|By Diane Mueller||
|March 12, 2009 02:47 PM EDT||
Written by Bob Schneider Posted on March 12, 2009
I recently reviewed this blog’s content for the past few months and was not surprised that more than half was devoted to the SEC’s XBRL mandate. The final rule for interactive data has certainly been the big story, a major milestone in XBRL implementation. But there have been other developments that, while not as historic as the final rule, are notable and significant. These include:
- The IBM Data Governance Council — which comprises more than 50 companies that have pioneered best practices around risk assessment and data governance — announced in December that it was exploring the use of XBRL for risk reporting. Steve Adler, Chairman of the Council, reported on the follow-up meeting in late February.
- The Open Compliance and Ethics Group established a provisional XBRL jurisdiction in September.
- In October, the World Intellectual Capital Initiative (WICI) published “…a comprehensive information framework and XBRL taxonomy to help companies improve communications with investors and other stakeholders about business strategy and performance.”
Thus we see significant advances for XBRL in key areas: risk reporting; the entire governance, risk, and compliance (GCA) field; and nonfinancial reporting, including Key Performance Indicators (KPIs).
At the same time, cognizance of XBRL is spreading from a narrow confine of specialists to the broader business and IT communities, as evidenced by this article in Wired. CFAI surveys have consistently recorded relatively low recognition levels of XBRL among its members, but I would expect the next report to show a significant jump in their knowledge.
Following the December 2006 international XBRL conference, I wrote a post called The XBRL Moment. The meeting had been attended by the heads of arguably the three top accounting standards-setters, namely, the SEC, FASB, and IASB; the top guns at the AICPA, CFAI, and International Federation of Accountants came too. To me, the assembly of so many accounting and regulatory luminaries signified a special moment, a coming of age, for the obscure data standard with the highly forgettable acronym.
I don’t think a single article in Wired compares. But, coupled with the other developments I’ve noted, I do sense that we’re entering a new phase for XBRL adoption that extends beyond external financial reporting to general business reporting. XBRL is — as heard every ten seconds on ESPN – taking it to the next level.
This transformation, of course, is most welcome. Nevertheless, XBRL faces the challenge of all new technologies, i.e., managing expectations. I see some signs of XBRL being caught between the Scylla of “this changes nothing” and the Charybdis of “this changes everything.” The low-end extreme is represented in this post by veteran IR pro John Palizza, who argues:
Maybe I’m just a skeptic…but I don’t see what all the fuss is about with XBRL. It’s just rearranging the data that we already had, which to me seems like a lot of work for not much benefit. Better understanding and benefit come from working through the data. Balanced against this we seem to have given companies yet another opportunity to spin the data.
I’m reminded of that Comcast commercial where the guy who just got their service phones his brother; he thinks their calls will now ooze brotherly affection, but instead he finds they are as awkward as ever. I don’t see how XBRL can be expected to eliminate the natural inclination of management to put the best face on bad performance. In an XBRLized world, it’s still unlikely any CEO’s letter to shareholders in an AR will begin “We lost a ton of money last year. Part of the reason was the lousy economy. But mostly it was our poorly executed strategy; studied indifference toward our customers and suppliers; and general all-around stupidity.”
At the other extreme is Mark Cuban’s statement “In fact, President Obama’s use or lack of use of XBRL for government will be a beacon as to just how much transparency we can expect from his administration.” A beacon? A useful indication, maybe. XBRL may provide a fillip to open government, but the best thing a President can do to aid transparency is to be honest and forthcoming in his own statements.
Coupled with the issue of realistic expectations is the question of realistic evaluation: How should we judge whether an XBRL project is a success?” In a recent Tweet, Dominic Jones of IR Web Report asked “If XBRL is so great, why didn’t its use in bank Call Reports prevent the current banking crisis? Just asking.”
I put a similar question to Christian Dreyer in our interview in November. His reply:
The credit crisis has causes that are outside of the domain of financial reporting and reported numbers as per today’s reporting standards. XBRL is "just" an efficient vector for such data. I’d be very reluctant to use the crisis as an argument to promote XBRL, because the linkage is marginal at best. We’ll hopefully see improved reporting standards with more transparency, less Held-To-Maturity trickery, and a lot more fair value as a consequence of the crisis. At that point, we’ll see all that information using XBRL.
I think Christian’s reply is wise, and it is augmented powerfully by an answer Neal Hannon gave to a question in our interview: “Was there anything important [in the XBRL world] you believe was not reported or underreported [in 2008]?” He answered:
The biggest underreported story about XBRL in the US is the FDIC. During the recent financial crisis, the almost two years’ worth of quarterly data collected in the XBRL format has given the Treasury Department valuable insight into which financial institutions have suspect holdings. Secretary Paulson is in a much stronger position to make correct bailout allocation decisions because of the landmark work accomplished at the FDIC. I understand that since the crisis began, the FDIC has expanded the number of questions asked of over 10,000 U.S.banks each quarter. Kudos to the FDIC!
Neal’s response isn’t necessarily the last word on the matter. It can still be asked whether XBRL adoption at the FDIC for call reports should have been expected to help more to avert the financial crisis, and whether the returns have been worth the cost.
But his answer suggests that, even if XBRL doesn’t result in persistently stable economies or totally transparent financial statements, it still can make important contributions toward those goals at reasonable expense. Instead of all-or-nothing-at-all expectations and questions — like the one I put to Christian — his reply points to a sensible, useful, and realistic approach to evaluating XBRL projects.
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