XBRL: Extending Taxonomies

XBRL: Extending Taxonomies

In 2009, the U.S. Securities and Exchange Commission (SEC) implemented eXtensible Business Reporting Language (XBRL) to, along with other goals, help standardize financial reporting. For the most part, companies can “tag” their financial data with the standard concepts found within the US GAAP taxonomy. However, companies occasionally find that the US GAAP cannot fully explain certain facts or line items within their filings.

When this happens, filers may elect to amend the taxonomy by assigning an extension concept or extension dimension to convey the meaning intended in the filing. This extension taxonomy is necessary to help explain industry-specific ideas, company-specific approaches to filing, and other filer accounting nuances.

However, improper use and overuse of extensions carries negative implications for both filers and investors. For starters, the audit process can be impeded or be less effective if extensions are improperly used.

Every year, the SEC adds support for a revised version of the base taxonomy to incorporate new concepts, some of which may have been previously extended. The preparers, reviewers and auditors must go through the XBRL filing with a fine-tooth comb to ensure the selected concepts match the corresponding fact.

Additionally, the preparers, reviewers and auditors must ensure that extension concepts are not being used when an appropriate concept exists in the base taxonomy. This adds time to the entire preparation and review process.

Lastly, preparers, reviewers and auditors also must ensure that company filings are consistent, and accordingly that the extension taxonomy has been correctly formatted and implemented within the XBRL instance document. Again, these extra steps add time and a degree of complication to the audit process, as compared to a filing without any or very few extensions.

Although extensions can allow for more thorough reporting, their overuse can also have negative effects on the stakeholders and consumers of XBRL. When XBRL was implemented, one goal was to assist potential stakeholders with comparisons between filings and between companies. With the use of extension members and extension concepts—especially in filings which abuse the extension taxonomy—each filing becomes too distinctive and consequently that much more difficult to compare to other filings.

As a result, XBRL becomes less useful to stakeholders who seek comparisons based on general models and ratios. And worse, extension taxonomies can even be used to disguise key stakeholder information, which could inadvertently mislead investors. A company could impact the interpretation of their filing by using the extension taxonomy for strategic line items or values, rather than the appropriate, standard concept.

Extension concepts and dimensions are valuable to sharing electronic financial information, but should be used with caution and only when necessary. They should be used when the base taxonomy lacks any equivalent way of categorizing the information. And, they can be used to more fully illustrate and add depth to financial reporting.

As a first step, should you have any questions about whether you should extend a concept or dimension, the reference linkbase in the US GAAP taxonomy indicates which requirement a given element is intended to fulfill. Alternatively, if the disclosure is required by the Accounting Standards Codification (ASC), you can look up the appropriate section at and then click "XBRL ELEMENTS" at the end of the paragraph to see which US GAAP taxonomy elements correspond to the requirement.

While the US GAAP base taxonomy will never be able to fully encompass every possible concept, we may want to explore ways to correct improper usage of unique, company-specific extension taxonomies. Look for our next blog in this series in a few weeks, entitled “Amending Extensions”, for some possible solutions.


Click here for part 2 in this two part series.

October 10, 2013, 7:15 PM ET; a note to our readers: We slightly amended this post from the original published on October 8, 2013 at 12:59 PM. We made modifications to take into account feedback received from one of our readers to help clarify a few points. The modifications included changing "auditors" to "preparers, reviewers and auditors" to capture a sense of the entire XBRL filing process (please note a few locations for the updated phrase); and the phrase "adds support to" was "releases" in its original form.