New Tool to Increase Transparency in Government Finance Released by University Research Center

(DeKalb, Illinois, September 27, 2016)

Northern Illinois University’s Center for Governmental Studies (CGS) and Department of Accountancy
announced the availability of a new draft taxonomy that will enable analysts to compare financial
information over time and between governmental units. In addition to being documented via
spreadsheet, this new taxonomy is expressed in machine-readable XBRL, short for Extensible Business
Reporting Language. The taxonomy standardizes basic reporting definitions so that financial
information is consistently and explicitly defined and because the reports can also be expressed in XBRL
using the taxonomy the information submitted by governments is immediately machine-readable and
easier to analyze. The taxonomy development is part of a national project in which NIU has collaborated
with partners including colleagues at Rutgers University, financial reporting tool industry leaders, along
with XBRL and other domain experts.

Dr. Shannon Sohl, a CGS researcher who is leading the taxonomy initiative, said “We are already pilot-
testing this taxonomy for the government-wide financial statements in two Illinois cities, Aurora and
Fulton, and are looking forward to working with other governmental entities in the state to establish
digital reporting standards.” In Illinois, the State Comptroller collects and publishes Annual Financial
Reports (AFRs) from local governments, but these reports are often inconsistent with audited
information contained within Comprehensive Annual Financial Reports (CAFRs) filed in PDF format by
the same governments. “Rather than have two sets of inconsistent disclosures which are difficult to
work with, we want to encourage the government finance community to standardize around one
machine-readable reporting format. This will reduce the amount of work and confusion for everyone
involved,” Sohl concluded.

Marc Joffe, principal consultant of Public Sector Credit Solutions, assisting CGS with inputs to the XBRL
taxonomy, noted that the situation is similar in California. In a 2013 study for the State Treasurer’s
Office, Joffe found large discrepancies between CAFRs and data published in the State Controller’s Cities
Annual Report. “Not only will XBRL make reporting more efficient and consistent at the state level, but it
will also help investors and credit analysts get the data they need to analyze municipal bond default
risk.”

Professor Tammy Waymire, on faculty in the NIU Department of Accountancy, notes that academic
research in the government finance area has been limited by the lack of availability of data.
“Researchers are often left with one option for conducting financial research related to state and local
governments – hand-collection, gathering information one pdf document at a time. Availability of data,
in the standardized format to allow for comparability, would draw new academic researchers to the
field, and increase the scope and timeliness of government finance research.”

XBRL was developed in the late 1990s and entered widespread use after the Securities and Exchange
Commission began requiring public companies to file their quarterly and annual financial reports (10-K’s
and 10-Q’s) using that language. In Brazil and Spain, local governments are required to report their financial statistics to central authorities in XBRL, but no such mandate exists in the U.S. Under the Single Audit Act of 1984, the federal government is required to collect audited financial statements from state and local governments receiving $750,000 or more of federal assistance annually, but these disclosures are in a PDF format. Similarly, the Municipal Securities Rulemaking Board (MSRB) receives audited financial statements from state and local governments that issue municipal bonds, but only as PDFs.
That situation would change if HR 2477, the Financial Transparency Act of 2015, were to become law.
One provision of the bill, which has 35 co-sponsors, mandates the MSRB to collect issuer disclosures in
searchable and machine-readable text formats. Although passage of the bill is uncertain in this Congress,
proponents are expected to offer similar legislation in the future.

“But the community does not need to wait for Congressional action,” Sohl said. “We are urging the
accounting profession, statement preparers and consumers of government financial data to partner
with us to complete the taxonomy and encourage its use.”

The taxonomy description spreadsheet is freely available online for review and integration with XBRL
tools, at http://www.govwiki.info/UGGT as of 2016-09-23.xlsx, along with an example of a municipality’s
instance document created with this taxonomy, at http://www.govwiki.info/Fulton 2015 CAFR UGGT-
XBRL.zip. The taxonomy includes concepts with definitions and business rules for the Government-wide
financial statements (Statement of Net Position & Statement of Activities) along with concept labels for
the Fund financial statements (Revenues, Expenditures and Changes in Fund Balances & Balance Sheet).
These four statements are the most widely analyzed statements appearing in CAFRs published by US
public sector entities.

For additional information or feedback please contact Shannon Sohl, ssohl@niu.edu, 815.753.5851.