Posts Tagged "EIOPA"
EIOPA Aligning Solvency II XBRL Taxonomy with EBA – The Right Way
This Solvency II Wire article had a lot of exposure in XBRL forums and mailing lists over the last few days. I would like to focus on its last paragraph:
The EBA is using a Data Points Model, a more sophisticated XBRL model, in which the link between the taxonomy and the business use is more difficult to establish. According to Mr Hoedjes, “EIOPA is trying to stay closer to the business side so that business users can read the taxonomy without a dictionary by their side. So we will try to develop a mixture between Data Point Modelling and the business use.” [Patrick Hoedjes is Director of Operations and Chairman of the IT and Data Committee at EIOPA]
This remark is very encouraging. The ability of business users to “understand” an XBRL taxonomy is a key enabler of the real benefits that XBRL brings not only to regulators and analysts, but also to businesses and organizations. The tendency to adapt to the XBRL domain commonly adopted IT data modeling techniques (such as the Data Points Model mentioned above), which are perfectly appropriate but result in XBRL taxonomies that are more complex and therefore more difficult to understand and use, is present in many XBRL initiatives. In some cases taxonomy architects justify the resulting complexity with the consideration that a specific XBRL taxonomy is used in a “closed” environment – meaning that the reporting program that the taxonomy supports does not allow users to modify or extend it. Therefore, the argument is that a complex data model is not an issue because
- Since the data model is completely controlled by the architects of the taxonomy, users can be provided with tools external to the taxonomy, such as spreadsheets and templates, that act as an interface and help them understand the complexity of the data model within the scope of the closed reporting project;
- Complexity does not create a problem for users because they are not allowed to modify the taxonomy anyway, and therefore they do not have to deal with that complexity.
In reality, users can and should be able to leverage any XBRL taxonomy, even if designed for a closed reporting environment, to support other internal or external reporting processes where it can be beneficial, even if those processes are completely unrelated to the purpose for which the taxonomy was created in the first place. This requires understanding, modifying and extending the taxonomy, and complexity becomes an issue.
Broad reusability of taxonomies is a key part of the value proposition of XBRL. XBRL taxonomies represent a wealth of authoritative, freely available information and resources related to a specific domain – be it the International Financial Reporting Standards, Solvency II, tax returns information in Australia, or anything else for which an XBRL taxonomy is published.
Within every XBRL project that I worked for I have always advocated a balanced approach between the use of generally accepted IT data modeling principles and the need of keeping taxonomy architectures as simple as possible, to facilitate its understanding and re-use both by business and IT users. This is not to say that a complex data model or certain types of XBRL taxonomy architectures are “wrong” – the issue is that frequently taxonomy architects consider only the immediate requirements of each project and lose sight of the broader picture.
XBRL is a business reporting supply chain integration standard. Focusing only on the end of that supply chain, on the moment in which a filing is received by a specific regulator or released to the market for a specific purpose, means considering XBRL as just another IT format in which information can be expressed. It also means giving up on its potential to make business, financial and accounting information transparent and accessible, cheaply and effectively, within or outside the corporate information system, for regulators and investors as well as for global corporations and SMEs.
The decision taken by EIOPA to align the Solvency II taxonomy with EBA without automatically adopting its Data Points Model, and in particular the motivations that support that position (delivering a taxonomy that is easy to understand by business users), are encouragingly consistent with this broader vision of XBRL, and I consider them the most remarkable part of the announcement.
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