One of the issues which the financial reporting community will need to address can be demonstrated by looking at the disclosure of significant accounting policies in SEC XBRL financial filings. The issue is a general issue, it relates to many areas of a financial report. There really is no "right" or "wrong" answer, there are just different approaches and each of those approaches has "functionality" which it delivers. You may, or may not, see this as a "change to financial reporting" or a "change in US GAAP". That is not the point of making this information available. The point is to help accountants to understand the issue.
The issue relates to the difference between unstructured information and structured information. With legacy approaches to creating a financial report the information disclosed is basically unstructured an therefore there is no "box" that information must fit into. You can understand "the box" by realizing that when you move from unstructured to structured information, you basically take the unstructured information, structure it in some way (thus creating the box), and you put the information into a box.
The "box" is not good or bad, it is just a box. It is not that unstructured is good and structured is bad; or that structured is good and unstructured is bad. They are just different.
So here is what I mean. If you understand financial reports, then you know that within a financial report, such as within an SEC financial filing, you have to disclose significant accounting policies. If you look at SEC XBRL financial filings (which I have, more info later) you will see that 100% of the 10-K filings disclose significant accounting policies. Reporting rules require this.
But, filers structure this disclosure using XBRL in different ways. Here are the primary ways I see this done (this is looking at only the [Text Block] or (Table) which every SEC filer provides in their SEC XBRL financial filing:
- Significant Accounting Policies (us-gaap:SignificantAccountingPoliciesTextBlock) is used most.
- Basis of Presentation and Significant Accounting Policies (us-gaap:BasisOfPresentationAndSignificantAccountingPoliciesTextBlock) is a distant second
- Business Description and Significant Accounting Policies us-gaap:BusinessDescriptionAndAccountingPoliciesTextBlock) is next
- Basis of Accounting (us-gaap:BasisOfAccounting)
- Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies (us-gaap:OrganizationConsolidationBasisOfPresentationBusinessDescriptionAndAccountingPoliciesTextBlock)
- Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies (us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureAndSignificantAccountingPoliciesTextBlock)
Now, some filers (very few) decide that none of those concepts work for them and decide to create extension concepts. Those are obviously errors and one of the existing concepts should have been used.
But, other filers combine different things together and do feel obliged to create an extension concept and it creating such a concept can be justified. For example, one filers created the concept Summary Of Significant Accounting Policies And Recent Accounting Pronouncements [Text Block]. They combined two things which both have concepts which exist in the US GAAP Taxonomy; but is this the right thing to do?
THAT is the issue. Basically, it is possible to come up with all sorts of permutations and combinations of information. Each permutation/combination needs to have a "box" or concept created so that the SEC filer can put the information inside that box. This is the way they have always reported.
But, the filer creating such a concept basically makes comparing information significantly more challenging. You can still do it, you just need to map the filer extension concept to some other concept which is defined to include significant accounting policies.
Or, alternatively, the filer could unbundled the information into the two concepts which exist; separating "Significant accounting policies" and "recent accounting pronouncements" into two separate boxes. This reduces the permutations and combinations.
So, it seems that the spectirum of options is as such:
- Provide lots and lots of permutations and combinations, and still allow a filer to create more permulations and combinations
- Provide lots and lots of permutations and combinations, but DON'T allow the filer to create other possible permulations/combinations
- Require SEC filers to unbundled their disclosures, and also their financial statement line items, into discrete disclosures/line items (i.e. get rid of the bundles)
Like I said, there is not necessarily a right or wrong answer here; it is just a choice which the financial reporting supply chain needs to figure out. What would be good is to understand the pros and cons of each alternative, all things considered.
And I point out again; this is not just an issue with significant accounting policies; it is a general issue for which I am pointing out with this significant accounting policies example.
Which alternative do you feel is the best choice, all things considered?