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XBRL and the Codification Clash

August 3, 2009

I reported on July 2 that XBRL US had mapped its taxonomies to the concepts in US GAAP but neglected to realize that US GAAP would be completely replaced by the FASB Codification effective July 1, 2009. The result is that companies seeking to comply with the XBRL mandate would not be in compliance due to the US GAAP Taxonomy referring to US GAAP that is no longer authoritative. The Accounting Standards Codification became the only authoritative source of US GAAP on July 1, 2009. The former standards and ways of referring to them are now considered non-authoritative. As you may imagine, financial reporting executives are a little upset about the codification problem and the additional effort involved in fixing it.

When the Codification was created, the intent was to simplify the research and application of US GAAP without changing U.S. GAAP. The accounting standards are still the same, but the structure of the standards and the method for referring to them has changed. For example, the accounting standards related to operating leases could formerly be found in Financial Accounting Standards 13 and 144 coupled with several Emerging Issues Task Force standards, a FASB Staff Position, and several FASB Technical Bulletins. Now the same operating lease accounting standards can be found in ASC 840-20. The new way of referencing Accounting standards is by the ASC number (ASC stands for Accounting Standards Codification). SEC Filers seeking to comply with the XBRL requirement for the second quarter 10-Q (for calendar year end companies) should not have to address the FASB Codification issue because the Codification is effective for fiscal periods ending after September 15, 2009.

XBRL US, the group that promotes the use of XBRL and establishes approved taxonomies for use by the public, has developed a “solution” the codification problem. XBRL US will publish a taxonomy extension that incorporates the FASB codification references. Calendar year end companies will need to utilize the Codification Taxonomy Extension for their third quarter XBRL filings. Apparently XBRL US intends to issue one major US GAAP Taxonomy each year with Taxonomy Extensions being issued only when there is a major change in US GAAP (like the Codification). If XBRL US maintains this approach to updating Taxonomies in the future, you can expect additional extensions for future periods due to the many major accounting topics being addressed by the FASB and the IASB in the convergence of US GAAP and IFRS.

The 2010 release of the US GAAP Taxonomy will incorporate the FASB Codification references.

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