Introduction to this book

THERE IS A NEED FOR COMPANIES TO REVIEW the current functioning and planned potential of associated business by testing whether there is room for improvement. That, in effect, should be a frequent occurrence. For instance, are strategies suitable to the needs of key stakeholders, as well as in line with recent, political, economic, social, technological, legal and environmental developments?

In this regard, with the increasing rise in International Financial Reporting Standards (IFRS), companies cannot remain content with the belief that existing accounting education and applications in any organisation are sufficient for future purposes. Priorities must be reconsidered, especially when the prospect of global investment and trade continues to offer profitable opportunities.

However, can key decision makers in companies and governments rely upon financial reporting? This is a critical issue that can derail excellent business opportunities due to the absence of integrity. In the context of how poorly commerce and industry, as well as the public sector, function when reliant upon poor reporting, IFRS shine brightly.

Nevertheless, it must be said that IFRS are applicable universally, and it is vital to see that XBRL (eXtensible Business Reporting Language) is linked perfectly in ensuring that this is deliverable. The best corporations embrace IFRS and XBRL and not only to abide by increasing legislative persuasion, growing government initiatives and strong recommendations of the accounting profession; there is a clear competitive advantage available to companies that accept and integrate IFRS and XBRL as a matter of course. This can lead to gains over companies that do not follow IFRS and commensurate XBRL usage, especially when many markets and countries make IFRS mandatory for the purposes of trade and investment. As such, IFRS and XBRL offer local and global opportunities.

Furthermore, when exploring IFRS in the following pages, it is worth noting that technology is the main driver for globalisation. Particularly, it plays an important part in the implementation of IFRS. In that regard, the anticipated convergence between IFRS and US GAAP (Generally Accepted Accounting Principles) will be achieved through technology, with XBRL at the forefront of that push.

This book will do more than satisfy a current need for understanding something about IFRS and XBRL. In effect, this is a primer in that it provides a firm foundation upon which to build further learning and understanding of two significant, influential and necessary standards. If nothing else, it will facilitate an appreciation of objectives and requirements associated with IFRS and XBRL.

Essentially, this book heightens readers' attention to various issues related to the development and implementation of IFRS and XBRL. In so doing, the book equips readers with the ability to see how these standards apply to various business entities, as well as to the numerous transactions that are at the heart of commerce.

Arising from this is a greater appreciation of what is necessary for improvement in financial reporting as well as in the wider reach of business reporting. With increased interest in non-financial issues, such as those associated with corporate social responsibility, integrated business reporting has come about. Still, significant issues remain, and these must be acknowledged and remedied in order to improve the timeliness and reliability of business reporting. As such, towards the end of this book, a new reporting paradigm is proposed, one that is based upon the foundation stones presented in preceding parts and expanded to account for a more thoughtful approach to objects and values, as explained in the next section.

LEADING TO A NEW REPORTING PARADIGM – CONCEPT MAP

This is a book written in relation to the underpinning of traditional business reporting, and also in support of more advanced reporting, as facilitated by XBRL, as well as of non-financial reporting.

Although many readers will make good use of reference information contained herein, note that this book is also a structured argument for a paradigm shift in business reporting overall. Specifically, blocks of knowledge are connected and compared to produce a compelling argument for a drastic, and necessary, change in how business reporting is developed today.

For instance, consider that IFRS in place now form the stable base for financial reporting, such as the statement of financial position (also referred to as the balance sheet), the statement of comprehensive income (also referred to as the profit and loss statement), the statement of changes in equity and the statement of cash flows. It is quite apparent from industry experience that the development and delivery of these financial reports can be improved dramatically by the implementation of XBRL. However, both of the standards highlighted in this book – IFRS and XBRL – need to be developed further in addressing an increasing, and necessary, call for non-financial reporting.

Consider, for instance, the rise in importance of corporate social reporting. While various other (non-IFRS) standards have appeared in this area, there is an obvious lack of agreement in the midst of these, which is needed to refine current non-financial reporting in order to make it more useful. Even so, there is considerable room for improvement throughout due to the current business reporting model being one with inherent weaknesses, including pointless duplication of data. This leads to the clear view that objects-based valuation, as well as the associated tracking of objects, fosters a better business reporting model that is referred to herein as the new reporting paradigm.

Accordingly, this book explores core components of what are understood, generally, to be the current fundamentals of business reporting. Thereafter, it identifies why changes are advisable and how these can be achieved. As a consequence, this book sets itself apart not only in melding the two worlds of IFRS and XBRL but also in expressing cogently why this illustrious combination, when properly aligned, drives change, and how further business reporting transformation can be achieved through taking manageable steps and making important progress.

Therefore this book will appeal directly to a wide-ranging readership, including:

• accounting practitioners – to improve the development and delivery of business reporting;
• standard setters – to see gaps and opportunities that must be addressed;
• IT professionals – to plan for systems that support better business reporting;
• academics and students – to understand the issues related to current and future business reporting needs.

In addition, senior executives in the private and public sectors, as well as company directors, politicians and government ministers, will find sufficient reasons to pursue better reporting outcomes.

In support of these notions Figure I.1 is a concept map of this book. This is provided for three particular reasons, to show:

Figure I.1 Overall concept map – leading to a new reporting paradigm.

Note: Length of arrows and size of rectangular areas does not denote anything of relevance.
Text in angular parentheses, [ ], identifies relevant parts of the book.

• the overall layout of the book;
• the flow of what connects key components, such as IFRS, XBRL and business reporting;
• the basis upon which change is attained and how more can be achieved.

As is apparent from the headings, there are three vertically positioned, rectangular areas: IFRS, XBRL and Driving Change. The latter part (Driving Change) features better business reporting of existing financials when XBRL is implemented, with this being faster, more reliable, more cost effective and offering more versatile business reporting. Electronic data can be re-used, as well as making possible intra-entity, inter-entity, intra-industry, cross-industry, interstate and international analysis.

Note that the columns pertaining to IFRS and XBRL show, below each initial representative area, another one related to future development in each case. In turn, this feeds into new business reporting that, as indicated, is still to be developed. In this regard, note the overarching scale denoting stable aspects of the map, such as standards, and the dynamic elements being the business reports that are crafted and delivered for assorted organisations worldwide.

Below that part of the figure, where IFRS, XBRL and business reporting are connected directly, is non-financial reporting. This represents reports related to corporate social responsibility. This relatively new form of reporting has various underlying standards, as shown to the left. Given that there is no current consensus among the related standard setters, changes are likely in this area, including further development in the areas of IFRS and XBRL, such as taxonomy and tagging, that will support, or facilitate, additional non-financial reporting outcomes.

This suggests that business reporting is not static and that changes are possible, as suggested by the upper-most ‘stable–dynamic' scale. It is timely to see, too, the additional scale at the far left-hand side of the concept map, which identifies elements that are ‘traditional, and in place', as per existing standards at the top of the IFRS column. At the other end of that scale, as shown at the bottom-left part of the concept map, is the indication that elements below those that are traditional and in place are ‘in development, or proposed'.

The overall classification on the basis of these two scales, although indicative and somewhat rudimentary, is that the bottom-right part of the concept map relates to future reporting opportunities. Accordingly, we can see that the ‘New Reporting Paradigm' is built upon all that we see in the preceding flow of connections, resulting in a combination of financial and non-financial reporting. In other words, there is integrated reporting, reliant upon standards (IFRS and otherwise) not yet drafted or set, that will address the pertinent issue of objects, or units. The same can be said for related extensions of XBRL taxonomy and tagging that are still to come in supporting yet-to-be-developed standards, as well as strengthening the integrity and delivery of future business reporting.

The next step in this particular story is to track objects, which would be prudent in a world where many objects, such as assets, are mobile. Object tracking, therefore, is the technical and prominent partner to objects that are clearly defined by associated standards. In turn, this will fulfil a critical issue in business reporting, such as resolving potential duplication of asset ownership. As such, the future of business reporting will be tighter, and will offer greater integrity and reliability, in as much as vagaries and areas of possible misinterpretation that exist today will be removed. Thereby, business reporting will be improved dramatically.

The final line of the concept map sets the three key themes that interact throughout this book: Standards (IFRS and otherwise), Technical tools (XBRL, and object tracking, instrumental in the rapid implementation and effective delivery of standards) and Reporting (which refers to the current understanding of financial reporting, emerging non-financial reporting and the evolving integrated reporting). It is in this latter facet that a new reporting paradigm is extended when object tracking is added.

Target audience

The overall concept map above indicates the necessary breadth and depth of elements contained in this book, which play a fundamental part in supporting current and expected thoughts of a new reporting paradigm. Accordingly, we can see that the various sections of this book are likely to be of particular significance to some people more than to others.

The following table, therefore, indicates which readers are expected to have an affinity with, and interest in, the five main parts of this book.

This book will be of particular use to accounting professionals who have yet to connect the two standards, IFRS and XBRL. This is especially the case when many businesses, including small and medium enterprises (SMEs) and corporations, seek the assistance of accounting services personnel and auditors in implementing IFRS and XBRL. The same can be said for the likes of international accounting professionals, as well as standard setters, who are new to IFRS and XBRL.

In addition, this book will be of use to people with any interest in public or private sector business. Therefore, senior executives, finance and IT professionals, accountants, academics and students will find this book useful, as will any members of the general public who seek a summary of these two influential standards.

Features

The primary strength of this book is that it presents an overview of International Financial Reporting Standards, as well as XBRL, and how this is a perfect partnership for delivering tangible benefits to businesses, governments and a wide variety of stakeholders.

In relation to IFRS, this book reviews the contents of each standard to provide an understanding of what is covered. It also presents key components of the related technological platform which is XBRL. In both cases, specific terminology is explained as a guide and an instructive tool to expand understanding of IFRS and XBRL.

Practically, this book presents short summaries and pertinent commentary to simplify the procedures, components and usage of IFRS and XBRL. It brings into perspective everything swirling around the topical issues of business reporting, particularly regarding future opportunities. It is in relation to the latter point that this book presents a new reporting paradigm, based upon preceding parts of the book, as well as a sound argument for necessary improvements.

Objectives

The purpose of this book is to facilitate crisper thinking in the business community, and society in general, about the intention and usefulness of IFRS and XBRL. It will help people to understand IFRS and XBRL, as well as to decide what they need to do next. For instance, should readers continue with further and deeper learning? Or can any associated tasks be relayed to accounting professionals who know how to apply accounting standards and implement XBRL?

From a business perspective, as suggested earlier, it is noteworthy that knowledge of accounting standards and XBRL can lead to a competitive edge over people who do not have the same comprehension. This is especially so given the increasing need for IFRS in many countries, whether for business reporting or for the facilitation of foreign direct investment or trade. XBRL must become a fundamental part of that process to ensure reporting speed and integrity.

Accordingly, this book is designed to prompt dialogue in any setting, whether in the classroom, the boardroom, the cabinet room, or the workplace, so as to increase constructive conversation about IFRS and XBRL in companies, in the public sector and in the broader community. It does so with the express aim of enhancing the reader's appreciation of IFRS and XBRL as to the requirements that are necessary for important components of private and public sector business reporting.

With all of this in mind, readers will see why business reporting can, should and will, over time, progress through necessary improvements in IFRS and non-financial standards, as well as in the definition, tracking and ­valuation of objects. In effect, the overarching objective of this book can be said to be the delivery of better business reporting through readers who grasp, and champion, the need for change.

Layout

In order to provide a useful guide to the developers, deliverers and users of business reporting, as well as to all related stakeholders, such as standard setters, this book is comprised of five parts.

• Part I: International Financial Reporting Standards (IFRS)
• Part II: IFRS Disclosures, Other Reporting Standards and Assurance
• Part III: XBRL – Using Technology to Implement Standards
• Part IV: Tracking Objects – a Paradigm Shift in Business Reporting
• Part V: IFRS + XBRL = driving change

These are followed by Abbreviations, References, Links, Publications and Websites. A summary of the five parts is provided below.

Part I: International Financial Reporting Standards (IFRS)

The first section presents an introduction to, and objectives of, International Financial Reporting Standards. Then the second section poses the question: how important are IFRS to business? In responding, this chapter addresses IFRS and legal objectives. The convergence of IFRS and US GAAP is also a topic of conversation, as is reconciliation with respect to US GAAP. Thereafter, a wider ambit is brought in by way of the International Organization of Securities Commissions (IOSCO). This section concludes with the role of regulators and the related enforcement of standards.

The third section looks into the governance and accountability of the IFRS Foundation, particularly its history, structure and finance. The associated monitoring board and trustees of the IFRS Foundation are presented, along with IASB members and the related due process, in addition to the IFRS Advisory Council. This sets a solid base upon which the next section rests.

The fourth section expands upon the framework, preface, standards and interpretations of IFRS. The IFRS are summarised, as are the International Accounting Standards (IAS). The treatment of these standards leads easily into the more recent so-called IFRS for Small and Medium Sized Enterprises. The section concludes with interpretations to those standards which are a part of the authoritative literature pertaining to IFRS.

The fifth section addresses the IFRS Practice Statement Management Commentary, followed by future plans in the sixth section, and new presentation formats, as well as model financial statements, in the seventh section. The eighth section lists the contents of the IFRS Red Book, and the ninth section introduces a glossary of IFRS-related terminology. The tenth section introduces the IFRS book index.

Part II: IFRS Disclosures, Other Reporting Standards and Assurance

The first section discusses IFRS disclosures and provides a review of related checklists. The second section focuses upon reporting standards other than IFRS detailed earlier, with particular attention paid to International Public Sector Accounting Standards (IPSAS) and the related overseeing body, the International Public Sector Accounting Standards Board (IPSASB). Standard-based organisations are also reviewed, including the System of National Accounts (SNA), the International Valuation Standards Council (IVSC), the Valuation Resource Group, IEEE, ISO and other standards that are private and voluntary in nature.

Part III: XBRL – Using Technology to Implement Standards

The first section introduces XBRL, discusses the benefits of this standard and identifies major users of XBRL worldwide. It also provides an introduction to XML, which is the technical basis of XBRL. The second section addresses the partnership of XBRL and IFRS, and reflects upon achievements to date. This section also introduces the integral taxonomy, the matter of IFRS translation, and provides a list of support materials, including a glossary of XBRL-related terminology. Future steps are considered in relation to XBRL and the acceptance of this standard by prospective users.

The third section refers to the organising and collection of data and shows examples of illustrative financial statements. The Global Reporting Initiative (GRI) is introduced, together with integrated reporting and the proven prospect of collaborative content analysis. The fourth section looks into systems that are used to organise and collect data, such as enterprise resource planning (ERP). Discussion about opportunities to integrate and track objects concludes the section.

Part IV: Tracking Objects – a Paradigm Shift in Business Reporting

The first section offers a number of topics for consideration in relation to the proposed need for better business reporting. These include changes in ­technology and also in thinking about what is necessary for business reporting. Developments in new reporting models are discussed, as are asset recognition and de-recognition, as well as the vagaries of financial measurement. A comprehensive business reporting model is proposed, along with a fresh perspective of future business reporting, whereby objects are considered as necessary elements, particularly when clearly defined, tracked and valued.

Part V: IFRS + XBRL = driving change

In concluding our journey of discovery, we finalise our understanding of IFRS and XBRL with particular attention to the issues and obstacles that hamper progress of acceptance and implementation in both cases. Additional, topical issues are also presented. This part therefore provides critical commentary on what is in the way of driving necessary business reporting change further, and faster.