Florida advances toward XBRL adoption, but Government Finance Officers Association opposes
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Florida advances toward XBRL adoption, but Government Finance Officers Association opposes

This development is a major milestone in the evolution away from PDF-based financial reports and toward machine-readable disclosure.

The Florida Division of Auditing and Accounting has released an extensible business reporting language taxonomy for use by local governments to report their financial status digitally. This development is a major milestone in the evolution away from PDF-based government financial reports and toward machine-readable disclosure that should help increase accountability and transparency by making it easier for taxpayers, policymakers, and other interested parties to access government spending data and financial reports.

The XBRL taxonomy was mandated and funded in 2018 by Florida House Bill 1073, a bill written in consultation with Reason Foundation policy analysts. Florida’s first-in-the-nation XBRL government reporting taxonomy is a notable point of progress, but advocates of this technology are still overcoming objections from within the government finance sector. 

After then-Gov. Rick Scott signed the Florida law, the influential Government Finance Officers Association (GFOA) put out a statement saying it “opposes efforts to mandate the use of specific technologies by state and local governments for financial reporting and disclosure.”

GFOA also noted, “While numerous small-scale efforts have been made to develop a taxonomy that incorporates necessary elements of GASB {Government Accounting Standards Board] GAAP [generally accepted accounting principles] financial statements, there currently exists no viable taxonomy.” 

But, today, in 2022, two viable taxonomies have recently been published: one by the state of Florida and the other by the University of Michigan in conjunction with XBRL U.S., a group I’m affiliated with.

The latter taxonomy includes support for seven key financial statements and four notes that appear in annual comprehensive financial reports issued by governments nationwide and has been indexed to the Government Accounting Standards Board (GASB) pronouncements.  These are standards used by local governments in most states with only minor customization.  

Undoubtedly, these taxonomies can be improved, and a key source of ideas for improvement is GFOA and the government finance officers it represents. It is for this reason that I hope recent developments will encourage GFOA to review its current policy. 

GFOA was not always opposed to the application of XBRL to government finance. In its 2009 statement on “Best Practices for Web Site Presentation of Official Financial Documents,” GFOA stated, “Governments should monitor developments in standardized electronic financial reporting (e.g., extensible business reporting language [XBRL]) and apply that language to their electronic document process when appropriate.”

This contrasts with the organization’s current opposition to mandating any specific technology. It is certainly true that many government mandates should be opposed and there are alternatives to XBRL. For example, OpenSpending, a standard published by the Open Knowledge Foundation in the United Kingdom, offers a very easy way to produce visualizations of government revenues and spending. It is not, however, an ideal fit for U.S. audited financial reports which include balance sheets and cash flow statements as well as the income statement data supported by OpenSpending. 

By contrast, XBRL was developed specifically to handle accounting disclosures that present a comprehensive overview of an entity’s financial condition. Further, the XBRL standard has evolved over its 24-year lifetime to handle a wide variety of reporting scenarios while also attracting a community of software developers and subject matter experts. It is the best match for U.S. government financial reporting. 

Twenty years after academics first proposed applying XBRL to U.S. public sector financial disclosure, we may finally begin to see implementation. In the absence of a robust taxonomy and user-friendly tools for creating XBRL government financial disclosures, any government finance department interested in XBRL was faced with high implementation costs and a steep learning curve. And the absence of early public sector adopters deterred private software providers and accounting experts from making investments that would reduce the costs and complexity of adoption. 

While the Florida release is a major step forward, there is still a long way to go. First, no technical documentation or implementation guides were released with the taxonomy. These documents are commonplace with new taxonomies and help to ease new users into the process. Hopefully, these products will be forthcoming. Otherwise, Florida’s local governments may hold off on implementing the taxonomy, opting instead to hand-enter their results in the Division of Accounting and Auditing’s reporting portal. 

Second, the Florida taxonomy is specific to state reporting requirements which have historically been limited to a more detailed income statement than that included in annual comprehensive financial reports. Balance sheet concepts have been included in the newly released taxonomy, but it is still not a complete implementation of the GASB reporting model. Hopefully, the Florida taxonomy will evolve to cover more GASB reporting concepts in future releases 

The Florida release is an important step forward for XBRL in state and local reporting, but further advances may be slow in coming until GFOA reconsiders its stance toward machine-readable government financial reporting.