data in academia has lagged for several reasons. Most academics are unfamiliar with it. Many do not know how to access the data. Those who do access the data find the data set unwieldy and challenging to work with. And the risk of operator error is significant.
We’re working with the American Accounting Association to identify venues for these workshops. Ultimately, we believe the program will promote increased use of XBRL in relevant academic research and in the classroom. The FASB has a vested interest in this, as academic studies also help inform our standard-setting process. It’s also important to the future of our profession, because the next wave of accounting students often focuses on data analytics that need to include XBRL.
The growth of Inline XBRL will also drive increased use. Inline XBRL allows filers to embed XBRL tagging directly into a Hypertext Markup Language—or HTML—document. This means filers only need to prepare and file a single Inline XBRL document as the official filing rather than generate an additional XBRL exhibit.
For preparers, Inline XBRL features include disclosure checklists, redlining versions, topics to supplement word searches, times series charting, and benchmarking. I’m sure many wish these tools were available a long time ago.
In fact, I believe Inline XBRL exemplifies the kind of improvement that will keep XBRL relevant and useful to the capital markets. It’s easier to use, and it puts discrete financial reporting facts into better context.
Now I’ll talk about how we use structured data to inform our standard-setting process. Specifically, how we use XBRL research to develop and monitor implementation of our standards.
Since 2012, the FASB has performed more than 175 research projects using XBRL data. We turn to XBRL data when we need information to develop proposals, provide insights for ongoing deliberations, and help companies implement standards.
For example: our project teams have used XBRL data to understand everything from how companies report on their research and development to the cost of their defined benefit plans.
We also use XBRL data to help us understand how companies are applying new standards—and identify where we may need to provide support or clarify guidance.
When the leases standard took effect for public companies in early 2019, we paid close attention to first quarter filings. Specifically, we wanted to see if there were areas in need of more implementation support—from both a standard-setting and a Taxonomy perspective.
In this case, we use XBRL to gather data about the transparency of a lessee’s operating lease disclosures. Thanks to XBRL, we’re able to gather detailed data on what publicly traded companies are disclosing about their operating lease liabilities, lease costs, and weighted average discount rates, among other data points.
This research is a “work in progress.” But it illustrates the efficiency of using XBRL to compile and analyze this detailed information—without taxing staff time and resources. What we learn will help us understand how to better support implementation by these companies. It will also help us proactively address issues that private companies and organizations may confront when they implement the standard in years to come.
We’re also using XBRL-tagged data to monitor how companies adopt our current expected credit losses—or CECL—standard. One area we will look at are the so-called vintage disclosures that will provide investors greater amounts of data than they currently receive about credit quality indicators. We monitor this and other aspects of the standard to help us proactively identify and address areas of implementation that may need improvement.
Financial reporting already exists in the digital domain from creation through use. We need to make sure our standards take this into account.
Yogi Berra once said, “The future ain’t what it used to be.” It’s true. We can only begin to imagine what the future holds for digital and financial reporting.
And I believe we’ll get there if we build upon the foundation we have now. The Taxonomy is that foundation.
Structured data is the future of financial reporting. It’s “driving actionable analytics” that capital market stakeholders do use to make better decisions.
But for XBRL to remain relevant, we must ensure it evolves to meet the needs of investors and other stakeholders. I believe it is well worth the resources we invest.
And one of the most important resources is you. We need you to continue to actively review and provide input on Taxonomy updates. We need you to continue to promote the benefits of XBRL and structured data among your stakeholders. And we need you to continue to partner with the FASB, the SEC, and XBRL US to take us where the possibilities may lead.
Thank you for your attention. And now I’m happy to take your questions.