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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Departamento de Economía Financiera y Contabilidad I

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach. PhD Candidate: Mr. Héctor Carretié Director: PhD Ms. Beatriz Torvisco Co-director: PhD Mr. Roberto García

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Department of Financial Economy and Accounting I. Year 2012

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Table of contents Acknowledgements ....................................................................................................................... 7 0. Resumen .................................................................................................................................... 9 I. Antecedentes .......................................................................................................................... 9 II. Objetivo .............................................................................................................................. 13 III. Metodología ...................................................................................................................... 14 IV. Conclusiones ..................................................................................................................... 16 Abstract ....................................................................................................................................... 19 Introduction ................................................................................................................................. 21 I. Businesses and the Internet .................................................................................................. 21 II. Current international accounting regulation framework overview ..................................... 26 II.I. Europe and Spain ......................................................................................................... 29 III. Hypothesis ......................................................................................................................... 32 IV. Semantic web contribution................................................................................................ 36 V. Work structure .................................................................................................................... 38 1. Internet Financial Reporting.................................................................................................... 41 1.1. IFR precedents ................................................................................................................. 43 1.2. Literature review .............................................................................................................. 47 2. The IASB - FASB process of convergence. ............................................................................ 55 2.1. The convergence process: a general overview ................................................................. 56 2.1.1. United Kingdom ........................................................................................................ 57 2.1.2. United States of America .......................................................................................... 58 2.1.3. People's Republic of China ....................................................................................... 59 2.1.4. India........................................................................................................................... 59 2.1.5. Japan.......................................................................................................................... 60 2.1.6. Russian Federation .................................................................................................... 61 2.1.7. Spain.......................................................................................................................... 61 2.2. Will IFRS be adopted in the United States? ..................................................................... 62 2.3. IFRS and. US GAAP: an actual comparison.................................................................... 68 2.3.1 IFRS 1 -IFRS first-time adoption ............................................................................... 69 2.3.2. Revenue recognition. ................................................................................................. 70 2.3.3. Expense recognition .................................................................................................. 72 2.3.3.1. Expense recognition - share-based payments ..................................................... 72 2.3.3.2. Expense recognition - employee benefits ........................................................... 73 2.3.4. Assets ........................................................................................................................ 74 2.3.4.1. Nonfinancial assets ............................................................................................. 74 2.3.4.2. Financial assets................................................................................................... 75 2.3.5. Liabilities................................................................................................................... 76 2.3.5.1. Taxes .................................................................................................................. 76 2.3.5.2. Nonfinancial liabilities ....................................................................................... 77 2.3.5.3. Financial liabilities and equity ........................................................................... 77 2.3.6. Consolidation ............................................................................................................ 78 2.3.7. Other accounting and reporting topics ...................................................................... 79 3

Department of Financial Economy and Accounting I. Year 2012

3. XBRL: implementation and precedents, what is XBRL, main characteristics & key elements. ................................................................................................................................................. 81 3.1. WHAT IS XBRL? ............................................................................................................ 85 3.2. COMPONENTS OF XBRL ............................................................................................. 90 3.2.1. Element ..................................................................................................................... 91 3.2.2. Taxonomy ................................................................................................................. 92 3.2.2.1. XBRL Schema (part of the taxonomy)............................................................... 93 3.2.2.2. Linkbases (part of the taxonomy) ....................................................................... 94 3.2.2.2.1. How links relate to concepts ....................................................................... 94 3.2.2.2.2. Relational linkbases: defining relationships between concepts................... 95 3.2.2.2.2.1. Presentation linkbase ............................................................................ 95 3.2.2.2.2.2. Calculation linkbase: ............................................................................ 96 3.2.2.2.2.3. Dimension/Definition linkbase............................................................. 97 3.2.2.2.3. Resource linkbases: adding information to an element. .............................. 97 3.2.2.2.3.1. Label linkbase ...................................................................................... 97 3.2.2.2.3.2. Reference linkbase ............................................................................... 98 3.2.3. Instance document ..................................................................................................... 99 3.3. XBRL limitations. .......................................................................................................... 101 4. eXtensible Markup Language (XML): What is XML, how it works … ............................... 103 4.1. Elements ......................................................................................................................... 104 4.2. Namespaces .................................................................................................................... 105 4.3. Attributes ........................................................................................................................ 106 4.4. Processing instructions (and comments). ....................................................................... 107 4.5. CDATA sections ............................................................................................................ 108 4.6. The XML declaration ..................................................................................................... 108 4.7. Well-formed XML documents, non well-formed XML documents .............................. 109 4.8. Valid XML document...................................................................................................... 110 4.8.1. DTD (Document Type Definition) .......................................................................... 110 4.8.2. XML Schema .......................................................................................................... 115 4.9. Comparing DTD and XSD ............................................................................................. 116 4.9.1. XML Schema .......................................................................................................... 116 4.9.2. A Reference to a DTD............................................................................................. 117 4.9.3. A Reference to a XML Schema .............................................................................. 118 4.10. XSD Elements .............................................................................................................. 119 4.10.1. Simple Elements ................................... 119 4.10.1.1. Restrictions on Content .................................................................................. 120 4.10.2. Complex elements ................................................................................................. 121 4.10.3. Indicators ............................................................................................................... 123 4.10.4. Elements and .................................................................... 125 5. Semantic web: what is the Semantic Web, history, structure and focus on ontologies (OWL): main characteristics and components. ................................................................................... 129 5.1. What is the Semantic Web and brief history. ................................................................. 129 5.2. Semantic Web Structure ................................................................................................. 133 5.2.1. Components of the Semantic Web .......................................................................... 134 5.2.2. Modelling Practices ................................................................................................. 143 6. Transforming XBRL financial data into OWL. .................................................................... 145 6.1. Related work .................................................................................................................. 145 6.2. Data analysis .................................................................................................................. 148 6.3. Methodology .................................................................................................................. 156 4

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

6.3.1. XBRL Schemas to OWL ontologies: XSD2OWL. ................................................. 156 6.3.2. XBRL XML to RDF: XML2RDF ........................................................................... 159 6.3.3. Mappings between Spanish PGC and IFRS ............................................................ 163 6.4. Explaining the results. .................................................................................................... 167 7. Conclusions ........................................................................................................................... 171 8. Future research guidelines propposal .................................................................................... 175 Annexes ..................................................................................................................................... 177 Annexe 1 ............................................................................................................................... 177 Annexe 2 ............................................................................................................................... 189 Annexe 3 ............................................................................................................................... 197 Annexe 4 ............................................................................................................................... 205 Annexe 5 ............................................................................................................................... 209 References ................................................................................................................................. 217

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Acknowledgements In memory of my mother I would like to thank all the persons involved in the consecution of this thesis. This is a difficult task, not to say impossible, as I will forget somebody hopelessly. First, I would like to thanks the persons who put me in the scope of the subject of this digital world, Mr. Sergio Monreal and Mr. Ozelín López. Besides, I would like to thank my University colleagues, who have given me always high-value pieces of advice. Both, the director Ms. Beatriz Torvisco and co-director Mr. Roberto García, who have been the essential ingredients, giving me always the orientation I needed when I was totally lost. It happened in several occasions. Last, but not least, to my family and friends who have always encouraged me with their love and support.

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

0. Resumen A continuación se incluye un resumen suficiente en castellano del presente trabajo y que consta de las siguientes partes: I. II.

Antecedentes. Objetivo.

III.

Metodología.

IV.

Conclusiones

I. Antecedentes En el mundo actual en el que la información está convirtiéndose en una carga para los seres humanos, la gestión eficiente de la misma es un objetivo primordial. Internet tal y como lo conocemos actualmente es un éxito indiscutible a nivel global. Los flujos de información que se intercambian crecen muy rápidamente. Asimismo, el número de usuarios y la cantidad de contenidos crece sin límite de una manera cada vez más rápida. Todo esto viene acompañado de un incremento igualmente significativo de dispositivos electrónicos conectados a Internet. Son las nuevas tecnologías las que están modificando la forma en la que nos relacionamos con la Red. Así, Internet puede llegar a ser, sino lo es ya, el instrumento económico fundamental en un futuro próximo. Las empresas dependen ampliamente y cada vez más de Internet, al igual que los consumidores. Internet está cambiando la forma en la que las empresas se relacionan con los clientes, proveedores, socios, inversores e instituciones. La Red (o la Web) es universalmente aceptada por cualquiera, en cualquier sitio, dentro y fuera de las empresas emisoras de la información financiera (Quetglás 2006). Por ello, el éxito de las empresas vendrá principalmente determinado por las metodologías y soluciones digitales que estas adopten. Por otro lado, a nivel mundial, el mundo de los negocios exige cada vez más información de los sistemas contables. Así, tanto inversores, como acreedores y demás

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Department of Financial Economy and Accounting I. Year 2012

partes interesadas, demandan cada vez más información y no sólo de carácter financiero (Bonsón 2001b). Los mercados de capitales más avanzados son los que han provocado inicialmente esta revolución de la información. Los usuarios de dichos mercados, cada vez más exigentes y competitivos, demandan una información hecha a su medida: información personalizada y descriptiva, acorde con las necesidades de cada momento y que, gracias a su versatilidad, pueda ser integrada por diferentes soluciones informáticas, software y bases de datos. Es importante conocer cuál es la actual situación normativa a nivel internacional en el área de la contabilidad para poder comprender mejor a qué se enfrentan actualmente las empresas emisoras de la información contable. Por eso, esta tesis recoge, entre otros aspectos, un estudio amplio acerca de cuál es esta situación, haciendo especial hincapié en Estados Unidos y Europa y, dentro de esta última, más concretamente en España. Atendiendo a la evolución normativa a ambos lados del Océano Atlántico, se hace imprescindible hablar del proceso de convergencia iniciado por los cuerpos regulatorios contables estadounidense y europeo: el Federal Accounting Standars Board (FASB) y el International Accounting Standards Board (IASB). Dicho proceso de convergencia, que es analizado con cierto grado de profundidad en esta tesis, tiene como origen y justificación el acercamiento o armonización de los principios contables a nivel internacional, con una finalidad clara de mejorar la comparabilidad de los estados financieros a nivel mundial. Sin embargo, y tal y como se discute con posterioridad, este proceso escapa a aspectos puramente contables, provocando que el mismo tenga por delante un horizonte de indefinición en cuanto a su desarrollo temporal y en cuanto al grado de convergencia a conseguir. De este proceso de convergencia solamente puede afirmarse con total rotundidad, que se trata de un proceso complejo, que va a alargarse en el medio y largo plazo y que esto va a provocar un futuro con los mayores cambios que hayan tenido que afrontar las empresas nunca antes: tanto por la profundidad de los cambios, como por la cantidad de los mismos. Además, podemos afirmar, tal y como se demuestra en el desarrollo informático contenido en esta tesis, que las regulaciones tendentes a uniformar criterios 10

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

para la elaboración de los estados financieros, por diversidad de motivos, en algún caso, producen el efecto contrario, esto es, reducen la comparabilidad. Este es uno de los motivos que justifica el presente trabajo, ya que tal y como se explica más adelante, se ofrece una solución que permite mejorar la comparabilidad de los estados financieros y, por lo tanto, mejora el proceso de toma de decisiones, incluso en un entorno regulatorio tan cambiante como el descrito. Pero si bien este aspecto regulatorio determinante, explica en gran parte la problemática que merma la comparabilidad de los estados financieros, no es menos importante analizar, tal y como también se recoge en el presente trabajo, la evolución de las tecnologías de la información en el campo de la contabilidad. Es decir, no sólo es importante hablar del fondo o contenido de los estados financieros, sino también de la forma en que los mismos son presentados, dados los importantes cambios que se han producido en este área en los últimos años. Es de hecho este campo, el del nuevo formato electrónico de presentación de los estados financieros, el argumento principal de discusión en esta tesis. En este sentido, es importante insistir en el desarrollo de las tecnologías de la información producido en los últimos años, que han permitido alcanzar una utilización de Internet nunca antes conocida. Dentro del mundo de los negocios, Internet desde sus primeros inicios se convirtió rápidamente en la herramienta preferida por las empresas para la divulgación de sus estados financieros por razones de coste, eficiencia y audiencia. La disparidad inicial existente tanto en la forma como en los contenidos incluidos en los primeros estados contables divulgados a través de este medio, dejaron ver rápidamente la imperiosa necesidad de uniformar criterios que permitieran un uso más eficiente de estos estados contables, a través de la creación de un lenguaje único, un estándar, que permitiera expresar la información financiera de cualquier empresa, independientemente del lugar, normas contables y lenguaje utilizados en su elaboración. Es en este contexto de uso masivo de Internet, junto con la globalización de la economía impulsada inicialmente por la demanda de los mercados de capitales más desarrollados, y en el que las fronteras nacionales más propias de la era industrial del siglo pasado, dejan paso a un punto de vista global más acorde con las nuevas necesidades 11

Department of Financial Economy and Accounting I. Year 2012

empresariales, donde surge el estándar XBRL (eXtensible Busines Reporting Language) como respuesta. Este estándar, basado en XML (eXtensible Markup Language), es analizado en la sección 4.1. del presente trabajo, con la intención de acercar esta tecnología a los contables, aunque sin entrar en un estudio exhaustivo que poco aportaría al propósito perseguido, pero con la suficiente profundidad como para permitir comprender al lector cuál es su funcionamiento, y tal y como se expone más adelante, cuáles son algunas de sus limitaciones. El XBRL ha sido adoptado ya en gran parte de las economías occidentales y en algunas de las orientales más avanzadas. Tras esta implantación mundial irregular que sigue actualmente en proceso, podemos afirmar sin discusión que nos encontramos ante el estándar financiero más utilizado de principios del siglo XXI, que se ha convertido en una nueva manera de transmitir información financiera a nivel mundial y que permite un mejor aprovechamiento y automatización de la misma. Este lenguaje ha sido desarrollado para transmitir de forma electrónica la información financiera contenida en los estados financieros de las empresas y tiene una clara vocación de flexibilidad, que le permite ser utilizado por cualquier empresa, en cualquier lengua y con cualesquiera principios contables. Sin embargo, ha dejado ver ya algunas de sus debilidades “de facto”, que si bien no se derivan de fallos en su construcción, ya que su propia estructura está orientada hacia la máxima flexibilidad posible, como ya se ha dicho anteriormente, si pueden ser parcialmente achacadas a las rigideces propias de las tecnologías en las que se basa, especialmente el XML. Una vez explicada la importancia del XBRL y sus limitaciones, es necesario hablar de la actual evolución de la Web, la cual está mejorando las posibilidades de manejo automatizado de la información que contiene. Debido al enorme volumen de información que contiene la Web, hecho que se erige como su principal ventaja sin duda, pero cuyo imparable crecimiento se convierte, a su vez, en el principal problema, actualmente se están desarrollando nuevas tecnologías que permitan minimizarlo o incluso eliminarlo. Desde un punto de vista humano, el manejo de la cantidad cada vez 12

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

más inabarcable de información por su propio volumen, así como por su presentación y acceso, deviene en el principal problema para su gestión eficiente. Por ello, en los últimos años se han desarrollado herramientas que permiten un tratamiento más automatizado de dicha información a través de las tecnologías contenidas en lo que se ha venido a llamar Web Semántica o Web 3.0 (ver sección 5.1. What is the Semantic Web and brief history.). Dicha Web Semántica, que es una extensión de la Web que conocemos hoy en día (Web 2.0), incorpora metadatos a la información publicada “online”, es decir, datos sólo legibles por las máquinas acerca de los datos legibles por los humanos, los cuáles aportan “pistas” a las máquinas para que éstas sean capaces de interpretarlos de forma correcta y, por lo tanto, puedan manejarlos convenientemente, incluso llegando a ser capaces de inferir nuevo conocimiento.

II. Objetivo A la vista de la falta de comparabilidad entre los estados financieros emitidos por las empresas, en los diferentes países, el objetivo principal que nos hemos planteado en la presente tesis es lograr una mejora de dicha comparabilidad, actualmente mermada por la utilización de diferentes normas y criterios contables. Para ello, proponemos un acercamiento de conocimientos de las áreas de contabilidad e informática, ya que hemos evidenciado la enorme importancia e influencia recientemente adquirida por la informática dentro del campo de la contabilidad, derivada por el nuevo modo de transmisión electrónica de la información financiera. En este sentido, ambas áreas vienen desarrollando una estrecha colaboración en las últimas décadas, que ha mejorado, de manera significativa, la administración de la información contenida en los sistemas de información contable. Pero es ahora, con la implantación internacional del estándar XBRL, cuando ambos conocimientos quedan inexorable y profundamente ligados. En este sentido, para lograr el objetivo propuesto, hemos diseñado una herramienta informática que permite detectar y explicar las igualdades y las diferencias, tanto terminológicas como numéricas, entre balances de situación elaborados con distintos criterios contables, mejorando así la comparabilidad de los mismos. 13

Department of Financial Economy and Accounting I. Year 2012

III. Metodología Para llevar a cabo el desarrollo informático, hemos trabajado con los balances consolidados de los ejercicios 20091 y 2008 de la empresa Telefónica S.A. que es de las pocas empresas españolas que presenta sus estados financieros ante la Comisión del Mercado de Valores de los Estados Unidos (US SEC) y ante la Comisión Nacional del Mercado de Valores española (CNMV). Al ser un grupo de empresas que cotiza en Bolsa está obligado desde el año 20052 a elaborar sus cuentas siguiendo los International Financial Reporting Standards (IFRS). Por otro lado, la U.S. SEC permite, desde el año 2007, y hasta la fecha, presentar a las empresas extranjeras sus estados contables, siempre y cuando estos hayan sido elaborados de acuerdo con los mencionados IFRS. Por lo tanto, estos balances consolidados, tanto el presentado ante la CNMV, como el presentado ante la U.S. SEC, han sido elaborados siguiendo en ambos casos los estándares dictados por el IASB. Por lo tanto, ambos balances deberían ser muy similares, sino idénticos. Sin embargo esto no es así. Tal y como se analiza en la sección 6.2. Data analysis del presente trabajo, diferencias en los niveles de desagregación y en las denominaciones de las diferentes partidas, hace que la comparabilidad se vea mermada de manera significativa. Por otro lado, el balance enviado por Teléfonica S.A. a la CNMV está en formato XBRL, sin embargo, el balance enviado a la U.S. SEC no, ya que esta Comisión aún no permite el formato XBRL para empresas extranjeras. Es importante destacar que probablemente esta situación se modifique en un futuro cercano, tal y como se puede desprender de las informaciones divulgadas a través de la propia página web de esta Comisión3. Por ello, hemos procedido a generar manualmente el balance consolidado enviado por Telefónica a la US SEC en formato XBRL, utilizando para ello la nueva terminología incluida en la taxonomía publicada en el año 2011 por el IASB, de manera que se

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A la fecha de elaboración de este trabajo estas eran las cuentas disponibles en la web de la Comisión Nacional del Mercado de Valores. Más información en http://www.cnmv.es 2 Esta Norma (NIC 27) revisada sustituye a la NIC 27 (revisada en 2000) Estados financieros consolidados y contabilización de las inversiones en dependientes, y se aplicará en los ejercicios anuales que comiencen a partir del 1de enero de 2005. 3 Más información en http://www.sec.gov/

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

obtiene el balance consolidado que Telefónica hubiera enviado a la US SEC en formato XBRL, en el supuesto de que dicho formato fuera admitido. Además de la falta de comparabilidad debida al diferente nivel de desagregación entre ambos balances mencionada previamente, hay que resaltar que la nueva taxonomía de XBRL publicada por el IASB, incluye una nueva terminología de las partidas del balance, que difiere de la utilizada por la taxonomía de la CNMV, lo cual perjudica aún más dicha comparabilidad. Ambos balances y sus diferencias se explican en profundidad en la sección 6.2. Data analysis. Una vez que ambos balances están escritos en el formato XBRL (XML), se procede a su transformación o traducción al Resource Data Format (RDF, ver sección 5.2.1. Components of the Semantic Web), base de la tecnología utilizada en la Web Semántica. Este formato describe cada elemento o partida del balance como un triple: así por ejemplo, el elemento “Caja” quedaría definido con un sujeto (Caja), un predicado (2.000 €) y una relación (es igual a) que une ambos elementos. Cada elemento se define por sí mismo y por su relación con los elementos restantes. De esta manera, una vez hemos traducido ambos documentos XBRL a formato RDF (proceso que se explica en la sección 6.3. Methodology), es posible definir mediante el Ontology Web Language (OWL, ver sección 5.2.1. Components of the Semantic Web) la correspondiente ontología que establece el tipo de relación existente entre los diferentes elementos de ambos balances. A modo de ejemplo, en la ontología se define que la partida de Activo no corriente (ipp-gen: ActivoNoCorrienteNiif,) correspondiente al balance presentado a la CNMV, sea igual a la partida Non-current assets(ifrs:NoncurrentAssets) correspondiente al balance presentado por Telefónica ante la U.S. SEC, de acuerdo a la nueva nomenclatura que se introduce en la taxonomía publicada por el IASB en el año 2011. Esta equivalencia escrita en código máquina quedaría expresada de la siguiente manera: ipp-gen:ActivoNoCorrienteNiif owl:equivalentClass ifrs:NoncurrentAssets 15

Department of Financial Economy and Accounting I. Year 2012

Del mismo modo se establecen las relaciones de equivalencia para todos los elementos del balance, obteniendo así una herramienta que de manera inmediata, nos advierte de las diferencias entre uno y otro balance y, cuando es posible, nos indica a qué se deben esas diferencias. O dicho de otra manera, sería posible construir el balance presentado ante la US SEC a partir de los datos del balance presentado ante la CNMV. Disminuimos así la falta de comparabilidad entre ambos balances debida al diferente nivel de desagregación y a las diferencias terminológicas. Por último, cabe señalar que no todas las diferencias existentes entre los dos balances pueden ser detectadas y explicadas por el desarrollo informático que se propone en este trabajo, como es el caso de los impuestos, cuya desagregación difiere entre ambos balances. La información que se encuentra disponible en la memoria referente a los mismos, no arroja suficiente luz como para poder establecer las posibles relaciones existentes entre los dos balances de situación.

IV. Conclusiones Las conclusiones a las que llegamos con el presente trabajo se describen a continuación: I.

La comparabilidad de los estados contables se ve reducida no sólo por la utilización de diferentes criterios contables, sino también como consecuencia del actual proceso de convergencia desarrollado por el IASB y el FASB, del que hemos podido comprobar que todavía está lejos de alcanzar la deseada convergencia y del que podemos afirmar se extenderá en el medio y largo plazo.

II.

Se ha producido un cambio de máxima importancia en la manera en la que se transmite la información contable: del tradicional formato en papel vigente durante siglos, se ha pasado a la utilización de medios electrónicos, siendo XBRL el estándar de referencia e Internet el medio utilizado para dicha transmisión. Las consecuencias derivadas de este cambio son difíciles de predecir, puesto que se trata de un cambio reciente.

III.

La informática permite mejorar la comparabilidad deteriorada de la información financiera mediante el uso de tecnologías propias de la Web Semántica, desarrolladas para mejorar la gestión de la información, una vez que la información financiera se encuentra expresada en XBRL.

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

IV.

Es por ello deseable un acercamiento mayor de las áreas de contabilidad e informática que permita resolver, no sólo el problema de la comparabilidad de la información financiera, sino también mejorar otros aspectos como su reutilización y análisis, de manera tal que se pueda mejorar el proceso de toma de decisiones.

V.

Gracias a la solución alcanzada con la utilización de la informática, no sería necesario que el proceso de convergencia se desarrollara hasta el máximo nivel de detalle. De esta manera este proceso se relajaría, permitiendo la coexistencia de criterios contables diferentes, en la que las divergencias quedarían identificadas en las correspondientes ontologías de forma que los datos seguirían siendo comparables. Además se podría optar por la mejor solución entre las posibles alternativas existentes para un mismo hecho económico, si se considerara necesario. En este mismo sentido, pensamos que a nivel normativo, se podría plantear una estructura en la que en un primer peldaño se situaría una organización contable internacional, como pueda ser el IASB, la cual establecería unos principios mínimos contables comunes a todos los países. En un peldaño posterior, los países (y/o agrupaciones de los mismos) tendrían un cierto margen de maniobra para poder establecer unos principios contables más detallados que, tomando como base y respetando los principios contables internacionales, desarrollarán de manera más precisa y particular la aplicación de los mismos, definiendo en ese mismo momento las correspondientes relaciones de los elementos patrimoniales y partidas contables de manera exhaustiva para su posterior utilización en la definición de ontologías que relacionarían, vía identificación de las diferencias, los diversos sistemas contables de una manera precisa y automatizada.

A modo de recapitulación podemos afirmar que dentro del campo de la contabilidad tanto el presente como el futuro son y se adivinan muy cambiantes. No sólo por la profundidad de los cambios, sino también por la frecuencia de los mismos, incrementada esta de manera importante.

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Abstract Accounting at the international level has become more changeable than never before due to several reasons, but one stands above the others: the convergence process carried out by the International Accounting Standards Board (IASB) and the Federal Accounting Standards Board (FASB). This process started in order to enhance the comparability of the financial statements worldwide, among other purposes, but also brought complexity and uncertainty about the temporal horizon and the degree of convergence that will be finally achieved. The only certainty that can be said about this process is that it will elongate throughout the following years and, due to its own complexity, the impairment of the comparability of the financial statements becomes a reality, as a non-desired effect. In the mean time, the advances achieved in the implementation of the electronic standard eXtensible Business Report Language (XBRL) bring to this context new possibilities, not yet foreseen to manage the financial information more efficiently, improving the decision-making process. Taking advantage from the fact that the financial statements are now written in this standard (XBRL), and applying technologies recently developed in the context of the Semantic Web, the present work proposes a new semantic-web-based approach that tries to overcome the limitations imposed by the changeable accounting regulation framework and its derived comparability impairments. Starting from XBRL statements (XML documents), the information is translated into RDF, so ontologies can be defined upon that information, taking advantage from the characteristics of Semantic Web technologies and over passing the limitations due to XBRL’s underlying ones, more specifically those due to the fact it is based on XML. KEY WORDS Financial statements comparability, XBRL, Ontologies, Semantic Web, RDF, interactive data, IFRS, US GAAP, US SEC, accounting.

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Department of Financial Economy and Accounting I. Year 2012

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Introduction The main contribution of this thesis is the improvement of the comparability of the financial information in XBRL format based on similar but not identical accounting principles, partially impaired due to the current complex process of convergence carried out by the International Accounting Standards Board and the Federal Accounting Standards Boards, using technologies of the Semantic Web, thus enhancing its ulterior analysis.

I. Businesses and the Internet In a world where the information is becoming a hurdle for human beings, its efficient management is becoming primary. Internet as we know it today is an outstanding success. The growth of the information exchanged between users increases rapidly. The number of users and the amount of content is growing faster and faster. Nowadays, the number of electronic devices with Internet connectivity increases rapidly. New technologies are changing the way we use the Net. Internet has become a fundamental economic instrument. Businesses will widely depend on the Internet, as consumers will do. The Internet is changing the way businesses interact with their customers, providers, stockholders, investors and institutions. Besides, the Web4 is accepted worldwide by everyone, everywhere, inside and outside the information issuing organizations (Quetglás 2006). Businesses success is going to be highly determined by the digital methods and solutions in the following years. Globally, the business environment is pulling the information demand from the accounting information systems. External interest groups (investors, creditors, social agents, etc.) demand more and not only financial information (Bonsón 2001b). Financial markets have triggered this information revolution. Increasingly demanding and competitive, financial market users require that the information provided is tailored 4

Web meaning World Wide Web (WWW) as a collection of interconnected documents and other resources linked by hyperlinks and Uniform Resource Locators (URLs). It is a part of the Internet which is a global data communication infrastructure (hardware and software).

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Department of Financial Economy and Accounting I. Year 2012

to their needs, i.e. customized and descriptive, so that it can be used by different software and integrated into different databases. In order to face this new requirements and profiting from the wide adoption of the Internet, together with the increasing demand mentioned before, businesses use the Web to distribute their financial information (Debreceny, Gray et al. 2002). Despite of the advances, it is obvious that in the Web, the process of report exchange is still emulating to a great extent the traditional paper lay-out. Therefore, working with text processors, spreadsheets, PDFs, etc, has been the common procedure. The possibilities and potential of the information systems are not fully exploited, as the different report formats do not facilitate the integration of the information (Alexiev, Fensel et al. 2005). Available financial information is getting bigger and dispersed, thus the need to systematize and gather it is becoming essential. Besides, some authors demonstrated the crisis of the traditional financial reporting systems (Elliott, Jacobson 1991), (Wallman 1995). Since late eighties, a variety of reports from different environments confirm the weaknesses of the current financial reporting model due to two primary reasons: •

the contents of the reports (based on an industrial era more than in a services and information technologies one) as pointed out by Giner. The shortage of information in the current model, concerning important aspects that are crucial to understand companies’ risks and potentials, such as environmental issues and intangible assets as intellectual capital, structural capital, relational capital, etc. (Giner, Larran 2002).



The way the enterprises communicate the information to their external users using the paper format. Advantages obtained through the electronic means are deeply explained in this paper compared to the traditional paper format.

In addition, it has been reported the idea that the relevance or informative value of the accounting information systems has been clearly affected, diminishing in the last 50 years. This relevance decreases more significantly in highly technical companies, as 22

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

indicated by Gallego (Gallego 2009). These two mentioned primary reasons mainly affect the relevance of the financial information. Additionally, and due to the following facts: •

the format of the digital documents has diverged with the lack of a standard and,



the necessity to improve the contents and communication of the financial reports;

two initiatives held by the American Institute of Certified Public Accountants (AICPA) must be highlighted: •

The first one is the Special Committee on Enhanced Business Reporting (SCEBR) as investors, creditors, managers, regulators and other stakeholders’ consortium, created in 2002.



The second one is the project for the development of the standard eXtensible Business Report Language (XBRL), initially named as eXtensible Financial Reporting Markup Language (XFRML) created in 1998 by Charles Hoffman and adopted later by the AICPA.

The purpose of the SCEBR “is a collaborative, market-driven initiative that provides an opportunity for users and providers of capital to work together for the public interest to improve the quality of information provided to capital markets. The Consortium works to promote greater transparency by developing an internationally recognized, voluntary framework for presentation and disclosure of value drivers, non-financial performance measures and qualitative information”5. The aim of XBRL is to provide users with the breadth of information they require, at the speed they need, to be successful in today’s economy. XBRL will be deeply explained in chapter three, but in order to help readers to briefly understand what XBRL is, these are some of its key characteristics:

5

http://www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources/EBR/Pages/EnhancedBusinessR eportingConsortium.aspx

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XBRL allows generating files automatically with relevant information, understood by the machines as intermediaries in the information supply chain.



XBRL is an automated way for the financial information exchange, which saves time and avoids errors, facilitating the data analysis.

XBRL is the language for the electronic communication of financial and commercial data. The idea behind XBRL is simple. Instead of processing the financial information as a text block – as in a standard web page in the Internet or in a printed document – XBRL provides to each individual element of information with a label, which identifies it. This label is readable by the machine, e.g., the Net Income of one enterprise has a unique and own label. Thereby, using the Internet as the distribution channel of information, and XBRL as the means for this distribution, the improvements in the quality of the delivered information to the stakeholders, are warranted through the increase of the frequency and the speed it is produced, delivered and analysed (Martins 2007), thus adding value to that information. Nevertheless, XBRL has already shown some limitations: - “First, the (…) taxonomy (see section 3.2.2. taxonomy) should include validations that involve the evaluation of information items in different contexts. However, the current XBRL specification does not allow for this kind of validation, and calculation links are defined between information items independently of their context (see section 3.2.2.2.2.2. Calculation linkbase): a calculation link for a given context (one specific company and one determined period) may be not valid for another context, which makes the calculation link not reusable. - Second, XBRL calculation links only allow for the summation of items. However, there are analytical values, whose calculations from descriptive values are more complex, involving the use of other mathematical operators” (Lara, Cantador et al. 2006). This situation has partially been solved through the FORMULAE6 extension. 6

More info in www.eurofiling.info/data/presentations/9Workshop/VMorillaFormulaeBdE.ppt

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

This extension permits programmers to include any mathematical calculation. Although this extension has shown its stability and validity, it is still narrowly applied. Besides, it only permits calculations in one taxonomy at a time, not permitting sophisticated calculations among different taxonomies. - Third, differences in assessments and accounting practices among different countries set an obstacle for comparing the financial statements internationally. Diverse social, economic and environmental factors and their influence in the accounting practices must be taken into account (Lainez 2006). So the definition of the concepts in the reports may differ from one country to another, and even within the same country, the definition of the same concept in the report may differ from one enterprise to another: this fact reduces dramatically the comparability of the information. Moreover, XBRL does not provide the mechanism that might facilitate stating equivalences or divergences among terms from different accounting practices (or taxonomies). Consequently, it does not provide with features that facilitate sharing these relations among accounting terms. - Fourth, and as demonstrated in this thesis, the same concept is differently defined within the same company and in the same period for filing purposes. - Fifth, different XBRL jurisdictions have developed different taxonomies as their standards of financial data. These taxonomies are heterogeneous, so do the corresponding instance documents (see section 3.2.3. Instance document) and the internal systems where data are stored. Therefore, there are still important handicaps to create and use different instance documents related to various taxonomies. Furthermore, as discussed in the following sections, new regulations introduced in order to enhance the information comparability, among other aims, result in temporary comparability impairment as an unexpected effect. These XBRL limitations can be overcome using Semantic Web technologies as explained later, but next, an explanation of the current international regulation framework to later focus on Europe and Spain. It will help the reader to better

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understand the influence of both, the new technologies and the countries accounting regulations, in the comparability of the financial information.

II.

Current

international

accounting

regulation

framework

overview The Financial Accounting Standards Board7 (FASB) and the International Accounting Standards Board8 (IASB), in consultation with other national and regional bodies, issued in London, United Kingdom, October 29, 2002 a Memorandum of Understanding (MoU) setting an important significant step toward formalizing their commitment to the convergence of U.S. and international accounting standards. Therefore, the main aim is to eliminate the differences between International Financial Reporting Standards (IFRS) set by the IASB and U.S. GAAP set by the FASB, as the current focus of the financial information standardisation efforts is on comparability, despite the economic industrial sector and nationality of the business. In the short term, the convergence process will require from both boards to channel their best efforts to propose changes to both sets of standards to solve identified differences. The commitment by both Boards to eliminate or reduce remaining differences through continued progress on joint projects and coordination of future work programs, will improve comparability of financial statements across national jurisdictions. This decision was embodied in the MoU between the boards known as the Norwalk Agreement. The boards’ goal was further strengthened in 2006 when the IASB and FASB set specific milestones to be reached by 2008 (a roadmap for convergence 2006 2008). In 2007, and considering the progress achieved by the boards and other factors, the US Securities and Exchange Commission9 (U.S. SEC) removed the requirement for nonU.S. companies registered in the United States to reconcile their financial reports with 7

http://www.ifrs.org/Home.htm http://www.fasb.org/home 9 http://www.sec.gov/ 8

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

U.S. GAAP if their accounts complied with IFRSs as issued by the IASB. At the same time, the U.S. SEC also published a proposed roadmap for the adoption of IFRSs for domestic U.S. companies addressing six key areas: 1. Sufficient development and application of IFRS for the U.S. domestic reporting system; 2. Standard setting independence for the benefit of investors; 3. IFRS investor’s knowledge; 4. Analysis of the U.S. regulatory environment that would be affected by a change in accounting standards; 5. The impact on issuers, both large and small, of the adoption of the IFRS: changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies; and 6. Human capital readiness. In 2008, the two boards issued an update to the MoU, identifying priorities and milestones to complete the remaining major joint projects by 2011, stressing the goal of joint projects to produce common, principle-based standards. The U.S. SEC Commission, considering the Work Plan and other factors, will probably decide in 2012 whether, when, and how the current financial reporting system for U.S. issuers should be transitioned to an accounting information system incorporating IFRS. This complex process of convergence will surely extend throughout the following years. PriceWaterhouseCoopers believes, that despite the uncertainty of the adoption of the IFRS by the U.S. companies, they will adopt them. Supporting their idea is the interconnectedness of capital markets illustrated by the current financial crisis and the acknowledgement done by the Group of Twenty Nations (G20) and the U.S. government of the need for a single set of high-quality global standards (PricewateerhouseCoopers 2010). Some other observers like Bruce Pounder10, President of Leveraged Logic11, defend in different opinion forums12 the complexity and 10

http://www.leveragedlogic.com/bpounder.asp A leader in the development and delivery of educational products and services for financial professionals http://www.leveragedlogic.com/default.asp 11

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Department of Financial Economy and Accounting I. Year 2012

elongation of the process of convergence and final adoption of the IFRS by the U.S. companies (and only public companies under the jurisdiction of the U.S. SEC) due to different causes: -

The U.S. SEC has made it clear that they will not even consider obliging the adoption of the IFRS until there are fewer differences between U.S. GAAP and IFRS, i.e., until the FASB and IASB make further substantial progress on converging the two sets of standards at the primary level. Besides, the degree of future standard-level convergence between U.S. GAAP and IFRS is itself uncertain.

-

The United States generally have been content to adhere to standards as long as they set them. The thought of ceding global standard-setting authority to an organization that the U.S. does not "control" is, to most U.S. (especially U.S. politicians), unthinkable.

-

The U.S. SEC will not put more pressure on U.S. companies with avoidable costs, while companies remain in the shadow of the actual global financial crisis.

Other authors (Hail, Leuz et al. 2010) defend the idea that the adoption of IFRS is not just an economic but also a political issue. Hail lays out the political, legal and institutional potential ramifications of adopting (or not) IFRS in the U.S. This includes discussions of the future role of U.S. authorities (namely, Congress, the U.S. SEC and the FASB) in setting generally accepted accounting principles, and how the governance structure of the IASB may affect the future evolution of IFRS. In this sense, in a 2011 November 15, letter to the U.S. SEC, Financial Accounting Foundation13 (FAF) chairman John J. Brennan wrote, that reducing FASB’s role in 12

http://www.cfo.com/article.cfm/14521760/c_2984313/?f=archives Organized in 1972, the U.S. Financial Accounting Foundation (FAF) is the independent, private-sector organization with responsibility for: - establishing and improving financial accounting and reporting standards; - educating constituents about those standards; - the oversight, administration, and finances of its standard-setting Boards, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB), and their Advisory Councils; - selecting the members of the standard-setting Boards and Advisory Councils; and - protecting the independence and integrity of the standard-setting process. Further details in http://www.accountingfoundation.org/home 13

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

setting U.S. financial reporting standards, as once the convergence has been achieved, FASB would merely endorse the standards the International Accounting Standards Board has developed, “may weaken the positive leverage that U.S. GAAP and U.S. standard setting have provided to improving accounting standards for investors in the world’s most robust and transparent capital market.” The FAF also disputed the U.S. SEC staff’s proposed goal of achieving one set of global accounting standards. Instead, the organization believes that “a more practical goal for the foreseeable future is to achieve highly comparable (but not necessarily identical) financial reporting standards among the most developed capital markets that are based on a common set of international standards.” Ampofo states several arguments ‘pros’ and ‘cons’ for global GAAP: •

Global GAAP will avoid duplicating costs of the development of two different sets of standards (national and international), will narrow the differences in accounting practices across the world, and will increase the comparability of the financial statements as the main in-favour reasons.



As main ‘cons’, Ampofo stresses the difficulties due to national sovereignty, politics, culture, language, economic and business environments in order to develop the global GAAP. Besides, the author highlights the lack of political and legal power of an international regulator (Ampofo, Sellani 2005).

Resuming and given the following two main facts: •

The convergence process has many years to come, whatever the U.S. SEC finally decides and,



throughout this convergence process, there will be a big amount of changes on the definition of the accounting concepts and principles.

It is expectable that the definition of the accounting practices and concepts will remain different within the international business environment worldwide, especially at both sides of the Atlantic Ocean, in the next years.

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Department of Financial Economy and Accounting I. Year 2012

Focusing on the European Union (EU) area, the process to homogenize the financial statements started with the fourth council directive of 25 July 1978 based on Article 54 (3) (g) of the Treaty on the annual accounts of certain types of companies (78/660/EEC). The mentioned directive was lately amended by several provisions14. The European Council of 23-24 March 2000, celebrated in Lisbon determined three milestones: •

emphasized the need to accelerate the completion of the internal market for financial services,



set the deadline of 2005 for implementation of the Commission's Financial Services Action Plan, and



urged to accomplish the steps to be taken in order to enhance the comparability of financial statements prepared by EU companies, whose securities are admitted for trading on a regulated market (listed companies).

On 13 June 2000, the Commission published its Communication entitled "EU Financial Reporting Strategy: The Way Forward" in which it was proposed that all listed companies prepare their consolidated accounts in accordance with one single set of accounting standards, namely International Accounting Standards (IAS), at the latest by 2005. Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of IAS introduced the requirement that, from 2005 onwards, all listed companies prepare their consolidated accounts in accordance with IAS adopted for application within the Community. It also provided an option for Member States to permit or require the application of adopted IAS in the preparation of annual accounts and to permit or require the application of adopted IAS by unlisted companies. From that date, every EU Member State started to adapt their legislation in that sense.

14

Futher details in http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1978L0660:20070101:EN:PDF

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Ulterior EC regulations have kept adapting the European legislation to the changes of the IFRS as the Commission Regulation (EU) No 149/201115 of 18 February 2011. It amends Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards Improvements to International Financial Reporting Standards (IFRSs). With the publication of the Law 16/2007, July 4, for the reform and adaption of the mercantile Law on accounting issues for its international harmonization based on the European Union regulations, Spain starts the process of reforms and adaptation of the commercial and corporate law in accounting issues for the international harmonization. The adaption process by the internal Spanish legislation of the International Financial Reporting Standards (IFRS) culminated with the publication of the Royal Decree 1514/2007, November 16 approving the Spanish GAAP where recognition, valuation, elaboration and presentation standards for the financial information are developed and must be used from 2008. Additionally the Royal Decree 1515/2007, November 16, is published containing the Spanish GAAP for the Small and Medium Enterprises (SMEs). The new Spanish GAAP entered into force January 1, 2008 and it is compulsory for the periods starting from that date. At this point, it is remarkable the introduction of a modification in the Spanish legislation supposed to improve the process of adaption of the new regulations. An unexpected result appeared. The Spanish regulator introduced the concept of date of transition in order to ease the adaptation of the financial statements to the new legislation. Therefore, enterprises which accounting period was equivalent to the natural year had two alternatives: -

Enterprises having the transitional date January 1, 2008 (excluding comparative information)

15

Further details in http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:046:0001:01:EN:HTML

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Department of Financial Economy and Accounting I. Year 2012

-

Enterprises having the transitional date January 1, 2007 (including comparative information adapted to the new legislation)

The possibility given to the enterprises to avoid issuing comparative information differs from the international regulation, where the presentation of the comparative financial statements was compulsory. (Gonzalo 2004) The changes in the Spanish GAAP introduced not only changes in the recognition, valuation and accounting classification standards, but an alternative not included in the IFRS 116, mentioned in the previous paragraph, causing that the impact of the change of regulation, concerning the comparability of the information, has been disparate. (Fitó, Gómez et al. 2010) This change illustrates how the introduction of a modification in the regulations meant to increase, among other purposes, the comparability of the financial statements, introduced a temporary perverse effect: comparability impairment.

III. Hypothesis The public relevance of the accounting information became a fact after the 1929 big financial crisis (Norverto 2002). The quality of the financial information depends on the utility obtained by its different users, so the economic value of this information depends on each user, the alternatives the user identifies, the user value judgements and the timeliness of the information. The concern for the information utility arose in 1966 when the American Accounting Association, founded in 1916 as the American Association of University Instructors in Accounting17, established four requirements in order to identify the utility of the information: relevance, verifiability, neutrality and measurement (Carreira 2003). The Financial Accounting Standards Board (FASB) and International Accounting Standard Board (IASB) are devote to promote understandable financial information, useful, relevant and available for the decision makers (Cohen, Lamberton et al. 2003) and point as its economic value, the utility it has to reduce the uncertainty. 16 17

http://www.iasplus.com/standard/ifrs01.htm http://aaahq.org/about.cfm

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

In accordance with the Spanish GAAP, “the annual financial statements consist of the balance sheet, income statement, statement of owner’s equity, cash flow statement and the explanatory notes (…). Additionally, the financial information must accomplish with the qualities of comparability and clarity. Comparability must allow contrasting the situation and profitability of the enterprises. It implies a similar treatment for the transactions, and any other economic event, carried out under similar circumstances. The comparability must extend to both, financial statements of the same enterprise throughout time, and across different enterprises in the very same period of time.” (Boletín Oficial del Estado 2007c). The information included in the annual statements must be relevant and reliable. “The information is relevant when it is useful for economic decision making …” (Boletín Oficial del Estado 2007c). One requirement of the relevance is the timeliness of the accounting information: the information must be available as soon as possible. Outdated information becomes useless for its purpose: decision-making. Given the current situation, the financial information is immersed in a changing context, where the international accounting standards are in a big process of change due to the convergence process. The parties involved are developing the mentioned process with determination and resolution, even though it discovers itself as a complex process that escapes strictly accounting regulatory decisions. The US SEC has recently postponed18 the fundamental decision whether U.S. will or will not adopt the IFRS. Nevertheless, even in the most probable situation where the U.S. SEC confirms the adoption, the way ahead will be difficult and with no little obstacles. Decision-making in the convergence process is intended to be developed with the intervention and cooperation of all the financial information stakeholders: issuers, regulators, investors, supervisors and other users. The decisions to be adopted, although intended for producing high-quality international standards, are far from being democratic decisions, where the majority would set the final choice. Decisions are mainly agreed, but, sometimes, determined by the pressure capacity performed by the 18

The decision was initially set for September 2011. It has been utterly delayed to 2012.

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Department of Financial Economy and Accounting I. Year 2012

proponent lobbies. As suggested by some experts, the process may extend from five to seven years. The reasons are diverse. Nevertheless, it is possible to address the two main reasons: the big magnitude of the project and the possible impediments set by the project holders. In this sense, it is remarkable one American view that is increasingly gaining supporters, which establishes the condorsement19 or endorsement with the “handbrake” on. Nevertheless, an elongated convergence process has also no-desired effects as the additional confusion and pressure put over the stakeholders, due to a changeable regulation framework. All of the above result in the impairment of the comparability of the financial statements. Besides, the existence of a tool like XBRL, a standard for financial information, allows the information transmission in a way that comparable information could be obtained, if there were no terminological differences, or if any, they were not as changeable as they are. In fact, it only happens at a theoretical level. In the real world, and due to diverse reasons, XBRL is a powerful tool that enhanced the transmissibility and comparability of the financial information, among other virtues, but limited by this changeable current regulator context. Moreover, due to XBRL’s architecture and implementation, it could be added that XBRL “does not feel good” about changes. It can adapt to them, as it is designed for that purpose, but actually, it is not happening as it should. For instance, the current XBRL specification does not permit validations that involve the evaluation of information items in different contexts, a study developed in North Carolina State University evaluating XBRL filings revealed multiple errors in signage, amounts, labelling, and classification (Bartley, Chen et al. 2010). The way links establishes the relations between elements in XBRL are defined through Linkbases defining offline links, so no advanced relationships among elements are possible (García, Aguilera et al.

19

A blend of convergence and endorsment

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

2006). Finally, XBRL tools have limitations for cross analysis, inherited from the technologies lying beneath.(García, Gil 2010), (García, Gil 2009). Given this complex context, it is highly desirable a greater rapprochement between the Information Technologies (IT) and accounting areas. It will allow reaching a successful development of the international process of convergence, providing it with solutions that facilitate and overcome tensions and political ballasts: using techniques that easily assimilate and/or identify the differences among figures/assertions, initially disparate, contained in the financial statements. This rapprochement, which could be also supported by other areas, is highly important in the financial information area. Given the international character of the accounting information (it may be not crazy to start talking about the internationality accounting principle) and the timeliness principle, the rapprochement becomes an essential tool to keep control over the financial information by issuers and users. Strictly regarding the role played by accountants within this context, they become overwhelmed by the current facts. In one hand, the accountant has received the XBRL from the IT area. XBRL theoretically resolves the comparability problem, but actually, it does not solve it, adding some new uncontrolled problems. In the other hand, regulators, conscious of the problem caused by the terminological differences, are involved in a complex process, presumably extendable throughout the following years. The issuer and the user of the information are surrounded by a unstable regulation framework, which increases the pressure upon the information elaboration and utility. According to this last handicap, the changeable regulation framework, the accountant can do little, not to say anything. Nevertheless, accountants can do something about the “uncontrolled” electronic tool. If accountants were aware about the possibilities offered by the IT area, they would be able to contribute solutions, increasing the comparability within this changeable regulatory context. Thus, the professional accountant would become an individual, IT and accountancy literate, who knows how to overcome the handicaps due to sovereignty, political and economic issues, etc. offering a global vision, more adequate 35

Department of Financial Economy and Accounting I. Year 2012

to the businesses purposes and getting around, when necessary, potential and real political obstacles. At this point, it is important to briefly talk about the possible contribution of the Semantic Web, as an evolution of the World Wide Web, in order to help solving the problems referred above.

IV. Semantic web contribution The electronic transmission of financial information is the simpler and more efficient way, endowing transparency and timeliness to the financial information. Users of the financial information can access the information in a quicker and easier way (Martins 2007). Therefore, the Internet is the most common way to broadcast the financial information, but requires considerable efforts from businesses to manage it (Alexiev, Fensel et al. 2005).The economic and financial information has a critical value for all kind of institutions and stakeholders. Generating, gathering, integrating and effectively analyzing that information, are the key factors and techniques that reduce the actual limitation when managing huge amounts of information. Whereas the problem of the integration of the information is common to all business areas, it is obvious in the financial one, because the information comes from different resources that must be homogenized in order to both, facilitate its analysis and set a standardized picture of the business. Besides, the financial knowledge domain is conceptually rich. It includes complex concepts, huge volumes of data and, by itself, represents a high value product for businesses (Lara, Foncillas), (Castells, Foncillas et al. 2004). There are no formal definitions for the Semantic Web, but there are different approaches. Truly, the complexity and variety of applications referred to the Semantic Web are increasing on a daily basis, implying that developers, implementers, etc. would emphasize the different aspects of technologies of the Semantic Web. This broad range of applications include the integration of data, knowledge representation and analysis, indexing services, algorithms and enhanced search methods, social networks, etc. 36

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Berners-Lee defines the “Semantic Web as an evolution of the World Wide Web (www) where the semantics of the information and services are defined, making possible for the Web to understand and satisfy the needs of the users and machines for utilizing the web” (Berners-Lee, Hendler et al. 2001). The view of the Semantic Web is to extend the principles of the Web from the documents to the data. The data should be accessed using the Web general architecture, i.e. Uniform Resource Identifiers (URI-s). Moreover, data pieces should be related among them as the documents are (or fragments of the documents). It implies the creation of a common framework, allowing data sharing and reuse by third parties’ applications, be automatically or manually processed by tools, possibly revealing relations among them not foreseen previously (new knowledge). The formalisms used in the Semantic Web (RDF’s, OWL20) are richer and more complete than the ones used by XBRL (XML21 based) and allow defining more specific contents with more nuances and more complex relations and properties, in an easier way. An ontology differs from an XML schema (XML archive containing the structure of an XML document) in that it is a knowledge representation, not a message format. These semantic languages aim to provide a formal description of concepts and their relations within a knowledge domain. Ontologies are used to capture knowledge from a specific domain. The ontology describes the concepts within the domain and the existing relations among them22. Ontology is a concept borrowed from the Philosophy and refers to the science that describes the types of entities in the world and how they are related (Curras 2005). The design of an ontology upon an XBRL taxonomy increases the utility of the financial information through the enhancement of two different aspects of the financial information:

20

See section 5.2.1. Components of the Semantic Web eXtensible Markup Language 22 http://www.w3.org/TR/owl-guide/ 21

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Department of Financial Economy and Accounting I. Year 2012



The ontology increases the relevance of the information improving its timeliness, provided that the ontology will reduce the time to obtain the desired financial information,



the ontology increases the comparability across financial statements through the definition of equivalences among the different concepts, within the different jurisdictional taxonomies and their relations.

This thesis shows, using the semantic web technologies, how to overcome the differences in the definition of the same concepts in different XBRL taxonomies, providing as a result, financial information with enhanced comparability and relevance through the utilisation of Semantic Web technologies.

V. Work structure The present work is developed in the following sections: The first chapter focuses on Internet Financial Reporting (IFR), analyzing first the international reporting precedents. Then it focuses on the evolution of Web-based financial information exchange through a literature review where the conclusions of the most important studies realized in this regard are exposed. It explains how businesses and stakeholders of the financial information have moved towards electronic means as the main way to broadcast, manage and analyze this information. Consequently, this chapter analyzes these two aspects, precedents and evolution of IFR, to understand better the need of a standard as the eXtensible Business Report Language (XBRL). The second chapter explains the current process of convergence carried out by the International Accounting Standards Board (IASB) and the Federal Accounting Standards Board (FASB). First, it explains the current degree of adoption of the International Financial Report Standards (IFRS) worldwide, focusing later on the most important economic areas. Spain receives special attention because the evaluation conduced in this thesis is based on financial data from this country. Second, it focuses later on finding the main clues that would explain better whether the United States will finally adopt the IFRS and, if so, when. Besides, it includes an idea of the key obstacles 38

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

of the process. Finally, the second chapter focuses on an update of the main joint projects carried out within the process of convergence by both accounting bodies (IASB & FASB), highlighting the most remarkable aspects of the different projects. It will give an idea to the reader about some of the difficulties that must be overcome regarding international accounting regulation. The third chapter describes the irregular implementation of the XBRL standard worldwide, including Europe and Spain. The evolution of the accounting regulation in the latter is deeply depicted in order to get a whole picture of the implementation of this standard nowadays in Spain. Other EU countries may have fulfilled similar steps in order to adopt and use XBRL. The reason why Spain is deeper analyzed is that a Spanish corporation (Telefonica) issues the financial statements used in the evaluation. Besides, the chapter explains what is XBRL and how it works, explaining the main characteristics and key elements. Finally, some XBRL limitations are depicted. Chapter 4 will focus on the eXtensible Markup Language (XML). This chapter is included in order to explain XBRL underlying technologies. Knowing the XML performance and characteristics will shed light on how the XBRL works and what its limitations are in regards of financial reporting. What is XML, how it works and other aspects are included showing the basics of the language that will help to better understand the architecture upon which XBRL is designed. The fifth chapter introduces the Semantic Web coming and explores how it might overcome the XBRL limitations discussed in the previous chapter. It includes an explanation of the Semantic Web, a brief history, to later focus on its components, especially RDFs and OWL, technologies that will be used in the evaluation. The characteristics, the way they operate and other important aspects are included to explain the contributions that the Semantic Web can provide to the process of convergence towards a single set of high-quality international accounting standards, overcoming the identified XBRL limitations. The sixth chapter will include the explanation of the evaluation carried out: an analysis of the considered data, the methodology and an explanation of the results obtained. 39

Department of Financial Economy and Accounting I. Year 2012

Chapter 7 contains the conclusions derived from the evaluation and the analysis carried out through the rest of this thesis. Chapter eight includes proposals for future research lines derived from the present work and the evaluation carried out, trying to contribute the best opportunities opened in financial reporting by IT initiatives like the semantic Web.

40

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

1. Internet Financial Reporting “Electronic Distribution of Information 30. Enterprises are beginning to use channels such as the Internet and CD-ROMs to distribute financial and other performance information more quickly and in greater volume. The availability of greater computing power is also making it feasible to generate information of a kind or quality that was not available only a few years ago. In time, enterprises may be reporting on a real-time basis. This trend may call for changes in the nature of financial reporting standards. Also, standard setters may need to find new mechanisms for responding quickly to new reporting practices stemming from the rapid innovation in information technology”. December 1998 IASC strategic planning document, “Shaping IASC for The Future”

This chapter analyzes the precedents and evolution of the Internet Financial Reporting (IFR), setting the scene for understanding the need for the XBRL standard. During the last decades, the way companies broadcast their financial information has changed significantly. The factors that have influenced on this evolution are diverse, but one stands above all: the evolution of Information Technologies (IT). IFR refers to the use of the firms’ web sites to disseminate information about the financial performance of the corporations. Initially firm’s websites included just information about the company, their products and/or services. Nevertheless, managers quickly understood that the Internet had the ability to broadcast the business information widely and in a different way, leveraging its own nature and the incessant growth of the Internet’s audience worldwide. The development of online reporting has been fundamentally stimulated by the growth of the Internet since 1994 (Allam, Lymer 2003). In 1995, there were 44-million users (Bonsón 2001a), that figure jumped into 182 millions in just three years (see figures 1 & 2 for period 2000-2010). By means of the Internet, corporations increased the possibilities to manage the corporation’s information, not only for internal but for

41

Department of Financial Economy and Accounting I. Year 2012

external purposes too: marketing, commerce and submitting financial information to the stakeholders.

Internet users per 100 inhabitants, 2000-2010 80,0 70,0 60,0 50,0 Developed Developing

40,0

World 30,0 20,0 10,0 0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Figure 1. Source: ITU Statistics updated August 2011(http://www.itu.int/ict/statistics). The developed/developing country classifications are based on the UN M49, more details: http://www.itu.int/ITU-D/ict/definitions/regions/index.html

35

Global numbers of Internet users, total and per 100 inhabitants, 2000-2010 2500

30

2000

25 20

1500

15

1000

10 500

5 0

Internet users per 100 inhabitants

Estimated internet users (millions)

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 2: Global numbers of Internet users, total and per 100 inhabitants, 2000-2010. Data updated August 2011. Source: ITU Statistics (http://www.itu.int/ict/statistics)

42

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

1.1. IFR precedents The History of Accounting is an international history. Double-entry bookkeeping, generally accepted as the genesis of today’s accounting, emerged in the 14th and 15th23 centuries in the Italian territory. Its development came parallel to the growth of the international commerce in northern Italy during the late Middle Ages and the willingness of the authorities to find ways to tax commercial transactions. From the Italian territory, the bookkeeping in the Italian fashion travelled to Germany assisting merchants of the Fugger era and the Hanseatic League. In the mean time, Netherlanders defined ways to calculate periodic income and French took advantage applying it to governmental planning and accountability. Modern accounting research and organizational apparatus of the Spanish Royal Treasury has discovered and called attention to the important role played in this context by the formidable administrative organization of the Spanish Empire, created entirely from scratch, with no precedents of any class, and then served as a model for all systems of colonial rule that followed the Spanish. Thus, Spanish accounting historical research was set at the forefront of historical research on the organization of the Spanish administration of that time, emerging as one of the most significant factors to know in depth and explain the evolution and vicissitudes of the Spanish Empire. Similarly, historical research has shown accounting knowledge and interest of the Spanish authorities, at that time, on the accounting practices used by the merchants. So much was the interest that the first legislation in the world imposing on traders a duty to keep accounts, and to do so, precisely, in accordance with the double-entry method, took place in the Spanish territories, over two hundred years before its closest followers through the Cigales and Madrid pragmatic instructions in 1549 and 1552 respectively (Hernández Esteve 1981). This legislation, which sets a milestone and is one of the greatest moments of the Spanish accounting history in the global context, was intended to prevent, or at least to

23

Some authors establish its first use by the Genovese merchants in the 13th century, but the first published work on double-entry bookkeeping text is dated in 1495 by Luca Bartolomeo de Pacioli Italian friar.

43

Department of Financial Economy and Accounting I. Year 2012

reduce, the fraudulent outflow of precious metals beyond the Spanish borders, taking indelible trace from the double-entry bookkeeping practice. In due course, double-entry accounting methods jumped to the British Isles where the British Empire had unprecedented to manage and control their colonial enterprises. From there, British accounting practices spread not only across North America, but also throughout the British Commonwealth as it was in the 19th century. A similar development occurred elsewhere. The Dutch exported their accounting practices to Indonesia, among other territories, and influenced other areas as Japan, Sweden and the czarist Russia. French did likewise to Polynesia and some African territories. Due to the economic growth of the U.S. during the first half of the 20th century, the sophistication in accounting matters grew there in parallel. After World War II, U.S. accounting influence spread across the Western world, particularly to Germany, and Japan. To a lesser extent, the same influence is observable in countries as Mexico, Brazil, Israel, Taiwan, Sweden and the Philippines. Accounting in China has a long story behind. Its functioning in a management role can first be detected as far back as 2200 B.C. during the Hsiu Dynasty, where documents show that it was used to measure wealth and compare achievements among dukes and princes in the Xia Dynasty. After the founding of the People’s Republic in 1949, China installed a highly centralized planned economy after the Soviet Union pattern (Choi, Frost et al. 1992). Despite this international heritage, in most countries, accounting remained a nationalistic affair, with domestic standards and practices influenced by diverse factors:  Sources of finance: in countries with strong and developed equity markets, accountancy is designed to help investors assess future cash flows and risks. Meanwhile, in credit-based economies, where banks are the dominant source of funding, accounting focuses on creditor protection.  Legal system: code (civil) law versus common (or case) law. Code law derives from the Roman law and the Code Napoleon. In code law countries, laws are an all-embracing set of requirements and procedures and tend to be highly 44

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

prescriptive and procedural. However, in common law countries, regulation develops with no attempt to cover all cases. It tends to be less detailed and more flexible, as it develops through a case-by-case basis.  Taxation: countries where tax legislation determines accounting standards, vs. countries where financial and tax accounting are separated (despite the ulterior adjustments required).  Political and economic ties: accounting ideas and technologies are transferred through conquest, commerce and similar forces as previously discussed.  Inflation: countries with high inflation often required price changes to be factored into accounts as the inflation understates historical costs and overstates income.  Level of economic development: more developed economies will face new accounting challenges. Intangible asset valuation makes sense in a developed economy based on the services and information sector more than in the industrial sector.  Culture: cultural variables underpin nations’ legal systems. The knowledge of a determined reality, the economic in this case, is the final result of a cognition process. Although these factors have contributed definitely to the genesis of the differences across accounting national standards, international markets have pulledup the need of the reduction of the accounting diversity as the best effort to facilitate and stimulate global economic growth. In this sense, capital flows, foreign exchange, foreign direct investment and related transactions, - i.e. global competition, cross-border mergers and acquisitions, - have been dramatically liberalized in recent years, reducing the barriers to international business, traditionally associated with foreign trade, thus boosting their volumes. Therefore, the necessity to understand accounting records by anyone, anywhere, becomes essential. The next table depicts the recent relative evolution of international merchandise trade and trade in commercial services by region:

45

Department of Financial Economy and Accounting I. Year 2012 World merchandise trade and trade in commercial services by region and selected economy, 2005-2010 (Annual percentage change)

E xpo rt s 2 0 05 - 10

Im po rt s

2009

20 10

2 0 0 5 - 10

20 0 9

2 0 10

M erchandise 8

- 23

22

Wo rld

7

-23

21

No rth A merica

3

-25

23

United States

3

-26

23

Canada

5

-21

22

14

-26

30

B razil

20

-27

43

Chile

12

-31

38

5

-25

13

5

-25

13

7

-15

13

14

-33

24

Russian Federatio n

15

-34

30

Ukraine

11

-47

34

13

-15

15

9

-27

29

16

-32

30

11

-15

10

Saudi A rabia, Kingdo m o f

10

-17

2

United A rab Emirates a

14

-15

7

11

-20

32

6

-21

23

7

-18

21

1

-31

23

10

-24

26

11

-23

32

11

-18

32

5

-22

12

5

-22

12

Euro pean Unio n (27)

8

-14

13

Switzerland

11

-36

31

10

-36

32

9

-41

29

10

-30

30

10

-24

33

10

-35

49

11

-31

27

7

-39

30

13

-23

19

11

-18

31

So uth and Central A merica

Euro pe

Co mmo nwealth o f Independent States (CIS)

A frica So uth A frica Nigeria a M iddle East

A sia

16

-16

31

China

16

-11

39

5

-26

33

Japan

6

-28

26

Co mmercial services 8

- 12

9

Wo rld

8

- 11

9

7

-8

9

No rth A merica

6

-9

8

8

-7

9

United States

6

-8

7

4

-12

15

Canada

7

-11

15

10

-8

12

15

-9

15

15

-9

18

6

-14

3

6

-15

3

10

-5

8

14

-17

12

12

-19

7

13

-23

24

9

-9

10

10

-14

11

4

-6

17

8

-3

3

-2

3

10

So uth and Central A merica

14

-8

23

B razil

22

-1

36

A rgentina

13

-10

15

6

-13

2

Euro pean Unio n (27)

6

-13

2

Switzerland

8

7

-3

Euro pe

Co mmo nwealth o f Independent States (CIS)

13

-19

16

Russian Federatio n

13

-20

19

Ukraine

11

-30

6

14

-11

10

Egypt

6

-22

2

So uth A frica

9

-13

25

A frica

M iddle East

14

-8

9

Saudi A rabia, Kingdo m o f

21

-5

8

United A rab Emirates

17

-14

11

11

-10

20

21

6

16

13

-11

22

18

-12

32

China

18

0

22

6

-14

10

Japan

5

-12

6

A sia

Table 1. Source: World Trade Organization. http://www.wto.org/english/res_e/statis_e/its2011_e/its11_world_trade_dev_e.htm

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Table 1 shows how imports/exports percentages decreased in the year 2009, due to the financial crisis, and recovered irregularly in 2010, comparing them with the average percentage for the entire period shown (2005-2010). Besides, national governments have realized that financial markets liberalization permits them to access international funds, inaccessible before. This is one of the biggest problems the economy of the euro zone and their Member States are facing nowadays, as the financial markets mistrust the capacity of the EU Governments, either national or regional, to attend their national debts payments. However, as previously discussed in this work, the main factor that has triggered the current accounting information revolution is IT evolution.

1.2. Literature review Turrent and Rodríguez (Turrent, Rodríguez 2012) point out the use of Internet as a means to disseminate corporate information, has caused a new form of communication between companies and their stakeholders. Different researches analyzing the impact of Internet in the accounting profession, some of them sponsored by the main international accounting bodies, first appeared in the late nineties. Find below the most relevant: (Molero, Prado et al. 1999), (Giner, Larran 2002), (Bonsón 2001a), (Brennan, Hourigan 2000), (Craven, Marston 1999), (Gowthorpe, Amat 1999), (Hedlin 1999), (Lymer 1999b), (Lymer 1999a), (Lymer, Tallberg 1997), (Pirchegger, Wagenhofer 1999), (Deller, Stubenrath et al. 1999)24.

24

Other references: McCafferty, J. (1995, December). How much to reveal online. CFO: The Magazine for Senior Financial Executives, 11, 12.; Louwers, T. J., Pasewark, W. R., and Typpo, E. W. (1996) ‘The Internet: Changing the way corporations tell their story’, CPA Journal, 66(11): 24-28.; Koreto, R. J. (1997) ‘When the bottom line is online’, Journal of Accountancy, 183(3): 63-5.; Gray, G. L., and Debreceny, R. S. (1997, November). Corporate Reporting on the Internet: Opportunities and Challenges. Paper presented at the Seventh Asian-Pacific Conference on International Accounting Issues, Bangkok.; Miller, R., and Young, M. R. (1997) ‘Financial Reporting and Risk Management in the 21st Century’, Fordham Law Review, 65(5): 1987-2064.;

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Department of Financial Economy and Accounting I. Year 2012

The studies have been developed across different geographic regions and periods. Next is a summary of the more significant studies, together with the conclusions obtained by region. Giner found in the year 2000 that the level of IFR achieved by 144 Spanish companies was low, but increasing gradually over time. The level of disclosure through this communication channel was related to company size. Although Spain was in the early stages of developing the possibilities offered by the Internet, it was not significantly behind the degree of utilization in other countries such as the USA and the UK (Giner, Larran 2002). Debreceny et al. (2002) found that voluntary adoption of IFR in 22 countries was associated with company size and listing on an U.S. stock exchange, but not with leverage, risk, and Internet penetration in the countries. In contrast to Ettredge et al. (2002), this study discriminates between presentation format and disclosure content. It indicated that the level of technology and disclosure environment determined presentation format, but not so much content. However, the study does not distinguish between disclosure of mandatory and non-mandatory items. Lymer et al. concluded on their study carried on 250 companies in the U.S., United Kingdom, Australia, Canada and Hong Kong that the level of implementation of IFR was similar between U.K. and Canadian companies and between U.S. and U.K. companies. These three countries lead the development of IFR. Australia followed closely, while Hong Kong companies lagged behind with considerable differences on both technological and content issues. Nevertheless, the study pointed out its Gowthorpe, C., and Flynn, G.(1997) ‘Reporting on the Web: The state of the art’, Accountancy, 120(1248): 58-59.; Debreceny, R., Gray, G., and Barry, T. (1998). Accounting Information in a Networked World - Resource Discovery, Processing and Analysis. Paper presented at the American Accounting Association Annual Meeting, New Orleans. ; Petravick, S., and Gillett, J. W. (1998) ‘Distributing earnings reports on the Internet’, Management Accounting (USA), 80(4): 54-56. ; Debreceny, R., Gray, G., and Rahman, A. (1999). Voluntary financial reporting on the Internet: An international perspective. Paper presented at the American Accounting Association Annual Meeting, San Diego. Sánchez, M. (1999): La Memoria como cuenta anual. Un estudio empírico. Doctoral Thesis, University of Sevilla.

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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

limitations: the way data was collected (via researchers experience in the companies’ web sites) and the lack of a significant index used to track the relation between the size of the companies and the level of IFR (Allam, Lymer 2003). Xiao et al. (2004) studied IFR in China. They found that there was a marked positive relation between mandated and voluntary disclosure. They further showed that the presentation format of IFR was associated with the format used by one of the Big-5 auditor firms when contracted, and whether the corporation was in the information technology industry, while a negative association existed between profitability and the voluntary disclosures. Voluntary IFR was positively and significantly associated with the proportion of legal person ownership, but not so with ownership by domestic private investors, foreign investors and the state. In addition, the proportion of independent directors had a positive relation with presentation format, voluntary disclosures, and the availability of English Web pages. A survey performed on twenty UK accounting and Internet experts examined the role of the Internet, recognizing it as a double-edged weapon: not only as a potential means for alleviating some existing problems in financial reporting, but also as a source of additional problems (Xiao, Jones et al. 2005). The conclusions of the majority of the studies are similar: •

Significant proportions of companies in many countries used the Web for communication of business performance to stakeholders.



IFR continued to grow, especially in those countries with a developed capital market.



Corporations leading this change were big listed companies.

These comprehensive and summarised conclusions require a wider and deeper analysis. All the studies mentioned above place a new situation originated by the new technologies. Now it is easier than ever before to compare financial information across diverse issuers. Besides, it becomes clear that the rapid evolution of the IFR has brought new conditions that are having a deep and broad impact on the way accounting 49

Department of Financial Economy and Accounting I. Year 2012

standards are set. In this sense, along centuries and under the traditional paper format, the presentation of the information played a secondary role, where recognition and measurement criteria were the main issues for the accounting standard setters. In other words, form was secondary to substance. Given that Web-based technologies disclosure can provide information in many ways that can affect user perception, the form becomes important and claims more attention from the standard bodies and regulators. The Web has decreased the cost of producing information and greatly increased the potential population of users. The Web provides instantaneous and simultaneous access to accounting information, which can be either static pages or pages dynamically drawn from corporate databases or other layouts. The delivery of the reports is no longer a serious handicap to the dissemination of information, as its cost is now insignificant. Nor is the cost of tailoring the information for different stakeholders and audiences relevant. As pointed by Lymer (Lymer 1999a), there are four clear causes that have triggered this change: •

First, the dissemination of the information via the Web is cheaper than in print, thereby the information of the publisher carries greater added value.



Second, business reporting in general, and financial information in particular, have high time value in the short-term. The instantaneous broadcast by means of the Web also adds value to the information recipient.



Third, while it is true that the value of business reporting information quickly decreases over time, the same information can be reused in cross and/or longitudinal analysis.



Fourth, the Web allows interactive information dissemination in a fashion that is no possible in print form.

Besides, it is important to bear in mind that there are also quick changes in the demand of IFR. As a sector, the fast advance of the Web has affected financial markets in general and the equity securities market in particular. This environment attracts to the market a new class of individual investors that are using the Web to trade and make 50

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

investment decisions. Lower security transaction fees have also turned into higher transactional volumes by small investors. Although not explicitly stated in the studies, there is another very important aspect that can be deduced from them. Globalization and IT developments have implications for many areas of business, management and regulators. Dyson points out how the Web is positively affecting IFR (Dyson 1998). In the current global market, financial information and stakeholders shed their national identities for a more appropriate global point of view. In this new changeable and complex scenario arises an explicit need for services such as accountancy, which adds value to information consumers via the provision of reliable and trustworthy information. The information revolution created by the Web has deeper implications for regulation of markets. IFR cannot be restricted to the disclosure of financial information exclusively. Both financial information users’ requirements and professional accounting bodies, indicate that this medium of communication contributes to enhancing and broadening traditional financial reporting. This improvement is not only shown by the increase in the quantity of information, but also in terms of timeliness (information more oriented to the future than to the past and present of the corporation), extending its availability to a vast audience (not only for a professional audience, but also for the web-accessed public in general). Besides, the information provided via Internet allows interactivity, and increases the frequency in order to transform the current periodical reporting into a desirable continuous one eventually. IT and the Web in particular, becomes the perfect tool to achieve this goal. The current challenge for the professional accounting bodies is to set rules, regulations and recommendations that guarantee both, their reliability and the comparability of information. The IASB and the national accounting standard setters have had their respective conceptual frameworks for financial accounting until very recently. These parallel frameworks were generally quite harmonised and the qualitative characteristics of financial information outlined in these conceptual frameworks were very similar. The 51

Department of Financial Economy and Accounting I. Year 2012

conceptual frameworks have been reasonably efficient for setting accounting standards in recent times. However, one important point to note is that the previous generation of conceptual frameworks was established for an industrial world with national boundaries, and not for the current globalized information age, i.e. without national boundaries. Considering the disappearance of borders in the transfer of information, it makes sense that this regulation process, develops internationally. In an interconnected world, individual countries cannot be effective regulatory jurisdictions any longer, and regulations from a respected international regulator could be the solution for governing activities that transcend national boundaries. The IASB is the best-positioned candidate to play this role in the future, although with no little ballasts. At both, the macro and micro levels, IFR positively affects businesses. At the microlevel, positive effects have been already mentioned before as IFR reduces significantly the cost of business reporting, makes instantaneous reporting a reality, adds breadth and depth to business reporting, allows for the usage of analytical tools on the underlying business data, and enhances the delivery of reports to anywhere in the world instantaneously. At the macro level, IFR is a gift for the globalization of businesses because it returns benefits for stakeholders. However, the multidimensionality of this new reporting model raises new issues and dimensions, not previously foreseen, for the financial information issuers, regulators and consumers. Given this context, and as it is understood by the international accounting bodies, international standards and electronic presentation must walk hand in hand. Accounting Standards and business information must avoid any conflict with those that operate for other media reporting, at the national level. Besides, international standards should seek to reinforce a common global and networked representation of accounting principles, practices and terminologies. International accounting standards and business reporting will significantly enhance the visibility of such information, among the many hundreds of millions of pages on the Web, by increasing the quality of the information 52

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

produced under their specifications. Moreover, the reutilization and integration of information in wider business analysis will also be firmly enhanced. The key constraint to the development of wider electronic dissemination and use of financial data is the limited nature of current global agreement over accounting terms and methods of producing accounting figures. While those major differences between the way countries produce financial data exist, problems for the greater use of electronically available financial data will endure (Ampofo, Sellani 2005), (Lymer 1999a). Governments worldwide will have to carry out coordinated efforts, to improve and fully develop the advantages that could be obtained from a single set of international standards: the current convergence process IASB-FASB leads to this end.

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Department of Financial Economy and Accounting I. Year 2012

54

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

2. The IASB - FASB process of convergence. “The journey towards convergence continues. Standard setters are re-exposing key projects, and the U.S. SEC is evaluating how IFRS might be incorporated into the US financial reporting system. The standard setting process is slowing in response to concerns raised by constituents, but progress on key standards continues. While the pace of change is slowing, it’s still clear that significant changes to US GAAP and IFRS are expected.” James G. Kaiser, Partner, US Convergence & IFRS Leader PricewaterhouseCoopers LLP August 10, 2011

Undoubtedly, the IASB and FASB have set an aggressive schedule for their joint standards. Despite all the efforts made up to date, it is clear that more time is needed to complete the convergence process and now completion date has been postponed to December 2011, in order to allow for more feedback in the drafts. Figure 3 shows the estimate schedule for the different projects.

Figure 3. Source: US GAAP Convergence & IFRS -PricewaterhouseCoopers LLP

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Department of Financial Economy and Accounting I. Year 2012

The boards continue to evaluate and act on feedback from their ongoing outreach activities, and have yet to finalize significant areas of redeliberations. Also looming on the horizon is the question of re-exposure their drafts. If the boards ultimately re-expose their standards for another round of comments, the need for more time will be inevitable. Whether through re-exposure or extended outreach, the boards have declared again that stakeholders’ input is crucial to their end-goal of delivering high-quality standards. In February 2010, the U.S. SEC published a statement of continued support for a single set of high quality global accounting standards and acknowledged that IFRS are better positioned to serve that role.

2.1. The convergence process: a general overview In December 2010, the U.S. SEC announced that by the end of 2011 it planned to decide on next steps regarding whether, when, and how IFRS should be incorporated into the US financial reporting system. In the meantime, the FASB and the IASB continue to deliberate key convergence projects, which they plan to finalize in the latter half of 2012. Although the future of IFRS in the US financial reporting system is uncertain, IFRS already affects US companies today due to cross-border mergers and acquisitions, business dealings with non-US customers and vendors, and because of the adoption of IFRS for statutory purposes by non-US subsidiaries. The current economic crisis highlighted the interconnected nature of global business and financial capital markets, which makes the need for global accounting standards even more apparent. IFRS can play this role. Nevertheless, IFRS are still inconsistently applied worldwide25 and the cost of its implementation in a difficult economic context makes its adoption a harder process. Figure 4 depicts the IFRS implementation worldwide, updated March 2011, by levels of acceptance/ adoption.

25

A very interesting interactive map depicting the current IFRS adoption by country: http://www.pwc.com/us/en/issues/ifrs-reporting/country-adoption Updated March, 2011

56

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Analyzing figure 4 some other interesting considerations shall be pointed out concerning the main world economies. Next it is included a regional analysis describing the current situation of IFRS adoption in the most important world regions. Spain is also included as the evaluation realised in this work is focused on a Spanish corporation.

2.1.1. United Kingdom The United Kingdom (UK) requires the IFRS only for consolidated financial statements and permits them for the standalone/separate financial statements. The UK Accounting Standards Board (UK ASB) has incorporated some IFRS into UK GAAP. Certain of the standards apply only to some entities. For example, the UK equivalent of IAS 39 (Financial Instruments: Recognition and Measurement) is only mandatory for those who want to use the fair value option and for listed entities. The UK ASB has issued an exposure draft of a comprehensive standard that will fundamentally change corporate reporting for UK entities that are not currently applying EU-adopted IFRS. The ASB proposes a three-tier structure based on public accountability rather than size of entity, along with reduced disclosure concessions for qualifying subsidiaries: •

Tier 1 is the publicly accountable entities that apply EU-adopted IFRS.



Tier 2 is all other entities that apply UK-adopted IFRS for SMEs or IFRS.



Tier 3 is small entities eligible to apply FRSSE (Financial Reporting Standard for Smaller Entities).

The exposure draft comment period ended on April 30, 2011. A final standard is expected in mid 2011 and is expected to be effective for periods starting on or after 1 July 2013. Early adoption will be permitted.

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Department of Financial Economy and Accounting I. Year 2012 IFRS adoption. Updated March 2011 Countries/territories North & Central America Antigua and Barbuda Honduras Aruba Jamaica Bahamas Mexico Barbados Nicaragua Bermuda Panama Canadá St. Kitts and Nevis Cayman Islands St. Lucia Costa Rica Trinidad and Tobago Dominican Republic United States Dutch Caribbean El Salvador Guatemala Europe Albania Greece Austria Greenland Belarus Hungary Belgium Icelan Bosnia and HerzegovinaIreland Bulgaria Isle of Man Cyprus Italy Czech Republic Latvia Denmark Kosovo Estonia Lithuania Finland Luxembourg France Macedonia Georgia Malta Germany Moldova

Oceana Australia French Polynesia New Caledonia New Zealand

South America Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela

Asia Afghanistan Armenia Azerbaijan Bahrain China Hong Kong India Indonesia Israel Japan Jordan Kazakhstan Korea Kwait

Montenegro Netherlands Norway Poland Portugal Romania Russian Federation Serbia Slovack Republic Slovenia Spain Sweden Switzerland Ukraine United Kingdom

Africa Algeria Angola Botswana Cameroon Chad Cote D'Ivore Dem. Rep. Congo Egypt Equatorial Guinea Gabon Ghana Guinea Conakry Kenya Libya Level of acceptance/adoption of IFRS

Kyrgyz Republic Lebanon Macao SAR Malaysia Mongolia Oman Pakistan Philippines Qatar Saudi Arabia Singapore Sri Lanka Taiwan Thailand

Turkey United Arab Emirates Uzbekistan Vietnam West Bank/Gaza

Madagascar Malawi Mauritius Morocco Mozambique Namibia Nigeria Rep. of Congo Senegal South Africa Swaziland Tanzania Tunisia Uganda

Zambia Zimbabwe

Full acceptance (other standards may be permitted) Wide level of acceptance: coexistence; moving towards convergence; small differences. Medium level of acceptance: coexistence; moving towards convergence in the short term; differences. Low level of acceptance: plans to converge in the medium/long term; material differences. No concrete plans to converge: IFRS may be applied, but reviewed by the local authority; IFRS not applied

Figure 4. Source: IFRS adoption by country. PricewaterhouseCoopers LLP publication. 2011

2.1.2. United States of America U.S. allows to foreign private issuers the use of IFRS as issued by the IASB. Companies using standards other than US GAAP or IFRS as issued by the IASB must reconcile back to US GAAP. Convergence process in the U.S. has been already explained. A comparison between IFRS and US GAAP is later discussed in this work.

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2.1.3. People's Republic of China China does not permit the utilization of IFRS. However, Chinese Accounting Standards (CAS) have somewhat converged with IFRS. However, it is not a direct translation of IFRS. The China standard setter issued the Chinese Accounting Standards in 2006 (effective from January 1, 2007) and, in many ways, these standards are converged with IFRS. While there are still some differences between CAS and IFRS, the Ministry of Finance have plans to further converge CAS with IFRS in the near future. Note that the China standard setter has not announced any adoption or convergence plans to IFRS for SMEs.

2.1.4. India In India, listed companies having subsidiaries have a choice of presenting their consolidated financial results either in accordance with Indian GAAP or in accordance with IFRS. This is subject to change in the near future once India converges to IFRS. The Ministry of Corporate Affairs (MCA), a part of the Government of India, had announced in January 2010 a multi-phase plan for transition beginning April 1, 2011 to the new Converged Indian Accounting Standards (Indian version of IFRS, referred to as “IndAS”, which is an attempt to converge but has carve outs that distinguish it from IFRS). The MCA has finalized thirty-five IndAS in February 2011. The actual date of application of these IndAS is yet to be notified26. These standards will need to be incorporated into law by amendments to the Companies Act, which is yet to happen. While these standards are similar to IFRS, a few additional exemptions/changes have been made to some of them, which may result in differences between IFRS and IndAS for some companies. Until the applicability of IndAS is determined, companies must continue to report under Indian GAAP. The original transition plan is as follows (pending clarification on revisions to the date of application):

26

“The converged Indian Accounting Standards (IndASs) hosted by MCA. The date on which these will come into force is yet to be notified…” as stated in the Institute of Chartered Accountants of India website http://www.icai.org/post.html?post_id=7543 Updated November, 2011.

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 Phase I (date to be clarified):  Companies on the BSE Sensex 3027 and NSE Nifty 5028.  Companies having listed securities outside of India.  Companies having net worth in excess of Rs. 1000 crores (USD 222 million approx) as computed on March 31, 2009, computed based on standalone entity financial statements per original Indian GAAP. Insurance companies are scheduled to transition on April 1, 2012.  Phase II (Companies moving from April 1, 2013 as scheduled):  Companies with net worth in excess of Rs. 500 crores (USD 111 million approx).  Non Banking finance companies (“NBFC”) on the NSE – Nifty 50 or BSE – Sensex 30, non listed NBFC with net worth above Rs. 1000 crores (USD 222 million approx)  Commercial banks and urban co-operative banks with net worth above Rs. 300 crores (USD 67 million approx).  Phase III (Companies moving from April 1, 2014, as scheduled):  Listed companies having net worth of Rs. 500 crores (USD 109 million approx) or less.  Urban co-operative banks having a net worth in excess of Rs. 200 crores (USD 44 million approx), but not exceeding Rs.300 crores (USD 67 million approx)

2.1.5. Japan Japan allows to listed companies, which meet certain requirements ("Specified Companies"), to use IFRS for their consolidated financial statements ending on or after March 31, 2010. As per the roadmap released by the Financial Services Agency of Japan in June 2009, mandatory adoption of IFRS may start in 2015 or 2016, subject to the final decision, which is to be made around 2012. Standalone/separate financial statements are prepared in accordance with Japanese GAAP.

27 28

Bombay Stock Exchange. More details http://www.bseindia.com/about/abindices/bse30.asp National Stock Exchange of India. Further details http://www.nseindia.com/

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2.1.6. Russian Federation Russian Federation permits IFRS for consolidated financial statements. A new Law on consolidated financial statements was adopted on July 27, 2010. The Law requires that all consolidated financial statements should be prepared in accordance with IFRS, but actually, companies will be obliged to prepare consolidated statements in accordance with IFRS as of the end of the year following the year of IFRS’s official adoption in Russian Federation. IFRS is not adopted so far. This change does not affect standalone financial statements of Russian entities. Statement of the Russian Government number 107 as of February 25, 2011 has defined the procedure of official adoption of IFRS in the Russian Federation. IFRSs are translated into Russian language by IFRS Foundation and then handed over to RF Ministry of Finance. Ministry of Finance adopts the IFRS by coordination with the Central Bank of the Russian Federation and the Federal Service for Financial Markets. If it is decided that some provisions of IFRS are not applicable in the Russian Federation, then certain IFRS is adopted except for such provisions.

2.1.7. Spain On January 1, 2005 entered into force the IFRS. These standards were firstly mandatory only for consolidated financial statements of listed companies and any other company willing to adhering them, as well as credit institutions as prescribed by the Circular 4/2004 published by the Bank of Spain adapting the International Standards to the banking sector (Serrano 2005). Nowadays, IFRS are required for consolidated financial statements for listed companies. The recently published Ministerial Order JUS/1698/2011, of June 13, approving the models for presentation on the Mercantile Registry of the consolidated financial statements modified the templates of the financial statements, in order to enhance the convergence with the IFRS models. All companies adopted a revised Spanish GAAP from January 1, 2008, which was a partial convergence with IFRS. The national regulations have been amended in line with IFRS, while maintaining the legal 61

Department of Financial Economy and Accounting I. Year 2012

structure of the Spanish accounting system. All companies must apply Spanish GAAP in their standalone financial statements, which is essentially IFRS based, although presents some differences in accounting and disclosure requirements. IFRS for SMEs is prohibited. Spain IFRS for SMEs are not expected to be permitted in the medium-term, as reforms of Spanish accounting law have been carried out from 2008 to 2010 and no debate has begun regarding its applicability. As IFRS as adopted by the EU develops, subsequent changes of Spanish GAAP will be expected with the objective of converging to IFRS. This changeable current and future scenario in Spain is supported by other authors. Fitó points out that while this is a general adaptation to the international standards, this is done with some remarkable exceptions, since the Spanish regulator has maintained, in some cases, different outcome measures than those established in international regulations (Fitó Bertrán, Gómez Valls et al. 2010). For example, assets as buildings, properties, investments, etc. shall be included in the opening balance sheet at the carrying amount contained before the implementation of the new Spanish GAAP, and punctual revaluation is not allowed as a transition cost, alternative allowed under international standards application. The Spanish regulator has not allowed the application of alternative assessment provided for in certain assets and liabilities in international standards, e.g. business combinations.

2.2. Will IFRS be adopted in the United States? As pointed out by Mr. Gregory Jonas, Managing Director at Morgan Stanley in the roundtable on International Reporting Standards in the United States celebrated on July 7, 2011 in Washington in the US SEC, “diversity in reporting standards obviously creates unnecessary diversity in reported statements. This fact undermines comparability, which, of course, is a pre-requisite for quality financial analysis. Diverse languages are great for human culture, but are troublesome, obviously, for analysts.” It is broadly assumed by the stakeholders of the convergence process that a common reporting standard will never eliminate reporting diversity, but can reduce it.

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The position adopted by American stakeholders in the convergence process can be briefly depicted as follows: incorporating IFRS enables continued U.S. influence over IFRS. This is the main key: the influence in the convergence process. If the U.S. were going their own way, in accordance with Mr. Jonas, it would greatly reduce U.S. influence over IFRS development: “could Americans expect the rest of the world to forever embrace heavy U.S. influence when they would have rejected IFRS, themselves? To stay in the IFRS endeavour, they need to commit to the IFRS endeavour.” Many American stakeholders support the already named concept of condorsement, which brings the idea that the adoption of the IFRS by the US companies will be done through endorsement but keeping control on the US GAAP more than moving from national standards to IFRS straight forward as the EU did. The decision was expected from the U.S. SEC later in 2011 as confirmed by Mary Schapiro, U.S. SEC chairman. As part of its consideration, the U.S. SEC staff released a paper in late May 2011, depicting a possible incorporation framework: a blend of convergence and endorsement i.e. condorsement. The FASB would work toward eliminating differences between US GAAP and IFRS over a transition period. The paper suggested that the transition period could extend, as an estimate, to five or seven years. During this period referred to as condorsement (convergence- endorsement mixture), the FASB would work through a process to endorse international standards into the US framework, i.e. keeping control on the US GAAP. This approach would allow some flexibility for the FASB to modify or supplement IFRSs when necessary in order to protect the interests of US investors. The U.S. SEC believes this approach could also provide some relief from the costs associated with a “big bang” adoption. However, some risks must be pointed out. Considering this approach, it will require a well thought-out and flexible transition plan, and complexity and confusion due to the extended transition period could arise as the undesired side effects of the process. November 16, 2011 the Securities and Exchange Commission Staff published the paper (“Staff Paper”) “Work Plan for the Consideration of Incorporating International 63

Department of Financial Economy and Accounting I. Year 2012

Financial Reporting Standards into the Financial Reporting System for U.S. Issuers. An Analysis of IFRS in Practice”. This Staff paper contributes to the execution of the Work Plan by presenting the Staff’s observations regarding the application of IFRS in practice, in order to provide the Commission with information to assist it in its future determination. This Staff Paper is not intended to, and does not, compare the application of IFRS to the application of U.S. generally accepted accounting principles. Accordingly, similar observations may be present among companies reporting under U.S. GAAP. In addition, the observations included in this Staff Paper are not intended to be determinative as to whether or not IFRS is positioned for incorporation into the financial reporting system for U.S. issuers. This Staff Paper is one component of extensive efforts, forming part of the Work Plan, to facilitate the Commission’s consideration of the incorporation of IFRS. Without any doubt, some of the obtained conclusions are very interesting. The Staff of the Division of Corporation Finance and the Office of the Chief Accountant analyzed the most recent annual consolidated financial statements of 183 companies, including both U.S. SEC registrants and companies that are not U.S. SEC registrants, which prepare financial statements in accordance with IFRS. The Staff based its selection of companies on the 2009 Fortune Global 50029, which is an annual ranking of the top 500 corporations worldwide by revenue, as compiled and published by Fortune magazine (FG500). Specifically, the Staff selected all companies from this list that prepare their financial statements in accordance with IFRS and make their financial statements available to the public in English. The 183 companies were domiciled in 22 countries. Approximately 80% of the companies were domiciled in the European Union, with companies from Germany, France, and the United Kingdom representing slightly more than half of the companies. The companies in the analysis were from the following countries:

29

Available at: http://money.cnn.com/magazines/fortune/global500/2009/full_list/

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Country No. Of Companies Germany 35 France 34 United Kingdom 26 China 14 Spain 11 Netherlands 10 Australia 9 Switzerland 9 Italy 8 Sweden 6 Belgium 5 Other (represents 11 countries) 16 Total 183 Table 2: Source “Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers. An Analysis of IFRS in Practice” produced by the Securities and Exchange Commission Staff

The companies in the analysis represented the following 36 industries (as categorized by the FG500): Industry No. of Companies Banking 38 Petroleum Refining 14 Telecommunications 12 Food and Drug Stores 11 Utilities 11 Engineering and Construction 10 Motor Vehicles and Parts 10 Insurance 9 Mining and Crude Oil Production 6 Building Material and Glass 5 Chemicals 5 Energy 5 Pharmaceuticals 5 Other (represents 23 industries) 12 42 Total 183 Table 3. Source: Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers. An Analysis of IFRS in Practice” produced by the Securities and Exchange Commission Staff

The purpose of this analysis was to evaluate the manner in which IFRS is applied in practice, with a focus on the recognition and measurement of transactions in a company’s financial statements. IFRS, like U.S. GAAP, consists of standards relating both to how transactions are to be reflected in a company’s financial statements and to disclosures provided in the notes to the financial statements. Similarly, IFRS, like U.S. GAAP, generally does not have explicit requirements for a company to explain how it 65

Department of Financial Economy and Accounting I. Year 2012

satisfied a particular accounting standard. Rather, the accounting standards generally require a company to explain the accounting policies selected. However, as a regulator, the Staff also seeks to promote compliance with the accounting standards and, as such, the Staff’s comments to a company can at times focus on how a company complied with a relevant accounting standard. The Staff’s observations in this regard were limited to that which was apparent from a company’s presentation and disclosures. As part of this analysis, the Staff did not have the opportunity to provide comments on the financial statements or inquire the company officials as to how companies reflected transactions in their financial statements or why companies made certain determinations in the application of IFRS. As a result, in many circumstances, the Staff was unable to determine the manner in which companies reflected transactions in their financial statements or confirm that the accounting complied with IFRS. In some cases, the Staff was unable to determine the manner in which companies applied IFRS because disclosures did not discuss certain aspects of the guidance. For example, in some cases, the Staff was unable to determine the basis for a company’s classification of financial instruments as debt or equity, the basis for the recognition of deferred tax assets, and whether intercompany transactions were eliminated in consolidation. In addition, the Staff was unable to determine the basis for materiality assessments and whether the use of practical expedients was materially consistent with IFRS. In other cases, the Staff was unable to obtain clarification regarding the disclosures that were provided. For example: •

Some companies referred to home country GAAP for particular types of transactions, but the specifics of the home country requirements and their consistency with IFRS were unclear. In addition, the reasons for reference to home country GAAP were also unclear. For example, in some cases the references to local guidance may have been due to the manner in which a particular country incorporated IFRS into its financial reporting system or a

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company’s determination that IFRS does not contain guidance specifically applicable to a transaction. In the latter case, it also was unclear whether companies had appropriately applied the accounting policy selection and application criteria in IFRS, or not. •

Some companies used terms that were inconsistent with the terminology in the applicable IFRS. The Staff recognizes that varying terminology is a natural consequence of a cross-border environment, which operates in multiple languages. Nonetheless, because the Staff did not obtain further information, the Staff was unable to determine whether the differing terminology resulted from translation differences or noncompliant accounting.



The Staff noted several instances in which companies highlighted only certain recognition or measurement criteria related to a standard, without an explanation of their significance, when multiple criteria must be satisfied. In the Staff’s experience with U.S. GAAP, similar partial policy disclosures have sometimes been indicative of noncompliant accounting. However, due to the limitations of this analysis, the Staff was unable to determine whether this was also the case with companies in the analysis.

The Staff found that company financial statements generally appeared to comply with IFRS requirements. This observation, however, should be considered in light of the following two themes that emerged from the Staff’s analysis: • First, across topical areas, the transparency and clarity of the financial statements in the sample could be enhanced. For example, some companies did not provide accounting policy disclosures in certain areas that appeared to be relevant to them. Furthermore, many companies did not appear to provide sufficient detail or clarity in their accounting policy disclosures to support an investor’s understanding of the financial statements, including in areas they determined as having the most significant impact on the amounts recognized in the financial statements. Some companies also used terms that were inconsistent with the terminology applicable under IFRS. In addition, some companies referred to local guidance, the specific requirements of which were often unclear. Consequently, certain disclosures presented challenges to understanding the 67

Department of Financial Economy and Accounting I. Year 2012

nature of a company’s transactions and how those transactions were reflected in the financial statements. • Second, diversity in the application of IFRS presented challenges to the comparability of financial statements across countries and industries. This diversity can be attributed to a variety of factors. In some cases, diversity appeared to be driven by the standards themselves, either due to explicit options permitted by IFRS or the absence of IFRS guidance in certain areas. In other cases, diversity resulted from what appeared to be noncompliance with IFRS. The diversity arising from the standards themselves was sometimes mitigated by guidance from local standard setters or regulatory bodies that narrowed the range of acceptable alternatives already permitted by IFRS or provided additional guidance or interpretations. This diversity also was mitigated by a tendency by some companies to carry over their previous home country practices in their IFRS financial statements. While country guidance and carryover tendencies may promote comparability within a country, they may diminish comparability on a global level. The next section includes a current comparison between the US GAAP and the IFRS. It is also included the items considered more transcendent by the two accounting bodies as they are the main developed projects

2.3. IFRS and. US GAAP: an actual comparison. This section has been developed using the information contained in the document “IFRS and US GAAP: similarities and differences” published in October 2011 by PricewaterhouseCoopers LLP. It is not the intention to deeply study the whole of the differences between the two accounting sets, as changes are expected to come in several projects, as depicted below. Instead, this section leads the reader to a comprehensible framework of the current situation of the main projects carried out within the process of convergence.

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The recent economic crisis highlighted the interdependency of global business and the financial and capital markets that make the necessity for one set of global accounting standards more apparent. As the own US SEC recognized the IFRS are better positioned to play that role. Nevertheless, in the US, companies are still focusing on overcoming the current crisis and the business context remains unfavourable. Couple this with the challenges relating to the inconsistent application of IFRS outside the U.S., and the cost of their implementation inside the U.S., results in more uncertainty about the application of the IFRS in the U.S. However, and in order to understand deeply what efforts have to be faced by the IASB and FASB in this complex process, next it is included a comparison between the US GAAP and the IFRS. The impact of the accounting changes due to the convergence between IFRS and US GAAP will be significant and will imply broad-based implications. Even without the full IFRS adoption, IFRS have already affected US GAAP. This effect will increase throughout the following years. Under the Memorandum of Understanding, both boards are working jointly to develop standards that will converge and improve IFRS and US GAAP in different areas. The standard setters modified their convergence strategy and prioritized their agendas during 2010 and 2011. They focus now only on a few projects, postponing several other projects, but not abandoning them. Priority joint projects are financial instruments, revenue recognition and leases. As the boards want to improve the final standards, they have agreed to re-expose the exposure drafts for revenue and leases, expecting to issue the final standards in the second half of 2012. The financial instruments project is effectively three projects: classification and measurement, impairment and hedge accounting, for which convergence has been more difficult to attain (expected in 2012 or later).

2.3.1 IFRS 1 -IFRS first-time adoption It is clear that such a regulation does not exist in the US GAAP. Despite its content, which mainly orientates and facilitates the IFRS new adoption by a corporation,

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experience with conversions in Europe and Asia indicates that are important underestimated challenges by companies making the change to IFRS, including: Consideration of data gaps: the opening IFRS balance sheet may require the calculation or collection of information not previously required by the US GAAP. Consolidation of additional entities: IFRS consolidation principles differ from those of US GAAP. It might cause some companies to consolidate entities that were not consolidated under US GAAP. Subsidiaries that previously were excluded from the consolidated financial statements are to be consolidated as if they were first-time adopters on the same date as the parent. Consideration of accounting policies choices: a number of IFRS allow companies to choose between alternative policies. Corporations should carefully select the accounting policies to be applied to the opening balance sheet and have a full understanding of the implications to current and future periods.

2.3.2. Revenue recognition. US GAAP revenue recognition guidance is extensive and includes a significant number of standards issued by diverse institutions and accounting bodies as the FASB, US SEC, American Institute of Certified Public Accountants30 (AICPA) and the Emerging Issues Task Force31 (EITF). The guidance tends to be highly detailed and is often industryspecific. IFRS has two primary revenue standards and four revenue-focused interpretations. The broad principles laid out in the IFRS are generally applied without further guidance or exceptions for specific industries. Due to the industry-specific US GAAP orientation, similar transactions (associated to revenue recognition) may have diverse treatment depending on the industrial sector they belong. Besides, meanwhile US GAAP is based on a fixed or determinable pricing criterion, which results in contingent amounts generally not being recorded as revenue 30 31

Further details in http://www.aicpa.org/Pages/Default.aspx Further details in http://www.gasb.org/jsp/FASB/Page/SectionPage&cid=1218220137512

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until the contingency is resolved, the IFRS look to the probability of economic benefits associated with the transaction flowing to the entity and the ability to reliably measure the revenue in question, including any contingent revenue. This could lead to differences in the timing of revenue recognition, with revenue potentially being recognized earlier under IFRS. Two of the most common revenue recognition issues relate to: •

the determination of when transactions with multiple derivables should be separated into components, and



the way revenue gets allocated to the different components.

US GAAP guidance has recently changed in this area. Although the new guidance eliminates a current difference between US GAAP and IFRS, i.e. the ability to estimate value based on cost plus a reasonable margin, another new difference is created: the elimination of the residual method under US GAAP. Regarding the accounting for customer loyalty programs may result in different figures. Under IFRS there exists a requirement to treat these programs as multiple-element arrangements: consideration is allocated to the goods or services and the award credits based on the fair value through the eyes of the customer. US GAAP applies the incremental cost model that differs from the multi-element approach. Generally, IFRS result in the deferral of more revenue. US GAAP prohibits use the cost-to-cost percentage-of-completion method for service transactions. Instead, the service transactions are accounted under a proportionalperformance model (except for construction or production contracts). IFRS requires use of the percentage-of-completion method in recognizing revenue in service arrangements. The joint FASB/IASB revenue recognition project employs an asset and liability approach and determines when revenue is earned through a single contract-based model where revenue recognition is based on changes in contract assets (rights to receive consideration) and liabilities (obligations to provide a good or perform a service). The 71

Department of Financial Economy and Accounting I. Year 2012

revenue is the recognized when the performance of the obligation is satisfied. Entities applying the proposed model would follow a five-step process: i.

identify the contract with a customer,

ii.

identify the separate performance obligations in the contract,

iii.

determine the transaction price,

iv.

allocate the transaction price to the separate performance obligations, and

v.

recognize revenue when each performance obligation is satisfied.

2.3.3. Expense recognition 2.3.3.1. Expense recognition - share-based payments IFRS and US GAAP are very similar in this concern from a general point of view. However, differences arise at application level. The broader scope under IFRS leads to differences associated with awards made to nonemployees, affecting both the measurement date and total value of expense to be recognized. In this sense, companies that adopt IFRS will apply a single standard to all share-based payments, regardless of whether the counterparty is a nonemployee. Differences within the two frameworks may result in differing grant dates and/or different classification of an award as a component of equity or as a liability. Once an award is classified as a liability, it has to be reassessed to fair value at each period through earnings, which introduces earnings variability and affects balance sheet metrics and ratios. Besides, certain types of awards are likely to have equity-versusliability classification conclusions under the two frameworks. In addition, issuers of awards with graded vesting (e.g., awards that vest ratably over time, such as 25 percent per year over a four-year period) may encounter accelerated expense recognition and potentially a different total value to be expensed under IFRS. The deferred income tax accounting requirements for share-based payments vary significantly from US GAAP. Companies can expect to have greater variability in their effective tax rate over the time of share-based payment awards under IFRS. The 72

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variability is driven by the requirement to remeasure and record through earnings the deferred tax attributes each reporting period. The proposed guidance in this concern is still to be defined. The IFRS Interpretation Committee decided in March 2011 not to add this issue to its agenda because addressing the Committee’s concern would require an amendment to IFRS 2. Instead, the Committee recommended including it in a future IASB agenda proposal for IFRS 2.

2.3.3.2. Expense recognition - employee benefits There are important differences between US GAAP and IFRS in regard to record for pension and other postretirement and postemployment benefits. Some differences will result in less earnings instability, while others will result in greater earnings instability. The net effect depends on the individual facts and circumstances for a given company. The FASB and the IASB use the term postemployment differently: •

The IASB uses the term postemployment to include pension, postretirement, and other postemployment benefits.



The FASB includes in the term postretirement the postretirement benefits, other than pensions and other postemployment benefits, and the term postemployment benefits to include benefits before retirement.

Under IFRS, enterprises can adopt a policy that would allow recognition of gain/losses in other comprehensive income statement, thus no subsequently recycled through the income statement, reducing the volatility of the pension expense. Other policy elections available under IFRS are similar to those under US GAAP, but recently these elections have been removed by the publication in June, 2011 of the amendments to IAS 19. US GAAP permits the use of a calculated asset value in the determination of expected returns on plan assets. IFRS prohibits the use of a calculated value and requires the actual fair value of plan assets at each measurement date be used. Under IFRS companies are allowed to present components of net pension cost within different line items on the income statement. This flexibility can result in different 73

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classifications of a plan as a defined benefit or a defined contribution plan under IFRS and US GAAP, thus generating differences to the balance sheet presentation. The IASB amendment to IAS 19 Employee benefits includes significant changes to the recognition, presentation and disclosure of long-term employee benefit plans. The FASB’s project in this area is not active, but the board is monitoring the IASB work. The IASB has indicated an intention to perform a comprehensive review of defined benefit accounting including measurement issues. The timetable for the review has not yet been set.

2.3.4. Assets 2.3.4.1. Nonfinancial assets There exist some significant differences under IFRS and US GAAP concerning guidance to nonfinancial assets: intangibles, property, plant and equipment, inventory and investment property, containing potential far-reaching implications. IFRS permits the revaluation of certain nonfinancial assets to fair value, whereas US GAAP generally does not. Impairment recognition might be earlier under IFRS as they require the use of entityspecific discounted cash flows or a fair value measure in tests for recoverability of an asset. By comparison, US GAAP uses a two-step model that begins with undiscounted cash flows. It can make a difference in whether an asset is impaired. Additional differences exist, such as what qualifies as an impairment indicator or how recoveries in previously impaired assets are treated. The recognition and measurement of intangible assets could differ significantly under IFRS. With limited exceptions, US GAAP prohibits the capitalization of developments costs, whereas development costs are capitalized under IFRS if certain criteria are met. Under US GAAP, indefinite-lived intangible assets shall be grouped only with other indefinite-lived intangible assets; under IFRS, the impairment test likely will be performed at the cash-generating unit (CGU) level. 74

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IFRS prohibits the use of the last in, first out (LIFO) costing method to assess the inventories. US GAAP permits it. Both boards are currently developing the lease guidance and they are expected to issue a final standard in 2012, which would significantly change lease accounting. Spin-off transactions can result in significantly different income statement implications under the two frameworks. US GAAP accounts for spin-off transactions based on the carrying value of the nonmonetary assets, with the distributions recorded against owner’s equity and no gain/loss recorded in income (despite the possible impairments). IFRS requires that dividends payable be recorded at the fair value of the nonmonetary asset to be distributed. Upon settlement, the difference between the carrying value of the dividend payable and the carrying amount of the nonmonetary assets, if any, is recorded in the income statement.

2.3.4.2. Financial assets The FASB and IASB are working in a joint project on financial instruments that is intended to address the recognition and measurement of all financial instruments, including impairment and hedge accounting. The new guidance will replace all of the FASB’s and IASB’s respective financial instruments guidance. Timing points from 2013 to 2015 the earliest. Currently under US GAAP the legal form of the financial asset drives the classification. Not under IFRS which drives the classification attending to the nature of the instrument. Financial assets carried at amortized cost also differ: both IFRS and US GAAP use the effective interest rate method. Under IFRS, the effective interest rate based on estimated future cash payments or receipts through the expected life of the financial instrument. Under US GAAP, generally the effective interest rate is calculated based on the contractual cash flows through the contractual life of the financial asset. For available-for-sale debt instruments, the impairment models for financial assets may result in different impairment triggers and different impairment measurement criteria. 75

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Additional differences around reversals of impairment losses and impairment of equities also must be considered. Potentially write-off financial assets fundamentally differ under the two frameworks: •

Under US GAAP, derecognition can be achieved even if the transferor has significant ongoing involvement with the assets, such as the retention of significant exposure to credit risk.



Under IFRS, full derecognition can be achieved only if substantially all of the risks and rewards are transferred or the entity has neither retained nor transferred substantially all of the risks and rewards and the transferee has the practical ability to sell the transferred asset.



Under IFRS, if the entity has neither retained nor transferred substantially all of the risks and rewards and if the transferee does not have the practical ability to sell the transferred asset, the transferor continues to recognize the transferred asset with an associated liability in a unique model known as the continuing involvement model, which has no equivalent under US GAAP.

2.3.5. Liabilities 2.3.5.1. Taxes After releasing an exposure draft in 2009 and receiving comments thereon, the IASB decided to amend and narrow its project on income tax accounting. Next are some of the more important remaining differences between the two frameworks: •

US GAAP includes guidance for uncertainty in income taxes. Such guidance is not included in IFRS, though in the amended IASB’s project on income taxes, accounting for uncertain tax positions is included.



Under US GAAP, any income tax effects resulting from intragroup profits are deferred at the seller’s tax rate and recorded upon sale to a third party. IFRS bases the recording on the buyer’s tax rate at the time of the initial transaction.



Under IFRS a single asset or liability may have more than one tax basis. Generally, there would be only one tax basis under US GAAP.

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Presentation differences related to deferred taxes could affect the calculation of certain ratios from the face of the balance sheet -including a company’s current ratio- because IFRS requires all deferred taxes to be classified as noncurrent.

2.3.5.2. Nonfinancial liabilities Under both frameworks, there exists a difference in the interpretation of the term “probable”. US GAAP defines it as “likely to occur”, meanwhile IFRS refers to it as “more likely than not”. This could lead companies to record provisions earlier under IFRS and it might also lead to increased or earlier expense recognition. Concerning restructuring provisions, prior communication to employees is only required under US GAAP, thus earlier recording could happen under the American framework. At the same time, IFRS does not have the concept of an ongoing termination plan, whereas severance is recognized under US GAAP once probable and reasonably estimable. This could lead companies to record restructuring provisions in periods later than they previously would have under US GAAP. Threshold for recognition of reimbursements for recognized losses by requiring that they be virtually certain of realization is higher under IFRS. In February 2010, the IASB published a working draft of a proposed new IFRS titled Liabilities that would introduce significant new recognition and measurement differences between IFRS and US GAAP. The timing of any new guidance in this area is unclear so far.

2.3.5.3. Financial liabilities and equity The US GAAP definitions or requirements for the classification of an instrument as financial liability is narrower under US GAAP, which results in more instruments being considered as equity than under IFRS. For hybrid instruments that contain equity conversion options, IFRS generally require split accounting of the equity conversion feature and the debt host. Under US GAAP there are circumstances that also require split accounting, but there exist circumstances 77

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under which a singular accounting model is followed. It can create a significantly different balance sheet presentation while also influencing earnings, mainly due to recognition expense at the market rate at inceptions as opposed to any contractual rate within the compound arrangement. Differences exist concerning financial liabilities carried at amortized cost. Both frameworks use the effective interest method using the effective interest rate calculated at initial recognition of the financial instrument. Under IFRS, the effective interest rate is calculated based on estimated future cash flows through its expected life. Under US GAAP, the effective interest rate is generally calculated based on the contractual cash flows through the contractual life of the financial liability. Joint project on this area is delaying for both financial instruments classified as liabilities and financial instruments with characteristics of equity. Views from the stakeholders are sought and, as both boards have acknowledged, they do not have the capacity currently to devote the time necessary to deliberate the project issues.

2.3.6. Consolidation IFRS is a principles-based framework. IFRS states indicators of control, some of which individually determine the necessity to consolidate. However, when control is no apparent, consolidation is based on an overall assessment of all the relevant facts. The provided indicators help the issuer company in making that assessment. Under IFRS consolidation is required when an entity has the ability to govern the financial and operating policies of another entity to obtain benefits. US GAAP has a two-tiered model for consolidation: one focused on voting rights and the second focused on a qualitative analysis of power over significant activities and exposure to potentially significant losses or benefits. Even in cases for which both frameworks look to voting rights to drive consolidation, differences can arise including cases in which de facto control exists and how the two sets of rules address potential voting rights.

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While under US GAAP it is allowed to apply different accounting policies within a consolidation group (due to certain specialized industries), this exception does not exist under IFRS. For jointly controlled entities, the proportional method is permitted under US GAAP. The recently published IFRS 11 Joint arrangements, eliminates this choice.

2.3.7. Other accounting and reporting topics In addition to the areas previously discussed, differences exist in multitude of other standards, including translation of foreign currency, calculation of earnings per share, disclosures concerning operating segments, and discontinued operations treatment. However, both frameworks are largely converged in the business combination area: both standards are close in principle and language, with two major exceptions: full goodwill and requirements concerning recognition of contingent assets and contingent liabilities. IFRS currently contains a different definition of a discontinued operation than does US GAAP. Requirements under the latter are broader. It is important to remark at this point that regardless the U.S. SEC’s decision to incorporate IFRS into the US financial reporting system, ongoing convergence projects (financial instruments, hedge accounting…) and new standards will change and influence beyond financial reporting. Contract terms, tax policy and cash flow, financial planning, systems requirements, communications with stakeholders are some of the areas will change. Couple this with the new regulation caused by the financial crisis, and the continued global adoption of the IFRS, will result in an extended period of changes for corporations.

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3.

XBRL:

implementation

and

precedents, what is XBRL, main characteristics & key elements. eXtensible Business Reporting Language (XBRL) is the new international standard for financial data interchange widely deployed (Valentinetti, Rea 2011). According to The Futurist, XBRL is one of seven cutting-edge technologies that will have a big impact on business and revolutionize corporate performance, as pointed out by Baldwin (Baldwin, Trinkle 2011). The Securities and Exchange Commission (SEC) has forced U.S. companies to publish their accounts in XBRL, starting with large companies in mid2009. Other countries have similar plans, such as the UK, where thousands of companies are presenting their filings in XBRL, which became mandatory in 2011. In Asia, XBRL has an early adoption in the capital markets of China, Japan, Singapore and South Korea, forcing these countries to use XBRL. The governments of Australia, the Netherlands and New Zealand have made commitments for reducing the burden of corporate compliance using XBRL as part of the efforts included in the financial reporting standard. Focusing on Spain, XBRL was promoted by the Bank of Spain32, the Spanish National Market Securities Commission33 (CNMV), recommended by the Spanish Accounting

32

Bank of Spain is integrated in the Eurosystem, is the national central Bank and supervisor of the Spanish banking system http://www.bde.es/webbde/es/ 33 The Comisión Nacional del Mercado de Valores (CNMV) is the Spanish government agency responsible for regulating the financial securities markets in Spain. It is an independent agency that falls under the Ministry of Economy and Finance of Spain. http://www.cnmv.es/index.htm

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and Business Administration Association34 (AECA), and, of course, the Spanish XBRL Association35, among others. Under the Mercantile Registry regulations, electronic filings were covered by Article 366.2 of the existing regulations of the Mercantile Registry, as approved by Royal Decree 1784/1996 of July 19. It was the subject of the development of the Instruction of the General Directorate of Registrars and Public Notaries36 of May 26, 1999, later extended with the electronic filing on December 30 of that year (Boletín Oficial del Estado 1996) This electronic approach was generally accepted, not only in the light of the new possibilities offered by the quick evolution of technology, but by the need to adapt the systems as required by Directive 2003/58/EC of the European Council and Parliament of July 15 amending the previous Directive 68/151/EEC (Official Journal of the European Union 2003). It establishes the obligation for EU member states to ensure for the companies and other required individuals to publish, among others, the accounting records for each financial year through electronic means from January 1, 2007. This demand is fully consistent with the regime of electronic access for citizens to public services approved by Law 11/2007 of 22 June (Boletín Oficial del Estado 2007a). On June 2006, the Spanish Senate, in a formal motion, asked the government to promote the use of XBRL in collaboration with regional and local governments and the private sector. The motion, that passed unanimously, also required the government to create an appropriate body for the development of taxonomies to enable Spanish companies and public authorities adopting the use of XBRL. The Senate motion was preceded by a

34

The Asociación Española de Contabilidad de Administración de Empresas (AECA) is the issuing profesional institution of Generally Accepted Accounting Principles and Standards, pronouncements and studies on best practices in corporate governance in Spain. http://www.aeca.es/ 35 The aims of the Spanish XBRL association are the implementation, adoption and development of the XBRL. http://www.xbrl.es/asociacion/asociacion.html 36 As well referred to as the Ministry of Justice's Directorate-General of Registries and Notarial Affairs http://www.mjusticia.es/cs/Satellite/es/1215197982464/Estructura_P/1215198295156/Detalle.html#id_12 15198053502

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successful introduction of XBRL by the Bank of Spain (Boletín Oficial del Estado 2004) and the CNMV (Boletín Oficial del Estado 2005). On February 10, 2009, the Government of Spain published in the Official State Bulletin (BOE) the Ministerial Order JUS/206/200937 concerning the filing of separate annual financial statements under the new Spanish GAAP. This Order refers to the XML taxonomies, which actually refers to XBRL, as specified in the technical annexes38 that contain all the details for the presentation. It has two main purposes: in the first place, to reduce the burden caused by the compulsory annual filings and, in second place, to include Spain in the international standardization process and, in particular, in the European standardization process (Boletín Oficial del Estado 2009). Besides, Law 16/2007 of 4 July, for the reform and adaptation of commercial law in accounting issues for international harmonization based on the European Union regulations, helped the implementation of XBRL in Spain (Boletín Oficial del Estado, 2007b). It introduced among others, major changes in the structure and content of the standalone financial statements and other information that companies must provide (Boletín Oficial del Estado 2007b). This has led to a need to adapt the templates of the documents that required companies must submit to the Mercantile Registry39, based on the templates defined on the third part of the Spanish GAAP (Royal Decree 1514/2007 of November 16) and the Spanish GAAP for SMEs (Royal Decree 1515/2007 of 16 November). The aim of the adaptation is to obtain an easier understanding of their content and improve the simplification of the whole process, information storage and publication by the Mercantile Registry as set out in the first final provision of the law mentioned above.

37

The mentioned Order has been recently complemented with the publication of the Ministerial Order JUS/1698/2011, of June 13, approving the models for presentation on the Mercantile Registry of the consolidated financial statements. 38 Annexes modified by Orders JUS/1291/2009 of January 28, and resolutions from the General Directorate of Registrars and Public Notaries of April 6, 2010 & February 28, 2011 respectively. 39 The Registro Mercantil is an administrative institution which aims the advertising of legal positions of the employers on this list http://www.registradores.org/mercantil/jsp/home.jsp

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The approved templates have a dual mode: traditional paper presentation or the latest, in accordance with the progress of technology, electronic filing which, moreover, facilitates the transmission through electronic means. The delay in the clarification of the European regulations regarding business combinations and consolidation of the financial statements, pull that the Spanish GAAP entered into force on January 1, 2008 without the approval of a Royal Decree, which revised the standards for the elaboration of the consolidated financial statements approved by the Royal Decree 1815/1991 of December 20. Nevertheless, Law 16/2007 of July 4, Commerce Code, and standard number 19 for registration and assessment of business combinations, ruled some aspects of the accounting techniques concerning consolidation, or aspects that could be brought to bear by analogy on this process. Therefore, it was possible to elaborate the consolidated financial statements during these years with an adequate degree of juridical safety, having as a reference the doctrine from the Spanish Institute of Accounting and Accounts Auditing40 (ICAC) included in the Note published on its Bulletin number 75, of September, 2008. As stated in the mentioned Note, making this decision, considered the consolidation criteria contained in the Spanish Commerce Code and its unrepealed provisions, conforming an adequate and sufficient regulatory system for the elaboration of the consolidated financial statements, being very similar to the international standards in force in that precise moment. On June, 2009 was approved the Commission41 Regulations (EC) No 494/2009 and 495/2009 of June 3, 2009 modifying the Commission Regulation (EC) No 1126/2008 of 3 November 2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council,

40

The Instituto de Contabilidad y Auditoria de Cuentas (ICAC - Institute of Accounting and Accounts Auditing) is an independent body attached to the Ministry of the Economy and Taxes, regulated by the Accounts Auditing Act 19/1988, dated 12 July, Royal Decree 1636/1990, dated 20 December, by which it is implemented, and Act 44/2002, dated 22 November, on Measures for the Reform of the Financial System, which amends various articles of Act 19/1988. More info http://www.icac.meh.es/seccion.aspx?hid=2 41 The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union. More info http://ec.europa.eu/index_en.htm

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concerning IAS 27 Consolidated and separate (standalone) financial statements, and IFRS 3 Business combinations, among others. Entry into force of such regulations has identified a new set of principles for listed companies in formulating their consolidated financial statements for financial years beginning on or after January 1, 2010. This circumstance suggests addressing the review of the standards for the preparation of consolidated financial statements in order to make available to the other companies an accounting framework harmonized with Community law. This review has been recently implemented in the Ministerial Oder JUS/1698/2011 of June 13, approving the model for presentation at the Mercantile Registry of the consolidated financial statements. The model adopted has a dual mode, as used for the presentation in the traditional paper-based or in electronic format (also known as digital), facilitating the electronic presentation. This form continues the already established format by the Ministry of Justice JUS/206/2009 Order of January 28, incorporating XBRL taxonomy, in order to minimize the reporting burden, which falls upon incorporated companies, and to include Spain in the global standardization process that uses this standard as the electronic standard for the financial information. The official version of the taxonomy, open and freely accessible, will be available to all stakeholders in the website of the Institute of Accounting and Accounts Auditing (ICAC)42. As the Spanish Professional College of Registrars anticipated, the use of XBRL, as the digital standard for the presentation of the annual statements, is now mandatory in Spain.

3.1. WHAT IS XBRL? XBRL is not only a subject of Information Technology (IT). It improves the efficiency of the markets and information flows between social and economic agents. These

42

http://www.icac.meh.es/Taxonomia%5CPgc2007%5CTaxonomia.aspx

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benefits derive from its characteristics of flexibility, integrity and speed (Quetglás 2006). XBRL is a XML43-based vocabulary for electronic transmission of business and financial data. XBRL is an open standard maintained by XBRL International, a globalnon profit consortium of over 550 major companies, organizations and government agencies and it is compound of about 2744 jurisdictions worldwide. XBRL was created to assist in the markup of the commonly reported business facts using a consistent methodology, in order to translate the accounting information into a machine-readable language. Therefore, computers are able to communicate accounting information while identifying the concepts and facts. The aim of XBRL is to standardize the structure, content and representation of data, so the same piece of data means the same in any language and to any computer, person or organization. Traditionally, one of the solutions to incorporate others application’s data (or external organization’s data) has been the exportation to an American Standard Code for Information Interchange file (ASCII) - where delimiters separate each data field - in order to import the ASCII file later on the application that is going to incorporate the external data. This solution is time consuming because it is frequent that modifications are requested, because the exportation delimiters are frequently not recognized by the importer application. The need of a digital standard for the electronic transmission of the accounting information is accentuated when integrating different annual statements from various different formats: paper documents, PDF (Portable Document Format), XLS (Microsoft Excel), HTML (HyperText Markup Language), DOC (Microsoft Word), etc. Integration of documents is a very time consuming task that decreases the time available for

43

Extensible Markup Language (XML) is a flexible way to create common information formats and share both the format and the data on the World Wide Web, intranets, and elsewhere. 44 Information updated May, 17 2011, from http://www.xbrl.org/jurisdictions.aspx

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analyzing the information, in addition to the likely errors committed while gathering the information required. This new digital standard or Business Report Language (BRL) or financial standard should provide for: •

Human and software agent use.



Information disclosures mandated by national and/or international regulators complying with the corresponding set of standards.



Financial and non-financial disclosures.



Multiple languages, including automatic translation of primary accounting nomenclature and multiple currencies.



A common set of accounting nomenclature with pointers to national/regional differences.



Attestation by auditors or other information quality intermediaries of complete reports or parts of reports.

The BRL should be based on open standards. Any specifications for the standard should be in the public domain and subject to license-free usage by interested parties (such as national regulators): XBRL complies with all this requirements theoretically. XBRL provides an identifying tag for each individual element or item of data, so it can be easily understood and processed by computers, instead of treating the financial information as a whole block of text, as in a traditional paper document or web page. The tags enable automated processing by the computer’s software recognising the information contained in the XBRL file, thus facilitating their processing and analysis. XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits automatic checking of information. XBRL has been created to facilitate the electronic exchange of business reporting data across various computer platforms in a free and open manner, as it is free of licence fees

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and publicly accessible. Besides, XBRL facilitates Business Intelligence45 (BI) automation by enabling machine-to-machine communication and data processing of financial information. XBRL is one of a family of eXtensible Markup Languages (XML). XML has become the standard language for exchanging data over the Internet as foreseen by Amagasa (Amagasa, Yoshikawa et al. 2000) . XBRL has been developed for business reporting purposes. Under XBRL, financial information is tagged in order to be easily processed and understood by computers, e.g., the asset Land need to be tagged as follows: 20000. The word Land together with brackets "<" and ">" is called tag. There exist opening tags: <…> and closing tags: . Between the opening and closing tag there is a value. What computers will understand from the previous example is that something called Land has the content “20000”. However, how do computers know what the asset Land means? At this point is necessary to use computer science concept of metadata. Briefly explained, metadata is data about data. The computer has to be instructed about what kind of values could be assigned to the term Land and how it should understand this concept. In order to do so, the programmer will have to provide the computer with data including pertinent information regarding the concept Land to be adequately handled by the machine. Following the previous example, from the accountancy point of view, Land has to have a monetary value. The machine knows it by setting the type attribute to monetary value (see section 3.2.1. Element). In the same way, the machine has to be told that Land balance nature is debit. The programmer has to explain to the machine the basic rule of double entry accounting where Assets and Expenses have normal balance of a debit while Equity, Liabilities 45

Business intelligence includes different technologies as data mining, business performance management, text mining… http://en.wikipedia.org/wiki/Business_intelligence

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and Revenues have a normal balance of a credit setting the balance attribute accordingly (see section 3.2.1. Element). Besides, another characteristic of Land is that it is included within the assets and it is available to a corporation at a particular point in time. Therefore, the machine has to know that Land appears on the balance sheet, which is a snapshot of an entity’s financial position at a specified date: instant. In this sense for the machine, a flow, which occurs during a period, is the opposite of a resource presented at a point of time (see section 3.2.1. Element). The description above shows that information about three characteristics must be provided to a computer so that it can understand in an accounting manner. Other elements or concepts may need more/less characteristics to be informed to the machine in order to be adequately “understood” by the computer. In accountancy, there are many concepts that could be described using XBRL. Of course, XBRL not only indicates computers what Land is. Moreover, XBRL allows the inclusion of different regulations concerning financial reporting which means that the definition of Assets under IFRSs could be different to the one provided by some national GAAP. Therefore, XBRL permits to describe interactions between financial concepts for each domestic regulation of GAAP. This is to define whether or not there is any relation between Land and for example Payables and if there is, how it looks in terms of accounting knowledge and create references for elements to express to which accounting act they apply to. XBRL uses a technology called XML Linking (XLink46) to do that. Finally, and in order to summarise this introduction, and once XBRL is fully established the following benefits will be fully available:

46

I.

Cost savings: less manual entry and greater opportunities to automate tasks.

II.

Improved data accuracy: less manual entry, data cleansing and human error.

Or extended links.

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III.

Accelerated processes: greater efficiency in data entry, publishing, reporting, sharing and analysis.

IV.

Greater transparency: easier and more standardized exchange of business information; less time devoted to creation means more time available for analysis and decision making

The following section describes the components of XBRL and the interactions among them to better understand how XBRL works.

3.2. COMPONENTS OF XBRL Briefly, the current epigraph includes an explanation of the concepts included in these key XBRL features: •

information on what Land is and how a computer should treat it, is provided in schema files47 (taxonomy; see section 3.2.2);



relationships are described in linkbases which are segregated into different categories depending on what is described and how it is done (taxonomy);



values between tags (for example 20000) are found in instance documents.

The following graph includes the different elements, the interactions among them and the structure of a XBRL documents set.

47

Schema files contain the description of the structure of a document

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Figure 5. Based on http://www.ifrs.org/XBRL/Resources/Fundamentals.htm

3.2.1. Element A XBRL element (see section 4.1. Elements) is a business concept (such as Assets, Liabilities, Income…) presented to a computer in a way that the machine could learn its main characteristics. To achieve this, definitions of elements, which appear in schemas (see section 3.2.2.1. XBRL Schema), are constructed according to a specific set of rules. The elements () are used to define reporting concepts: cash, payables, etc. Elements always have: - a name (1)48, which identifies the concept, - a type (2), which describes the kind of Values for the concept (item, monetary, string, boolean…). The type can also point to a complex type indicating that the element is a container for other concepts (tuple). - a substitutionGroup (3), which defines that the element can appear where the substituted element is. In addition, optional attributes for elements are: 48

Numbers in brackets are only included for explanation purposes. They are not part of the XBRL syntax.

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- id (4): used to uniquely identify a concept. id’s have to be unique within a XBRL taxonomy file. - balance (5): used for concepts representing a monetary fact. It says if the concept will normally have a debit or credit balance. There are only two options for balance. - The “true” value for the attribute nillable (6) indicates that the element can have a null value - The “instant” value for the periodType (7) attribute sets that the concept value is just valid for a determined moment and it is not valid for a period of time (“flow”). Example (4)

3.2.2. Taxonomy A taxonomy consists of the core part which is a schema (or more schemas) and linkbases. If you compared it to the physique of a spider, the schema would be its head and trunk (where all the major organs are situated) and the linkbases would be its limbs. Of course, a schema could exist without linkbases in the same way as that a spider could live without limbs, but in order for the spider to survive and for the taxonomy to be optimal, both parts of the body are necessary. The purpose of a XBRL taxonomy document is to define the concepts for a business report (elements) and the relationships between the concepts. It is similar to the fifth part of the Spanish GAAP49 where account definitions and the relations among them are included. There are two parts to an XBRL taxonomy document:

49

or Plan General Contable.

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The first part contains the definitions of the concepts used in the business report: XBRL schema.



The second part contains both, the relationships among concepts and between concepts and other resources: XLinks (Schipper 2005).

Therefore, a taxonomy can be acknowledged as a dictionary of concepts. Concepts in taxonomies are used by instance documents50 to communicate fact values. The taxonomy usually comprises a number of physical XML files that define XBRL concepts. Taxonomies are supplemented by additional information contained in the linkbases. The linkbases are classified in two different types: 

Relation type linkbases contain relation information: presentation, calculation, and definition.



Resource type linkbases contain additional information: labels and references.

Next, the explanation of the different parts forming taxonomies.

3.2.2.1. XBRL Schema (part of the taxonomy) XBRL schema stores information about taxonomy elements (their names, id’s and other characteristics), as a XML schema document51. Each one lists the elements and describes the kind of content that can be associated with the element. Moreover, the taxonomy includes the description of the relations among these elements through the linkbase files. XBRL provides with an exhaustive detailed description of the structure of the document through its syntax. The machine has a clear picture of how to interpret the values that will constitute a specific XBRL report. Therefore, the main purpose of XBRL schemas is to provide the computer with information on how it has to represent and process the accounting terms (elements), e.g. Cash, Payables, etc. XBRL schemas are files with the extension .xsd

50 51

See section 3.2.3. Instance documents File that the describes the structure of a XML document.

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XBRL Schema: Dictionary Item/tuple Elements Attributes: MonetaryType DecimalItemType Figure 6: XBRL Schema

An example of how the elements are declared in a taxonomy is included in the annex 1

3.2.2.2. Linkbases (part of the taxonomy) Linkbases are used to extend the information about concepts (elements) and capture the relationship data. Linkbases are collections of extended links (XLinks), and they provide the computers with further information about the meaning of the concepts by expressing relationships among them (inter-concept relationships) and by associating concepts to their documentation (Lara, Cantador et al. 2006). It is a network of relations. An extended link is used to separate and classify relations into different networks if needed for processing of say calculations or for the convenience of the taxonomy creator to make the taxonomy more visually appealing. XLink Linkbases are files with the extension .xml.

3.2.2.2.1. How links relate to concepts XLinks have two components: - XLink defines locators which identifies or locates the reporting concept () within a taxonomy file. It consists of two parts separated by a hash (#): the first part is the name of the file that contains the element to be referenced by the locator, and the second part refers to the specific element in the file (id). Locators have label attribute to identify them for use in an arc.

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- Arcs use the labels of the locators to link them: the “from” locator label with the “to” locator label. “From” locator

“To” locator

Parent-child Asset

Cash

(Arc) Figure Figure 7: Description of a XLink

Extended links are usually placed inside a element in a separate file (.xml extension). element could be the root element of that file. It is considered good practice to separate the relationships from the concepts definitions. This makes it easier to extend and to reuse taxonomies. It is also a good idea to put each of the types of relationship in separate relationship files. This also helps its extensibility. The five most common linkbases are classified by their function as follows.

3.2.2.2.2. Relational linkbases: defining relationships between concepts. 3.2.2.2.2.1. Presentation linkbase

These relationships define how concepts should be presented or displayed. Presentation arcs have the same attributes as definition links52 plus the order attribute. This is used to indicate in which order the immediate children of an element should be displayed. They are expressed as arcs, but they do not define a relationship between two concepts. They contain relations such as parent-child that are exclusively used for presentation purposes e.g. a given element will be shown as the subordinate of some other. An example of how the presentation linkbase is declared is included in the annexe 2.

52

See section 3.2.2.2.1.3. Dimension/Definition linkbase

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3.2.2.2.2.2. Calculation linkbase:

Define how concepts participate in summations, e.g. current assets and non-current assets sum up total assets. Calculation arcs work in much the same way as the definition links and have the same roles parent-child/child-parent. It is a good practice to state both arcs changing the ‘from’ and ‘to’ attribute. The calculation arc is always interpreted as the child summing to the parent or an equivalency relation (the element is copied in the dimension and vice versa). Arc Role Rules for Calculation Arcs Role

Summation

child-parent

The value of the “from” is summed into the value of the “to”

parent-child

The value of the “to” is summed into the value of the “from”

dimension-element

The value in the “to” is copied from one of the values in the “from” across all calculation arcs that have this arcrole and for the concept referenced in the “to”

element-dimension

The value in the “from” is copied into the value of the “to” Table 4: Arc Role Rules for Calculation Arcs

Example for the parent-child: Gross Profit = Total Revenue - Cost of Goods Sold The example shows that there are defined two calculation arcs providing details concerning relations between Gross profit, Revenue and Cost of Sales. In Income Statements, Gross profit is a difference between the other two. 96

Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach.

Calculation roles have an additional attribute called weight. This indicates the multiplier to be applied to the child when summing up to the value. A weight of one means that a 100% of the value of the child is to be summed into the parent For the role (or arc role) dimension-element/element-dimension the value is copied in the ‘to’ attribute. An example of a calculation linkbase is included in the annexe 3 3.2.2.2.2.3. Dimension/Definition linkbase

This relationship defines how one element relates to another element. We state the inherent relationship existing between both elements. There are four standard arcroles from the XBRL specification: http://www.xbrl.org/linkprops/arc/child-parent http://www.xbrl.org/linkprops/arc/parent-child http://www.xbrl.org/linkprops/arc/element-dimension http://www.xbrl.org/linkprops/arc/dimension-element Child-parent (parent-child) roles are used to create relationships where one concept is a generalization of another, e.g. assets and cash. Element-dimension (dimension-element) expresses an equivalency relationship, e.g. breaking assets down by geography and again by product line: total assets by geography should be the same as total assets by product line.

3.2.2.2.3. Resource linkbases: adding information to an element. 3.2.2.2.3.1. Label linkbase

Labels allow including a human readable text in the elements. Elements have name attribute and ID’s but these two attributes are intended for machines. The label will be displayed with the element on a report. To create a label it is necessary to create first a label resource (somewhat similar to locators). The label resource will contain the text of the label (
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Improving the comparability of Financial Statements in a changeable context: a Semantic Web-based approach. Departamento de Economía Financiera y Con...

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