IFRS and US GAAP Taxonomies: To converge or not to converge…that is the question.

The governing bodies the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working since 2002 to converge the two main accounting principles US GAAP and IFRS into one international standard by mid-2011. (Baker Tilly, 2013) The deadline has come and gone and the convergence has not been completed; however both organizations have been working independently to complete several short-term convergence projects. In May of 2011, when the planned convergence did not happen, the SEC published a paper outlining a way for the US Financial reporting system to incorporate IFRS into US GAAP over an extended period of time by way of the “endorsement method” where US GAAP would remain the standard setter. (PwC Open University, 2012)  

To this date the US GAAP has remained the standard setter when it comes to creating a taxonomy for XBRL reporting standards. As of 2012 the US GAAP Financial Reporting Taxonomy (UGT) had more than 17,000 financial reporting elements available at no charge through a Web-based browser called Yeti. (Whitehouse, 2012) As of April 2011 the SEC has not approved the IFRS taxonomy because of numerous issues with the taxonomy including the limited number of concepts and the fee-based subscription required to access the IFRS content.  (Bands, 2011) Move forward a year and the IASB has continued to work on making improvements to the IFRS taxonomy, though still lagging behind UGT. At this time the IFRS taxonomy has more than 3,770 computer-based tags mostly used for the banking and insurance reporting, not for use in public financial reporting and still lacks industry specific tags. To address this issue, the IFRS foundation began work on the Industry Practice project to identify and create concepts and practices specific to financial institutions, insurance and extractive industries as a start. (Brands, 2012)

Though the convergence has come to a screeching halt, tremendous progress has been made in trying to find a way to make analyzing data more efficient and comparable by developing a single language business language for financial reporting. The UGT and IFRS taxonomy convergence project has made for great strides in narrowing the differences between US GAAP and IFRS and created more flexibility among financial professionals as indicated by Ruth Picker. (Arons, 2012) However, with more than 100 countries and the European Union using the IFRS and the US SEC requiring publicly traded companies to use IFRS for their financial reports one taxonomy will be needed to be able to truly analyze comparable financial data without tremendous effort to translate or compare local and regional taxonomies. It may be that the “condorsement” of US GAAP and IFRS will continue to push for a unified taxonomy incorporating UGT and other local and regional taxonomies as IFRS standards are endorsed and typical elements are incorporated throughout all taxonomies. XBRL US, a national consortium for XML business reporting has created the XBRL Challenge, a contest to help discover the top open source analytical tools for mining XBRL-formatted corporate financial data from the SEC database. (XBRL US, Inc., 2013) This type of initiative and the attention that this contest brings magnifies the need for a unified taxonomy. If the tools and applications created for this contest to be used with the SEC EDGAR database, imagine what analysis could be possible with utilizing just one taxonomy?

Works Cited and References

Arons, S. (2012, March 12). Convergence of IFRS and US GAAP Is Not Dead, just Dormant. Retrieved from CFO Insight: http://www.cfo-insight.com/reporting-forecasting/accounting/convergence-of-ifrs-and-us-gaap-is-not-dead-just-dormant/

Baker Tilly. (2013). Convergence of US GAAP adn IFRS: Where do things stand? Retrieved from Baker Tilly International: http://www.bakertilly.com/Convergence-of-US-GAAP-and-IFRS

Bands, K. (2011, October). A Tale of Two XBRL Taxonomies. XBRL, pp. 56-57.

Brands, K. (2012, September). Update on the IFRS XBRL Taxonomy - 2012. XBRL, pp. 64-65.

Dodds, E. (2012, May 15). 2012 XBRL challenge panel. Retrieved from Slideshare: Present Yourself: http://www.slideshare.net/eddodds/2012-xbrl-challenge-panel

Piechocki, M. (2009, March 31). Comparison Framework for EDINET, IFRS, and US GAAP XBRL Taxonomies 0.05 (Public Working Draft). Retrieved from xbrl.org: http://www.xbrl.org/TCF-PWD-2009-03-31.html

Pologeorgis, N. (2013, January 21). The Impact of the U.S. GAAP and IFRS Convergence on thier Consistuents. Retrieved from Yahoo!Finanace: http://finance.yahoo.com/news/impact-u-gaap-ifrs-convergence-224854279.html

PwC Open University. (2012). IFRS and US GAAP: similarities and differences. Retrieved from pwc.com: http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences.jhtml

White, C. E. (n.d.). The Accountatn's Guide to XBRL (6th Edition). Retrieved from SkipWhite.com: http://www.skipwhite.com/Chapter16thEd.html

Whitehouse, T. (2012, October 23). SEC No Closer to IFRS TAxonomy Approval for XBRL. Retrieved from Compliance Week: http://www.complianceweek.com/sec-no-closer-to-ifrs-taxonomy-approval-for-xbrl/article/264997/

XBRL US, Inc. (2013). XBRL Challenge. Retrieved from xbrl.us: http://xbrl.us/research/pages/challenge.aspx