Written by Bodo Kesselmeyer    Posted on September 1, 2010

Dr. Bodo Kesselmeyer, CPA, is managing partner of anuboXBRL GmbH & Co. KG Munich. He has been a member of the board of XBRL Germany since 2008 and chairs the IFRS Working Group of XBRL Germany and the IFRS Working Group of XBRL Europe. The views expressed in this post are solely his own and do not necessarily reflect the opinion of any XBRL jurisdiction or any XBRL Working Group he chairs.

Whether listed or not, incorporated firms in Germany must publish their annual financial statements and consolidated financial statements. The same rule applies for partnerships that do not have at least one individual acting as general partner. Small- and medium-sized companies do not have to file the full set of information — i.e., no profit and loss statement, no disclosures, and so forth.

Sending financial reports in XBRL format to the German business register
Prior to December 31, 2006, companies filed their financial statements to local courts using paper. Courts received annual accounts, but they did not regularly send reminders to companies that did not submit annual reports. Local courts were responsible to grant physical access to this information.

In November 2006, the German parliament passed a bill about the electronic business register, about a register of cooperative associations, and about the company register (Gesetz über elektronische Handelsregister und Genossenschaftsregister sowie das Unternehmensregister — EHUG, November 10, 2006). The new law reorganized the collection and dissemination of annual financial statements effective January 1, 2007:

• Local courts are no longer responsible. Responsibility for receiving financial statements and granting access to them moved to the German business register. (In 2006, a German private publishing house became the 100% shareholder of the German business register’s provider.)
• Electronic data formats must now be used, following a transition period in which paper was allowed until December 31, 2009. Companies pay fees to the German business register for filings, based on file format: the register charges the lowest filing price if XBRL is used, and charges more to accept Word/Rich Text Format or Excel. PDF was not allowed then.
• Listed companies must now file to the business register within four months of the end of the fiscal year, not 12.
• The German business register transfers XBRL filings to HTML. Financial reports are available free for anyone online, but in HTML format only. The German business register’s website does not offer XBRL data.

In the beginning of 2007, most companies and German XBRL experts were surprised that XBRL became the reporting format for business register filings and became the cheapest format for filing. There was no voluntary XBRL filing program in place, but alternative electronic formats were accepted from the beginning.

Datev, the large software and service company for German tax consultants, began offering XBRL exports to the business register. During the first year of this program, Datev filed about 220,000 XBRL reports to the German business register. However, during that time companies faced another challenge.

Unacceptable taxonomy extensions and reduced legal flexibility in structuring financial statements
In the new system, the German business register did not allow taxonomy extensions (changes of labels included), even though German local GAAP (i.e., HGB) allows companies great flexibility to prepare financial statements that consider the aggregation and generation of reporting positions (XBRL concepts) and company-specific labels of reporting positions.

Because of this contradiction, a great number of large companies, especially those being audited, were unable to transfer their original local GAAP financial reports into an XBRL format that is accepted by the German business register.

XBRL mandatory for listed companies… but impossible to comply
Listed companies became subject to the new German law TUG (Transparenzrichtlinie-Umsetzungsgesetz, January 5, 2007), which transferred the European transparency directive into German law. With this law, XBRL became mandatory for quarterly financial reports and semiannual financial reporting of listed companies. This group of companies faced a list of challenges in 2007:

• There was neither a voluntary filing program nor a pilot filing program in place.
• German labels for the IFRS 2006 taxonomy were generated by the IASC Foundation and were of low quality. (Later, at the beginning of 2008, the new IFRS working group of XBRL Germany would suggest label changes for 80% of all labels of the face financial statements to the IASC Foundation’s 2006 IFRS XBRL Taxonomy.) Listed companies had to use these low-quality labels because the business register did not allow taxonomy extensions in 2007.
• The original IASCF IFRS 2006 General Purpose Taxonomy had to be used. This taxonomy does not contain any industry-specific reporting positions (concepts), even though German commercial law allows listed companies great flexibility in structuring face financial statements and naming reporting positions (labels). Listed companies must file quarterly and semiannual financial reports to the company register (Unternehmensregister) using the business register as vehicle, but the German business register prescribed XBRL as the only and mandatory format for this purpose in March 2007 while not allowing taxonomy extensions. Consequently, it was impossible for listed companies to transfer their traditional financial reporting to XBRL.
• XBRL had to be used not only for the face financial statements but for all quantitative disclosures and narrative disclosure (that is, XBRL block text was not allowed). At the U.S. Securities and Exchange Commission, tagging of narrative disclosures is optional. Compared with the U.S. SEC tagging requirements, the German business register initially required more detailed tagging in companies’ second year of filing.

Summing up, the process of implementing XBRL for listed companies entailed a number of major material weaknesses and mistakes in Germany. German-listed companies were unable to convert their interim reports from paper to XBRL even while being forced to do so.

Reactions and the introduction of XML-layout format for listed companies
To solve this situation, listed companies contacted their associations. Two organizations started talking with the German business registrar. The German Association of Investor Relations Officers (Deutscher Investor Relations Verband e.V — DIRK) and the German Institute of Listed Companies (Deutsches Aktieninstitut e.V.) finally reached an agreement with the Bundesanzeiger about a new XML-layout format:

• Reporting submitted in this XML-layout format received the same price reduction as XBRL. The Bundesanzeiger began accepting the new formats in September 2007.
• Business content is not structured by using this XML-layout format, however. This author holds the view that this XML-layout thus violates a regulation of the Ministry of Justice (Verordnung über das Unternehmensregister, URV, 26. January 2007, §§ 1, 10) which requires that data be structured in an electronic format like XML or a similar format. The XML-Layout format used does not provide any structure for data, but offers formatting functionality only.

German listed companies and their investor relations departments do know the term XBRL very well, but with a very negative connotation. Some consider XBRL technology as not having been ready in 2007. It is evident to everybody, even non-XBRL experts, that the XBRL introductory process as such did contain major material weaknesses and mistakes in 2007.

2nd Quarter 2008: taxonomy extensions accepted
Starting in the second quarter of 2008, the German business register accepted taxonomy extensions for both local GAAP (HGB) and IFRS. In addition, the procedures regarding disclosures with XBRL have been simplified by a rule that is very similar to the U.S. SEC’s block text rule.

German IFRS taxonomy extension missing and European harmonization challenges
One open issue is that a German extension of the IFRS taxonomy is still missing. A German extension is going to contain additional disclosures in annual reports and quarterly reports.

Listed companies filing IFRS reports are subject to German laws, too, which require additional information (compared with the IASB’s bound volume). This situation is similar in various countries in Europe, although not always the same. Legal sources for such information come from national commercial codes, national corporate governance codex, national stock corporation laws, national securities trading acts, and national accounting standards boards.

For XBRL to replace traditional reporting media like paper and PDFs, the IFRS XBRL taxonomy extension must contain elements of national law. However, to maintain the advantages of XBRL, like compatibility, national laws’ IFRS taxonomy extensions need to be harmonized.

For example: Germany may generate 300 up to 400 new concepts in the German IFRS taxonomy extension. This would equal 10,800 new concepts for the 26 member states of the EU — a several-fold increase in the number of concepts to the original IFRS taxonomy. This leads to a risk that users and investment professionals will experience extreme difficulty if they attempt to compare disclosures of listed companies in different European member states.

The IFRS working group of XBRL Europe is addressing the issue while talking to European authorities like CESR (Committee of European Securities Regulators) and EFRAG (European Financial Reporting Advisory Group). Meanwhile, modeling the German IFRS extension has been slowed for a while in order to coordinate its technical structure with European needs.

Conclusion
In short, German-listed companies actually are using the XML-layout for filing their financial reports to the business register/company register. The IFRS XBRL taxonomy is virtually unused for filing to the German business register or business register/company register.

XBRL is used by several hundred thousand companies for filing financial reports to the German business register, but these filings are provided by a few service providers, led by Datev, who file several hundred thousand XBRL reports per year.

The business register is just an intermediary, however, and does not represent the users of financial reports — banks, investors, customers, competitors, and the like. Thus, even though XBRL has arrived at the business register, until now it largely has not arrived at financial reports’ actual users, and XBRL’s ultimate benefits are yet to be fully realized.
 

Written by Michael Alles     Posted on August 26, 2010

Dr. Michael Alles is associate professor at the Department of Accounting and Information Systems at Rutgers Business School and editor of the International Journal of Disclosure and Governance. His specialties are continuous auditing, XBRL, and governance.

You get what you pay for, goes the old saying, which came to mind when I recently attended the 2010 annual meeting of the American Accounting Association in San Francisco and listened to a large number of paper presentations and panel discussions on XBRL.

What in particular prompted my thoughts was the revelation that Microsoft’s latest XBRL filing to the SEC cost $100,000. Even for only the second-largest (!) technology company, this strikes me as a trivial amount.

Certainly a business innovation that is too expensive poses problems and controversy — consider the supposed $30 billion cost of implementing Section 404 of the Sarbanes-Oxley Act — but I think we have yet to fully understand what it means for something to be too cheap for its own good.

To return to an old question, consider auditing the now-mandated XBRL statements.

Stephanie Farewell from the University of Arkansas at Little Rock along with Roger Debreceny from the University of Hawaii at Manoa presented a fascinating teaching case on attesting to the XBRL filings of a (fictional) airline with SOP 09-1 Performing Agreed-Upon Procedures Engagements that Address the Completeness, Accuracy or Consistency of XBRL Tagged Data released by the Auditing Standards Board in 2009 (ASB 2009).

This is a wonderful accomplishment by the authors, providing students with “engagement file cover sheet, signed engagement letter with attachments, client representation letter with attachments, client interview, third-party communications, rendered XBRL files, mapping and extension reports and validation reports” — in other words, all the complicated information necessary to even begin an assessment of an XBRL filing, and this only for an agreed-upon procedure, not a full-blown XBRL audit, whatever that might look like.

At the conclusion of her presentation, I asked Stephanie, “So, would you agree to do an audit of Microsoft’s XBRL filing for $25,000?” She bravely said “yes,” but she is not a partner at a Big 4 firm facing the ever-present risk of litigation and the constant pressure to get the next large revenue engagement. I seriously doubt that any Big 4 auditor would be willing to assume the risk of auditing an XBRL filing from any Fortune 500 company for so piddling a sum as $25,000, even assuming that this sum covered its outlay costs.

Then again, why would a client pay even as much as 25% of the cost of an original filing to audit it? To be blunt, doing so is an entirely non-value-adding activity to the filer.

The other major implication of XBRL’s being so cheap to implement is that few market opportunities exist for developers of XBRL software. In particular, software only designed to prepare SEC-mandated XBRL filings has a market of a few thousand accelerated filers at most. Furthermore, in practice the number of potential customers for this software is smaller still, perhaps eventually being restricted to the handful of commercial printers who appear to be doing most of XBRL filings’ preparation. Given this small size, it is very difficult to imagine major software firms finding this market large enough to be worth entering. Notably, Microsoft has not released an XBRL product despite being one of XBRL’s earliest and most significant corporate proponents.

My main concern in this regard concerns academic research into XBRL.

At the AAA meeting, there was a great deal of it presented, and much of it was highly innovative and insightful. Diane Janvrin from Iowa State University and Won No from Iowa State University, for example, presented an interesting field study in which they detailed the steps that several first-time XBRL filers undertook in preparing their filings. As a result of this investigation they posed a long series of research questions about the XBRL process which they felt deserved further study.

I entirely agreed with Janvrin and No that their questions were interesting and perhaps even important. Nonetheless, would devoting academic effort to investigating them really be worthwhile when the entire process costs no more than a few tens of thousands of dollars? At some point, doesn’t research into the minutiae of a process with trivial cost become an exercise in academic navel gazing?

Among Janvrin and No’s more surprising findings was that in many instances the entire focus of senior management was in making sure that renderings of XBRL instance documents exactly matched paper annual reports. As long as they matched in that way, managers did not really care what underlying tags looked like. This obviously demonstrates a total lack of understanding about the purpose and benefits of XBRL — namely, to liberate financial data from its paper-based format. At the same time, however, it’s difficult to blame these managers when the SEC also places so much emphasis on matching XBRL renditions with paper-based filings.

Incredibly, Janvrin and No also found in several cases that the commercial publishers on which their sample firms relied to make the actual submission to the SEC promptly re-entered company data using their own filing software, totally ignoring the company’s laboriously-prepared instance documents. Apparently no one from the company complained about the procedure, perhaps because they didn’t realize what was happening, but also, I suspect, because they didn’t want to increase the cost of the operation by making a fuss. (Once again, remember that you get what you pay for.)

As one looks forward to fully-tagged footnotes in the next filing year, it may well be the case that management will pay more attention to the tagging process. Then again, perhaps not: if expenditure decisions are delegated once they fall below a certain (very large) threshold, is seems unlikely that a CFO will personally supervise tagging in its second or third year, when the costs have fallen even further from what they are today.

The logical outcome of this process is that XBRL will come to be considered part of the infrastructure of a company, something that can be outsourced as secondary to its core competency. If that sounds fanciful, consider that this is precisely why companies hire commercial publishers to undertake their SEC filings. XBRL is simply an optional service today for these publishers — a service that will become part of the standard package in the future.

Before asking whether XBRL can avoid this fate, consider whether that would be such a bad outcome. PDF remains a highly valuable tool for document publishing even if no one outside Adobe knows or cares how the conversion process is undertaken. Perhaps those who have been so intimately involved with creating XBRL have a distorted view of the importance of the means of tagging rather than simply focusing on its outcome.

That is not to say that XBRL cannot enhance its value added. At the AAA many interesting examples of the use of XBRL in non-financial applications were presented, from bill collection by the state of Nevada to Standard Business Reporting in Europe and Australia, while Glen Gray from Cal State Northridge and Rick Hayes of Cal State L.A. discussed the synergies between XBRL and continuous assurance. In a similar vein, Marlon Attiken and Santosh Nair from IBM Global Business Services have advocated the use of XBRL to accomplish nothing less than saving the US financial system!

These examples of innovative uses of XBRL are interesting, and many are, in fact, already in operation. This demonstrates the versatility of XBRL as a tagging tool that helps aggregate disparate data systems. That is the point: these applications use XBRL generically as an already-developed and readily-available tagging mechanism. If XBRL did not exist, they would use some other taxonomy for that purpose rather than inventing XBRL in particular. While the utility of XBRL in these examples should not be minimized, it also has to be acknowledged that XBRL was not designed with these purposes in mind, which surely has to imply that in at least some circumstances XBRL is not as well-suited as a custom designed taxonomy would be. After all, XBRL is meant for tagging income statements, not tax forms or accounts payable.

There is, of course, one variant of XBRL that is precisely meant for a much wider application than financial reporting, and that is XBRL-GL. At least at the AAA, however, not many examples of the use of XBRL-GL were presented. Perhaps that will change as the value of XBRL outside financial reporting becomes apparent.

In fact, I think this is the only way that XBRL can avoid the trap of being too cheap for its own good: become a multi-purpose tool despite having been conceived and designed with one very specific task in mind. Just as one could not have imagined every application for the telephone or the computer until they were invented, perhaps XBRL’s unintentional versatility as a cost-effective tool to bring together legacy data systems will prove to the real source of its value.

This subject deserves further exploration some other time. Let me just close with another old chestnut of a saying, that something that remains a bargain is no bargain. XBRL has turned out to be a lot cheaper than anyone ever imagined only a few years ago, but for its own good, it has to be worth more than it costs.

Written by Bob Schneider     Posted on August 19, 2010

In the wake of the financial meltdown, all US economic institutions have come under scrutiny, and the proxy system — through which shareholders vote annually for directors and on corporate governance matters — is no exception. Described as the first serious attempt to overhaul the proxy system in thirty years, the SEC issued its Concept Release on the US Proxy System (CR) last month.

Not surprisingly, the CR is a long document that raises many issues described in briefings by law firms like Baker Hostetler and Winston & Strawn; among them is the potential of XBRL for bringing greater transparency to the process. Before I look at that facet of the CR, however, a little background on the US proxy system is in order.

Schedule 14A of the General Rules and Regulations promulgated under the Securities and Exchange Act of 1934 defines what information is required in proxy statements. As one might imagine, the regulations are complex; among the items the Schedule requires in the annual proxy statement is information about nominated directors; compensation of board members and top executives; and background on the audit committee as well as fees paid to auditors. Perhaps the best way of learning what companies’ proxy statements contain is reviewing a few: SEC Watch provides links to new proxy filings. As for mutual funds, these generally are required to disclose annually on Form N-PX how they vote proxies relating to securities in their portfolios.

Returning to the CR, of particular interest to the XBRL community is Data-Tagging Proxy-Related Materials (pp. 96-104). It’s an interesting discussion which incidentally contains considerable history on the SEC’s use of XBRL. Here’s what it says on the potential of interactive data for the proxy system:

A significant amount of the textual data in the proxy statement is well-structured and may be suitable for data tagging. If issuers provided reportable items in interactive data format, shareholders may be able to more easily obtain specific information about issuers, compare information across different issuers, and observe how issuer-specific information changes over time as the same issuer continues to file in an interactive data format. This could both facilitate more informed voting and investment decisions and assist in automating regulatory filings and business information processing.

The CR demonstrates the SEC’s continued (or perhaps renewed) interest in adopting XBRL for executive compensation data. As footnote 221 on page 100 notes, in 2007 the SEC created an Executive Compensation Reader, which was generally well-received. However, in previous Comments to SEC, some parties have suggested that “variations among issuers in executive compensation practices may not lend themselves to the development of standard tags.” Whatever those variations may be, it’s hard to imagine they represent as great a challenge as preparing the already-mandated XBRL financial statements of US companies, which operate in a wide range of industries under a host of accounting policies open to differing interpretations.

There’s a footnote on page 99 which I had some problems with: 

We anticipate that any interactive data format version of the information permitted or required would not replace the traditional format version, at least not initially. In general, interactive data currently is machine-readable only. Without the use of software, interactive data is illegible to the human eye. As a result, we expect that any interactive data would be provided in a separate schedule or exhibit. It is possible, however, that at some point in the future technology will evolve in a manner that would permit human-readable text and interactive data to appear in the same document.

Two things concern me. First, I’d like a more forceful statement that, if the XBRL format is adopted, it eventually would replace the traditional version. I understand the need to initially phase XBRL in. But a dual (and perhaps dueling) set of authoritative documentation begs the question of which should ultimately be relied upon. Relegating interactive data exhibits to second-class status only will lessen companies’ commitment to get XBRL data right, and it increases the possibility of confusion by shareholders.

Second, I’m a bit baffled by the last sentence: “Human readable and interactive data…in the same document” sounds much like the Inline XBRL technology that exists right now. Given Walter Hamscher’s recent statement (see point 11 in this blog post) that the SEC is looking closely at making greater use of Inline XBRL, I’m a little surprised that this aim wasn’t reflected in a discussion of human- and machine-readable formats.

As for the status of an XBRL proxy taxonomy, the CR states:

Currently, there apparently is no standard set of XBRL definitions, or “taxonomy,” available to enable an issuer to provide proxy statement and voting information or any subset of such information in XBRL format. XBRL US, however, is developing a taxonomy for at least some information a proxy statement requires. See http://xbrl.us/Learn/Pages/Initiatives.aspx (“Broadridge Financial Solutions [the former brokerage services division of ADP – ed.] contributed a proxy taxonomy to XBRL US in Q4 2008. XBRL US will incorporate the taxonomy into a master digital dictionary of terms.”)

The Request for Comment section (pp. 101-104) asks for a wide variety of feedback that comprises both the benefits and costs of adopting XBRL for different parts of the proxy system. Interestingly, at a couple of points the discussion raises the possibility of adopting XBRL for executive compensation data regardless of whether interactive data is used for any other proxy information.

Numerous Comments already have been received on various questions posed by the CR. If my searches have been accurate, however, only one thus far addresses XBRL, a negative assessment at the bottom of page 4 of the Comment. Comments can be submitted at this page of the SEC site; they are due by October 20, 2010.

Written by Bob Schneider     Posted on August 8, 2010

Last week, the Committee of European Securities Regulators (CESR) offered several measures to improve access and search of financial information of listed companies in the EU’s 27 member countries. The proposals present options for the organization and centralization of so-called Officially Appointed Mechanisms (OAMs) that are the financial information storage facilities for public firms. The measures also call for a cost/benefit analysis of an XBRL mandate for listed company financials and contemplate a five-year phase-in period.

The measures are detailed in the Consultation Paper Development of Pan-European Access to Financial Information Disclosed by Listed Companies. Summaries of the proposals are found in the CESR press release, Reuters, and Financial Times (subscription required); both the Rivet and EDGAR Online blogs have posts

Here is the key section on XBRL:

CESR has agreed on undertaking a cost/benefit analysis on possible transition to mandatory XBRL filing within a period of five years. Such a period would cover a preparation time of three years and a voluntary filing program of two years prior to the start of the mandatory filing requirement. The filing requirement would cover periodic financial information of issuers covered by the TD [Transparency Directive] and preparing their financial statements in accordance with IFRS. CESR anticipates issuing a consultation paper on the issue in 2011….

Only financial information is being emphasized at this point:

CESR also notes that even though there are standards that could be used for structuring information other than financial information, demand for such structured information seems currently to be low. Therefore, CESR considers that common input formats for other regulated information than financial information are currently not of the highest priority.

Europe and the US are headed in the same direction toward a single IFRS/XBRL accounting and reporting regime. In 2005, the EU mandated IFRS for listed companies of member states; although the US has delayed implementing IFRS, it is still moving toward adoption. (See CFO.com’s highly useful series on convergence.) Meanwhile, as readers know, the US began to phase-in XBRL for financial reporting in 2009. Though certainly not a given, a single IFRS/XBRL regime for US and Europe is in sight for the latter half of the decade. Depending on your point of view, that’s either a long and disappointing delay in the timetable former SEC Chairman Cox envisioned just a few years ago, or, given the nature of governments and their bureaucracies, a reasonable wait for a single set of reporting standards.       

Turning to financial information storage, note that the OAMs the proposals seek to integrate are distinguished from the national registers that Thomas Verdin has discussed on this blog. The OAMs are established by the EU’s Transparency Directive, which requires each member state to set up a centralized storage facility for the “regulated information” listed in the TD. The CESR paper notes that “Currently most OAMs allow different types of file formats for filings. The information is usually stored in PDF, text or HTML format. Only one OAM requires filing of financial information in XBRL format and another allows it.”

Many national registers are linked through the EBR.org network driven by the BRITE (Business Register Interoperability Throughout Europe) project. As the CESR paper discusses on page 18, a few years ago CESR and BRITE representatives met but didn’t proceed on collaborative efforts to connect OAM and national registers. The paper states:

CESR notes that interlinking business registers and OAMs would provide end users a wider selection of official information relating to EU issuers. However, CESR considers that regulated information to be published under the different securities law directives…should already cover the information that is likely to affect the value of the listed securities. The information available at the business registries is of more relevance in terms of non-listed companies…Therefore CESR considers that the link to national business registers is not of the highest priority.

As described in this paper by researchers at the Financial Law Institute at Ghent, the burden of filing requirements and the fragmentation of financial information for European companies can be “considerable”:

….Take the example of a public limited company with its registered office in the UK, having a branch office in Belgium and the shares of which are admitted to trading on Xetra (Frankfurt’s stock exchange)…This company will have to file corporate information with business registers located in the UK and in Belgium, as well as to disclose financial information and to notify it to the competent authority and to the OAM of Germany. Moreover, Belgian law will require a certified translation of the company documents into French or Dutch; while German law may require the information to be made available in German or English and to publish notices in newspapers. This multiplication of often divergent requirements not only increases the risk of non-compliance, and ensuing liability risks for executives, but it also leads to fragmentation of the available information over several registers or databases in different countries.

From an XBRL vantage point, the multiple information requirements, facilities, and venues are worrying. XBRL exhibits are not simply traditional financials sprinkled with a dust of computer code; rather, the process of mapping and tagging statements creates an information resource that differs from traditional financials in important ways. We shouldn’t expect a nirvana of a single global depository of company information based on a single set of IFRS/XBRL standards anytime soon. But a hodgepodge of XBRL and non-XBRL financial disclosures — with varying authority and purposes in different European jurisdictions – should be avoided. As the SEC has mandated, there is a need for a phase-in of liability and assurance requirements for XBRL exhibits. But, ultimately, XBRL statements must be the single set of financials with final authority.

Written by Bob Schneider     Posted on July 30, 2010

A few weeks ago, Haaretz, Israel’s oldest daily newspaper, published an article about the country’s adoption of XBRL with the chilling headline A third of Israeli companies get int’l financial reports wrong.  Summarizing the findings of a recently published study by a trio of researchers, the piece states:

The ISA [Israel Securities Authority] had hoped that Israel would be a light unto the nations. Barely a flicker, really: In practice the project has been more reminiscent of the Tower of Babel…34% of the 2008 corporate reports showed inconsistencies between the XBRL reports and the Hebrew versions. In 11% data was missing, and in 28%, there was a mismatch in the content. 

The article includes this eyebrow-raising quote from Ariel Markelevich, a member of the research team:

…There were cases in which companies reported losses per share as profits per share in XBRL, and a case in which a company put its data for 2008 in its balance sheet, but in the middle of the collection of numbers, it switched to figures from 2007. There were 15 companies that simply didn’t report a profit and loss statement in XBRL.

In the paper, which is available online, the authors describe how XBRL statements are prepared in Israel. Filers neither map or tag their financials; instead, they enter line-item data (footnotes are largely excluded) into a form at the ISA’s TOFES website. The ISA converts the company data to XBRL and uploads it to its MAGNA reporting site. Importantly, the authors note that “…a similar data entry form has existed on the ISA’s website for a while. The only difference seems to be that the ISA is now converting this data to XBRL format.”

After reading the paper a couple of times, I’m uncertain how things went wrong. Some of the mistakes described — such as a reversal of signs that would, for example, turn an EPS loss into a profit — have been well documented in XBRL conversions. The SEC (among others) has cautioned filers about the potential for error, and these mistakes are unlikely to reappear in any number in future XBRL exhibits. Wholesale mistakes such as the complete absence of any P&L numbers at all, however, are just baffling.

But for argument’s sake, let’s assume the errors in the XBRL statements are as serious and as extensive as the authors contend. What does the Israeli experience tell us about the utility of XBRL adoption, and what lessons does it hold for regulatory agencies throughout the world that are implementing XBRL reporting?  

Very little. As the authors make clear, the “unique process” by which XBRL statements are prepared in Israel — with filers doing no tagging, and the ISA itself performing the XBRL conversion — is poles apart from that of SEC and many other national registrars. Because Israel’s method of implementing XBRL bears no resemblance to the way other regulators are pursuing XBRL adoption, drawing any conclusions about the viability of XBRL statements from the Israeli experience is impossible.  

Nevertheless, the authors occasionally imply such a connection. Although stating the uniqueness of Israeli adoption, they spend much time discussing the SEC experience, focusing almost exclusively on the Voluntary Filing Program (VFP) and the mistakes researchers have found in participants’ XBRL exhibits. Based on this evidence, the authors state that “Due to the amount of human intervention (manual or software tagging), the reliability of XBRL filings currently made available is highly worrisome.”

That’s like a baseball writer in mid-May forecasting that, given its lousy spring training record, a team will finish last in their division — when they’re already 26 and 14 in the regular season. The largest companies have now been filing XBRL exhibits for a year, and by most accounts adoption has gone relatively smoothly with low data error rates. (Footnote data may prove more challenging, but, as noted, the ISA adoption did not include footnote disclosures.)

I understand the needs of researchers, who are eager to analyze whatever large sets of data are available. And it’s both reasonable and useful to discuss mistakes in XBRL financials prepared under such programs.

But the VFP was specifically set up so that companies could gain experience with XBRL without worrying about getting everything right. Assessing the overall viability of XBRL adoption for financial reporting on this data is not only wrongheaded: it can also discourage regulators from inaugurating such programs, and companies from participating in them.  

Written by Vinod Kashyap     Posted on July 22, 2010

Vinod Kashyap is a Director at  NextGen Knowledge Solutions Private Ltd., which is engaged in the business of conducting training courses on XBRL for banks, corporations, and financial professionals in India. He is a member of the Institute of Chartered Accountants of India and is a qualified Information Systems Auditor.  

XBRL is making steady progress in India for external and internal reporting of banks and companies. These advances are underpinned by the work of XBRL India, a provisional jurisdiction of XBRL International.

Recognizing the enormous benefits that an XBRL-based reporting system offers, the Reserve Bank of India (RBI) formed a high-level steering committee for the purpose of adopting XBRL for various returns being submitted by India’s commercial banks. On October 6, 2008, the RBI launched its XBRL-based electronic filing system for capital adequacy return (RCA II), which is based on the Basel II-related capital measurement framework. India is one of the few, if not the only, developing country that has implemented XBRL-based reporting of data under Basel II. RBI has also developed a taxonomy for two more returns being submitted by commercial banks, namely, (1) the Gaps Position and Balances return for monitoring compliance of the cash reserve ratio (CRR) by banks, and (2) the so-called Return A for monitoring net overnight open positions and aggregate gap limit by banks authorized to deal in foreign exchange. RBI is in the process of adopting taxonomies for several other returns, including annual and quarterly financial statements.
 
Turning to operating companies, the Institute of Chartered Accountants of India (ICAI) has completed a draft  financial reporting taxonomy for commercial and industrial (C&I) companies, which awaits approval of XBRL International. ICAI has also finished work on a draft XBRL banking taxonomy, an extension to the core C&I taxonomy.  

The Bombay Stock Exchange and National Stock Exchange, India’s two leading stock exchanges, have already adopted an XBRL-based reporting system under a unified electronic platform popularly known as the CorpFiling system. Currently, the top 100 companies in India are using CorpFiling to submit their disclosures to the two exchanges.
 
The Central Electricity Regulatory Commission (CERC), the regulatory body for the power sector in India, has embarked upon development of an XBRL-based Regulatory Information Management System (RIMS) that would facilitate information collection, regulatory analysis, compliance monitoring, decision-making, and other regulatory functions.

Finally, the Ministry of Corporate Affairs (MCA) has decided to implement an XBRL-based financial reporting system for all companies in India from April 1, 2011. There are about  900,000 companies that submit data to MCA. However, the necessary regulatory notification from MCA on this system has not yet been made.

Not much has been done so far by the accounting bodies in India to educate their members on XBRL. In the absence of sufficient XBRL-trained professionals in India, companies will find it difficult to adopt an XBRL-based reporting system if implemented as scheduled from 2011. In addition, it is expected that a very substantial amount of work will also be generated because of outsourcing from other countries. Clearly, after perhaps a relatively slow start compared with some other Asian nations, India is emerging as a significant force in XBRL adoption.  

Written by Bob Schneider     Posted on July 17, 2010

SEC requirements for XBRL disclosures affect three types of entities: operating companies, mutual funds, and credit rating agencies that are Nationally Recognized Statistical Rating Organizations (NRSROs).

The mandate for operating companies has, quite properly, received the great bulk of the attention, and there has been a continuous flow of information and commentary. For mutual funds, the Commission’s recent webinar on providing XBRL data for the risk/return summary offers an excellent outline and many of the specifics.

Comparatively little has been written about the requirement for NRSROs. I hope this short Q&A is useful.

1. What is a Nationally Recognized Statistical Rating Organization?
NRSROs are credit rating agencies (CRAs) that are registered with the SEC under guidelines of the Credit Rating Agency Reform Act of 2006 and whose ratings are consequently deemed acceptable for a variety of regulatory purposes, including capital requirements. Given their Federal government imprimatur, NRSROs enjoy enhanced status vis-à-vis other CRAs, and their ratings are widely used by other government entities and investors.

2. How many NRSROs are there, who are they, and what securities do they rate?
As listed on this SEC webpage, there are currently ten NRSROs which “…may be registered with respect to up to five classes of credit ratings: (1) financial institutions, brokers, or dealers; (2) insurance companies; (3) corporate issuers; (4) issuers of asset-backed securities; and (5) issuers of government securities, municipal securities, or securities issued by a foreign government.”

3. What was the process for adopting XBRL disclosure for NRSROs?
Unlike the XBRL-specific interactive data rule for operating companies, the regulations to implement XBRL for NRSROs were part of a series of amendments to the larger set of rules that govern these entities. As readers are aware, many observers place substantial responsibility on credit rating agencies for the subprime mortgage meltdown and consequent financial crisis. In response, in 2008-2009, the Commission proposed amendments — including provisions for XBRL disclosure — to existing rules governing NRSROs, modifying them after considering the Comments they received from the NRSROs and other parties.

4. What views were expressed in the Comments to XBRL implementation?
The Comments I reviewed were mostly unconcerned with either the utility or difficulty of adopting XBRL. Instead, the Comments – particularly those from NRSROs – focused on the threat to the agencies’ subscription revenues from public disclosure of ratings data soon after the rating was issued. One Comment noted that the drop in subscription revenue from fast public disclosure would have the perverse effect of making NRSROs even more reliant on income from issuers – a revenue source at the heart of the criticism credit rating agencies received for their role in the financial crisis. 

5. What are the current requirements for XBRL disclosure by NRSROs?
NRSROs must post on their websites in XBRL format a random sample of 10% of their issuer-paid credit ratings and histories of ratings actions for each class of rating for which the NRSRO is registered and has issued 500 or more issuer-paid ratings. In addition, they must disclose ratings histories for all credit ratings initially determined on or after June 26, 2007. Apparently recognizing NRSRO concerns about revenue impairment, the SEC ruled that, for issuer-paid ratings, ratings actions must be disclosed 12 months after they were taken; for other ratings, ratings actions need not be disclosed until 24 months after they were taken.

6. What is the status of the XBRL taxonomy for NRSRO disclosures?
The taxonomy has been developed by XBRL US, and the SEC hopes to release it shortly. Because the rule requires an NRSRO to use the List of XBRL Tags for NRSROs published on the Commission’s Web page and such a list is not currently available, NRSROs “can satisfy the requirement…by using an XBRL format or any other machine readable format, until such time as the Commission provides further notice.” (see Release No. 34-60451).

For readers who want to do further research on the requirements, the SEC’s Spotlight on Nationally Recognized Statistical Rating Organizations has the links to the relevant documents. Also, note that the financial reform bill passed a few days ago has numerous provisions that will affect NRSROs. I’m not aware that they will have an impact on XBRL disclosure rules, but please let me know of any possible effect. 

Written by Bob Schneider     Posted on July 9, 2010

Launched at the start of the new millennium, the Global XBRL Academic Competition is almost as old as XBRL itself.  In an interview with this blog a couple of years ago, Saeed Roohani — Program Chair for the Competition and Professor of Accounting at Bryant University – noted that the earliest entries focused on “awareness” issues, i.e., “do you know what XBRL is?” More recently, however, with the adoption of XBRL in an increasing number of jurisdictions, the students’ research has been addressing “implementation, value proposition issues, and internationalization.”

A good example is the paper An Analysis of the Implementation of XBRL by Merchandisers and Manufacturers, which received Honorable Mention in the 2009-2010 competition.  Advised by his professor Neal Hannon, a leading XBRL expert, Constantine “Dean” Proestakes compared the elements chosen by six companies — three merchandisers and three manufacturers — for the same line items on their respective balance sheets for a quarterly report. His work found interesting variations in the elements companies chose for the same line item. One example he cites is that for Property, Plant, and Equipment (page 5):

Specifically, the computer manufacturing companies of Dell and Apple chose to report this line item using an extension, whereas the other four companies used the standard XBRL element “<us-gaap: PropertyPlantAndEquipmentNet>”. Hewlett-Packard was the only computer manufacturer of the three not to create an extension for this line item. One would think that Hewlett-Packard’s manufacturing operations are similar to that of Dell and Apple. Indeed, there was no separate line item for software on Hewlett-Packard’s balance sheet so there must be a reason why Apple and Dell chose to depart from the existing XBRL Taxonomy and Hewlett-Packard did not.

Mr. Proestakes explains that, according to GAAP, capitalized software is an intangible asset; the definition for the standard Property, Plant, and Equipment element, however, specifically stipulates tangible assets. Mr. Proestakes suggests that Dell and Apple may have believed an extension was necessary to include their (intangible) capitalized software. HP, for whatever reason, did not.

As I read through the paper, I recalled Walter Hamscher’s speech at the recent Rome XII conference, where he noted how XBRL filing is changing traditional accounting statements. Walter noted that data that originally appeared in a few tables in the traditional financials can sometimes be consolidated and better represented in XBRL by using a single table. In turn, the company may decide to use that single table next time for the traditional financials.     

Although presentation questions may be distinguished from the conceptual and definitional concerns Mr. Proestakes describes, the larger issue is the same, namely, the impact that creating XBRL exhibits has on traditional financial statements. The process forces (or, more optimistically, enables) accountants to think about their financials and the underlying accounting in fresh and useful ways. When mapping line items to XBRL elements, questions arise: What exactly does this line item include? How do we best define it for XBRL purposes? How do other companies in our industry treat this item? Why do we treat it differently? And, based on our answers, should we change the underlying accounting (e.g., reclassify transactions) to make our statements more comparable and better reflect GAAP?
 
This potential for improvements to the financial statements and the accounting process may be little solace for overburdened CFOs who consider XBRL exhibits just one more regulatory burden of questionable value. But as with other requirements (for example, Y2K audits) that companies have had to meet, the XBRL mandate will yield unexpected benefits. After the initial hurdles of XBRL filing are passed, CFOs may just find a few pleasant surprises in the cost/benefit calculation.

 NOTE: Constantine Proestakes is a Mr., not a Ms.. I apologize to him for the error in my original post.  

Written by Bob Schneider     Posted on July 3, 2010

In the past several months, Inline XBRL (or iXBRL) reached two important milestones. First, it was jointly adopted by HMRC, the UK tax authorities, and Companies House, the UK’s registrar, for filing company tax returns and accounts. Second, in May, XII announced that the Inline XBRL Specification had been approved as an XBRL International RECOMMENDATION.

In addition, in his speech at the Rome XII Conference, Walter Hamscher, Manager, Technology and Taxonomies in the SEC’s Office of Interactive Disclosure (OID), said that he was “very excited” about Inline XBRL and “very heartened” by its adoption by UK authorities. It certainly seems Inline XBRL will receive close attention at the SEC in future adoptions of XBRL technology.

Given the expanding use and heightened interest in Inline XBRL, I have collected several resources for easier research and reference.

John Turner of CoreFiling recommends two posts on the Hitachi blog for learning what Inline XBRL is and, needless to say, I wholeheartedly concur. The first is an interview with Walter Hamscher from July 2008, questions 9 and 10. The second is a piece by Andy Greener, Senior Enterprise Architect at HMRC. 

Next, I would urge you to spend some time with the webinar Evan Lenz gave in March, now archived at XBRL.org.  For whatever reason, I couldn’t get the Windows Media stream to work; but I clicked the “download the presentation…” link, and locally it ran fine. Here are the time markers for the five main sections:

1. (2:38) What is XBRL?

2. (7:54) What is Inline XBRL?

3. (11:00) Why Inline XBRL? [Why not just use regular XBRL?]

4. (35:25) Getting started with Inline XBRL [Inline XBRL tools]

5. (43:00) Q&A

The webinar runs about an hour; if you’re familiar with XBRL, you can probably skip the first eight minutes, and the 15-minute Q&A at the end may not be essential. But Sections 2 and 3, the heart of the discussion, are terrific, not least because Mr. Lenz discusses his own initial “Do we really need this?” skepticism and then relates how he came to see the usefulness of Inline XBRL. 

Other useful resources:

1. The Inline XBRL page at XBRL.org, which has the RECOMMENDATION (Primer, Specification, Schemas, Background, and Use Cases) and other documents;

2. Inline XBRL resources at HMRC, which can be found using this search.  Among the items listed are the documents XBRL– when to tag, how to tag, what to tag and the technical Style Guide.

3. The series on Inline XBRL at the Insight blog of CoreFiling.

4. Articles by Dianne Mueller, including Making the Case for Inline XBRL and To Render or Not to Render XBRL, as well as an interview she did on the topic.  

5. The article Inline XBRL – An Introduction on Mike2.0.

Finally, a few months ago there was a fascinating thread on Yahoo’s XBRL-Public group. Titled Building an inhouse XBRL viewer, it began as a conversation on viewing SEC filings; the discussion soon became wide-ranging, however, with Inline XBRL being among the principal topics.

Below I have identified all the messages with at least some mention of Inline XBRL by author. That’s not overly useful; but if you read Andy Greener’s posts, including his quoted text from other authors, you’ll get most of the important content on Inline XBRL. (For guidance, I’ve attempted to include the authors’ affiliations; some authors might want me to add that the opinions they express are only their own. Also, I’ve listed the messages from latest to earliest; you may want to start the other way.)  

Andy Greener (HMRC) 5227, 5219, 5212, 5202, 5201, 5200, 5178, 5153 5149, 5145, 5139, 5136

David vun Kannon (KPMG) 5224, 5222, 5208, 5205, 5204, 5196, 5163, 5151, 5147

Charlie Hoffman (UBmatrix) 5221, 5220, 5215, 5187, 5165, 5144, 5142

Rick Beddoe (Merrill)  5217, 5171, 5164, 5148

Phillip Allen (CoreFiling) 5223, 5207, 5143

Cliff Binstock (XBRL Cloud) 5193, 5166

Jeffrey Ferguson 5218, 5137

Louis Matherne 5170, 5150

Dan Roberts (RAAS Consulting) 5197, 5179

Hugh Wallis (XBRL) 5225, 5140

Peter Calvert (XBRL UK) 5184

Roland Hommes (Rhocon) 5180

Evan Lenz (Lenz Consulting Group) 5240

Antonio Willybiro 5134

Written by Bob Schneider     Posted on June 26, 2010

In a recent interview with this blog, Max Mansur, Global Market Manager in Securities Markets at SWIFT, defined a corporate action as:

…Any activity that impacts a security that has been traded, cleared, and settled on behalf of the investor. Typically initiated by the public company issuing an equity or offering a bond, the action needs to be described and communicated to all investors and holders of the security as well as the public. The announcement of the action can include dates, rates, periods, prices, options, conditions, terms, exclusions, identifiers, and other characteristics.

Recognizing the significant shortcomings in paper-based corporate actions communications and the positive impact XBRL could bring to the process, the Depository Trust & Clearing Corporation (DTCC), SWIFT, and XBRL US joined together in May 2009 to create the Issuer to Investor: Corporate Actions Initiative. In September 2009, they announced the creation of a Stakeholder Group comprising three subgroups — issuers, intermediaries, and investors — to provide input and make recommendations for the Initiative.  Work is now proceeding on building an XBRL corporate actions taxonomy, expected to be completed in the third quarter, that is aligned with ISO 20022 repository elements.

A week ago, the three organizations published A Business Case to Improve Corporate Actions Communications. Making use of a case study of Pfizer’s acquisition of Wyeth in 2009, the Document analyzes the corporate actions environment, presents the various risks in the current procedures, and makes three recommendations which can be summarized as follows:

(a) Adopt a single set of global information and technology standards for corporate action announcements;
(b) Tag corporate action documents in XBRL based on the global ISO data standard; and
(c) Have intermediaries consume and “seamlessly disseminate” the XBRL data as close to real-time as possible or within a timeframe as requested by investors.

As the Document describes, disclosures of corporate actions are made in “free text” documents – press releases, regulatory filings, prospectuses, and letters of transmittal – issued in PDF, HTML, and ASCII formats, which must be read from start to finish to gather all the information needed by shareholders. In some cases, there is no clear guidance on which regulatory forms must be used and, furthermore, “the issuer’s message follows no standard on what information to include and how it should be structured beyond general filing requirements that are focused on content.”

Moreover, as the Rube Goldberg-like flow chart on page 6 of the Document amply demonstrates, the corporate actions announcement process is enormously complex, with information flowing in many directions from and to many parties, including issuers, wire services, transfer agents, information agents, stock exchanges, securities depositories, brokers, custodial banks, and, not least, investors. 

The upshot is that the same corporate action can be communicated several times from various parties, causing investment managers to review multiple sources of the same information. This task is made still more complicated by the lack of a single ID for each corporate action event. And, as the case study beginning on page 24 notes, the dates of information dissemination can vary widely:

One mutual fund company that received information about the Pfizer acquisition from more than one custodial bank noted that the timing of information received differed from bank to bank. Some custodial banks sent information as early as January 28, while others sent their first notification as late as June or early July. 

All these factors taken together indicate that corporate actions are unusually well suited for the rationalization and normalization benefits that XBRL can bring.

As I read over the well-crafted and convincing Business Case, I did have a few concerns. Currently “the issuer bears the liability for accuracy in the source document and the intermediary bears the liability for data extracted from those documents and presented to the investor. By tagging the data, the issuer will be responsible for both the accuracy of the source document and accuracy of the tagging.” On page 19, the Document discusses the ways in which liability might be shifted from downstream consumer to the issuer.

Will issuers balk at the increase in both their costs (as the Document predicts) and their liability burden? Even if their new responsibilities are mandated, are their sufficient incentives and tangible benefits to make them more than reluctant participants in the process?  

The Document further states:

The business case does not propose replacing the traditional issuer documents with XBRL, merely supplementing them. Issuers have stated that they would feel comfortable with the process as long as the traditional document is seen as the final word from the issuer, as concerns have been expressed that the “nuances” of the originating document might be lost in the tagged items.

I wonder about the utility of XBRL data if the traditional documents are still to be the “final word.” The situations are not strictly analogous, but it is worthwhile to note that the accuracy of corporate XBRL filings under the mandate appears to be significantly greater than those made under the VFP program. And unlike a 10-Q, corporate actions often require shareholder action. Will fiduciaries be willing to put their trust in an XBRL communication that is anything less than the “final word”?  On the other hand, Business Case does recommend that liability for the XBRL instance be equal to that of the traditional document (as with corporate filings, it would be phased in), which may ensure trust in the XBRL data.

Finally, the Document states “For the initial taxonomy, it is recommended that the number of elements be limited and simplified as much as possible to ensure ease of tagging for the issuer and to provide greater certainty around what needs to be tagged.”

Elegance and brevity are always preferred. But big taxonomies, like those of US GAAP, are big for a reason. The taxonomy for mutual fund risk/return summary data can be a mere few hundred tags because the information required is highly prescriptive and limited in scope. Whether or not the same can be said of corporate actions, I’m more concerned that the tagged data be useful than merely that it can be easily tagged.

Even if my concerns are wrong-minded, there’s little doubt that substantial challenges lie ahead. But it’s also obvious that corporate action announcements is a field where XBRL adoption would have enormous benefits. I would encourage you to read the highly interesting and useful A Business Case to Improve Corporate Actions Communications.
 

Written by Bob Schneider     Posted on June 19, 2010

With the adoption of Rule 33-9006 last year, the SEC mandated that mutual funds (i.e., open-end management investment companies) provide their risk/return summaries in XBRL format. Gearing up for the compliance date of January 1, 2011, the SEC held a seminar for filers on June 4, which is now posted online along with the accompanying slides. (The presentation is embedded on the page, but click the Windows Media Player link below it for a better view and a lot more flexibility.)

Here’s a roadmap to the 2 ¼-hours presentation which highlights key points and, I hope, helps readers find what they need.

(0:00 to 28:45) These introductory presentations by David Blaszkowsky, Director of the Office of Interactive Data (OID), as well as Andrew “Buddy” Donohue, Stephen Sadoski, and Brent Fields, all of the Division of Investment Management, will be of primary use to those new to XBRL.

(28:45 to 40:00, Slides 7 to 14) Mr. Fields’s discussion of which mutual fund filings require interactive data exhibits, requirements for posting XBRL data on company websites, penalties for noncompliance, liability issues, and so forth will be mostly of interest to practitioners with specific responsibilities for mutual fund filings. Mr. Fields reiterates that on April 12 the SEC announced completion of the updating of all the technology infrastructure necessary for filing risk/return data in XBRL; the risk/return taxonomy, Previewer, Viewer, and EDGAR validator have all been updated.

(40:00 to 1:02:00, Slides 15 to 24) Much of this general overview of XBRL and its use by the SEC by Mr. Sadoski is not specific to mutual funds, but it will be helpful for those relatively new to XBRL. At 49:00 – 50:30, he makes the useful distinction between mapping – the matching of line items within traditional statements to elements in a taxonomy that is typically done by accountants – and tagging, the technical process of representing those elements in XBRL files which is typically performed by IT staff. At 58:00 – 59:15 (Slide 27), Mr. Sadoski’s discussion becomes specific to mutual funds as he describes exactly what XBRL data needs to be posted to the fund’s website. At 1:00:00 to 1:01:00, he discusses important documentation for guidance in filing (Slide 28). 

(1:03:00-1:13:00) Walter Hamscher of the OID begins his talk by discussing the key points (Slide 31) he wants to emphasize:

The 2010 risk/return (R/R) taxonomy:

Is like the US GAAP Taxonomy
"[The 2010 risk-return taxonomy] is intended to be…very consistent with the architecture of the US GAAP and the corporate filings and the other XBRL activities that we are undertaking here at the SEC.”  As with corporate XBRL filings, there is heavy use of text blocks and dimensional tables.

Is only 2% the size of the US GAAP Taxonomy
The taxonomy is not only considerably smaller but considerably simpler. He urges listeners to pay very close attention to the samples the SEC has provided.

Requires few custom elements for most filings
While extensions are common for XBRL corporate filings, they will be relatively rare in risk/return filings. The only extension elements that will need to be created will be those based on series and class identifiers associated with the funds being reported. (Later on, he adds that where there are multiple prospectuses, sometimes there will need to be extensions for those too.)

The SEC Viewer/Previewer upgrades:

Support different layout and styles of tables
The Previewer and Viewer have been substantially upgraded and now offer more flexibility for layouts and table styles.

Renders distinct series in a filing consecutively
Mr. Hamscher says that the corporate filing Previewer did a “rather poor job” of reporting on multiple entities. An enhancement allows mutual fund series to be handled much better.

Integrates closely with the risk/return 2010 taxonomy
The risk/return taxonomy is tightly integrated with the rendering engine enhancements, and the Viewer and taxonomy now work much better together. Mr. Hamscher urged filers to take advantage of this improvement.

(1:13:30, Slide 32) Mr. Hamscher describes three resources that technical staffs will find crucial for successful compliance: Architecture, Rendering Guide, and Sample Instances. (The URL given on Slide 32 for the last item generated an error message for me; I believe I have provided the correct URL here; but please let me know if that’s not the case.) He emphasizes that the Sample Instances will be very helpful for filers.

UPDATE 6/22/10    In my original post, the Samples Instances link in the paragraph above pointed to an earlier, superseded group of files. I have corrected the link, and the SEC is correcting the URL on Slide 32.  

(1:15:00-1:48:00) Mr. Hamscher walks the audience through four filing samples with varying numbers of series, classes, and prospectuses (Slide 33). For each, he shows the original document; the rendering on the SEC website; a rendering of the details, i.e., a data view that will help filers check their work; the extension taxonomy; and finally the code in the instance document. He wraps up with a discussion of formatting enhancements. 

(1:50:00 – 2:10:00) The Q&A session. One point Mr. Hamscher emphasizes is that filers should download the Previewer on their own machines (which the SEC has made it easy to do) and use it locally, rather than struggle with wait times on the SEC site.

(2:10:00) – 2:14:00) Mr. Blaszkowsky makes his closing remarks.

As with other SEC seminars, this presentation was highly useful and informative. If your time is limited, I suggest you listen to Walter Hamscher’s talk for about the first half of the second hour to get the gist of the presentation.
 

Written by Ashu Bhatnagar     Posted on June 9, 2010

Ashu Bhatnagar is CEO of Good Morning Research, a Softpark company that specializes in building Semantic XBRL technology. The Good Morning Research machine automates XBRL tagging of Excel data in RDF format with one-click Save As XBRL functionality. Mr. Bhatnagar also moderates the Semantic XBRL group on LinkedIn.

Serious financial research analytics rarely start and finish by querying a single database source, no matter how comprehensive that database source may be. Instead, the most common practice involves accessing data from multiple databases and information sources; aggregating, normalizing, and making appropriate adjustments and calculations to the data; and co-mingling it to make it ready for meaningful queries and analytics.

The increasing use of XBRL and standardized taxonomies is not only making source data more normalized and more comparable than before; it is also rendering it amenable to far more efficient and error-free data manipulation, as data re-keying is eliminated.

However, these aspects of the XBRL transformation lie just at the beginning of the analyst’s work-flow, which demands greater automation and improved cost-effectiveness. In other words, there is still more work ahead before this data is ready for analytical queries and alpha mining.

For example, a query to find fourth-quarter revenue data of several large-cap metal, mineral, and mining companies around the globe for a particular year from more than one data source would require the analyst to (a) normalize currencies to a common currency, (b) make reasonable adjustments to account for hyper-inflationary country data, and, finally, (c) apply business rules to account for common differences in companies’ fiscal years (e.g., December versus March year-ends). Such differences make apples-to-apples comparisons on raw data less meaningful and useful.

Enter the Semantic Web technologies of RDF and SPARQL, which create a pathway for cost-effective, efficient, and powerful data analysis:

1. The XBRL file set — including file, schema, and linkbases – comprises XML files and is therefore highly suited for automated and error-free transformation into RDF/XML format. At this point, we’re still in the “raw data” stage.  
2. Automated machine processing enables aggregating these RDF files into a RDF data store as SPARQL endpoints.
3. The use of SPARQL, a powerful contextual interactive language and tool specifically designed to search/query RDF data store.

SPARQL queries enable selection based on binding variables such as fiscal Q4 to calendar months and other pre-defined business rules, thereby returning a more comparable result set from an underlying raw RDF data store.

Simply put, the task of normalizing and financial adjustments can now be performed interactively and at runtime, which allows more advanced, customized, and meaningful queries to be run against an underlying as-reported raw data set. 

Additionally, unlike a traditional SQL database with its well designed and controlled schema, this RDF data store is highly flexible and dynamic in nature, allowing co-mingling of other Excel datasets transformed into RDF format as well.

In summary, SPARQL and XBRL together enable a more flexible and cost-efficient data store with advanced query tools when compared to simpler queries on more complex and more expensive databases.

Editor’s note: Mr. Bhatnagar will be speaking on the topic of XBRL and SPARQL/RDF at the 2010 Semantic Technology Conference session on June 23 in San Francisco. His earlier posts on the Semantic Web and XBRL are Introducing Semantic XBRL, Semantic XBRL Data Search Using SPARQL, and Semantic XBRL Transparency, Verification, and ‘Raw Data Now’.

Written by Makoto Shibata     Posted on June 3, 2010

Makoto Shibata is Principal Analyst, eBusiness & IT Initiatives Division at The Bank of Tokyo-Mitsubishi UFJ and Chair, Financial Services Working Group at XBRL Japan.

XBRL has been adopted in key financial areas in Japan, including corporate disclosure, tax filing, and regulatory reporting. In 2003, the Tokyo Stock Exchange took its first step toward adopting XBRL by enhancing its Timely Disclosure Network, or TDnet, to support the data standard.  In 2004, the National Tax Agency adopted XBRL for its online tax return filing and tax payment system, known as e-Tax. The Bank of Japan (BOJ) adopted XBRL in 2006 for gathering financial data from banks and, in 2008, the Financial Services Agency (FSA)  renovated its electronic corporate disclosure system (EDINET) for XBRL and mandated its use for financial reporting by public companies.  

A natural consequence of the adoption of XBRL by Japan’s regulatory bodies is that private-sector users of financial information are increasingly using XBRL data to their own advantage. In corporate disclosure, for example, new analytical tools and web sites have been created for EDINET and TDnet data.  It is interesting to note that some of the new approaches are coming from outside of the XBRL community.

An excellent example of the way the financial community is now utilizing XBRL is the use of e-Tax filing data by bankers.  The National Tax Agency now mandates that corporations attach XBRL financial statements with their electronic corporate tax filings and, for the fiscal year ended March 2010, more than 1.2 million corporations used e-Tax filing.

For many years, Japanese banks have been using the attached financial results of corporate tax filings for credit analysis.  However, it takes a significant amount of time for banks to manually enter data into their loan processing systems from the paper financial statements obtained from borrower corporations.  The inefficiencies of this process are especially notable in May and June, when banks need to allocate major resources to process their financial reports for March-end statements.

To cope with this challenge, various attempts had been made in the past to acquire financial information in digital format. But they have been far from successful, because the data format and account items were not standardized. Now, if banks can obtain borrowers’ financial data in XBRL format, the efficiency of lending and credit management functions can be improved dramatically by processing the data systematically.   

My bank, The Bank of Tokyo-Mitsubishi UFJ, was the first bank to begin using XBRL e-Tax filing data in 2006, and other mega-banks in Japan followed soon after. As the graphic below indicates, dedicated web sites were set up to allow banks to download the data.  

The loan customer (or their tax accountant) requests the National Tax Agency to download their filed e-Tax data and, once downloaded, it is sent to the lending institution. It is important to note that the bank does not obtain data directly from the National Tax Agency; it only receives data with the permission of the loan customer who filed it.  At that point, the bank can utilize this XBRL data for credit analysis without entering figures manually.

Although only the Japanese mega-banks are currently accepting XBRL e-tax data and the number of customers submitting e-Tax data to banks this way is still limited, the progress made thus far nevertheless represents a significant advance for XBRL usage in the banking industry.  I look forward to continuing efficiencies and improvements in data processing and analysis from the adoption of XBRL by Japan’s financial institutions.

Written by Bob Schneider     Posted on May 28, 2010

When Walter Hamscher talks, people listen – or at least they should. The presentations by the Manager, Technology and Taxonomies in the SEC’s Office of Interactive Disclosure (OID) are uniformly informative, entertaining, and, not infrequently, eye-opening.

His speech last month at the Rome XII conference was no exception. Standing in for OID Director David Blaszkowsky — who, like many others, was unable to attend because of Europe’s (literally) ashen skies — Walter made the following useful observations. (Let me add his caveat that the opinions he expressed are his own and not those of the SEC or his colleagues at the agency.)    

(1) The vast majority of questions the SEC receives from companies on the interactive data mandate have “absolutely nothing to do with XBRL…it’s not about tags, line items, presentation linkbases, etc…”  Instead, because of the mandate’s complicated phase-in schedule and its nuanced rules on when and what companies must file, managers are mostly asking “How does this affect us?” To reduce the confusion, he recommends that regulators adopting XBRL produce simpler phase-in rules and publish them well in advance of implementation.

(2) About 1,400 XBRL filings have been received, including annual reports (about 500 thus far), quarterly statements, “a few” registration statements, and an “increasing number” by foreign companies using US GAAP.  Altogether, the filings represent about 500,000 data points, a “tremendous explosion” in the amount of data available to SEC analysts.

(3) Walter noted that, while most of the attention has focused on company filings, major parts of the XBRL mandate affecting investment companies (mutual funds) and Nationally Recognized Statistical Rating Organizations (NRSROs) have yet to go into effect. So while there is a feeling among some that the SEC’s XBRL implementation efforts have “quieted down,” in reality, they continue in full gear. (Interestingly, XBRL filings done by NRSROs won’t be received by the SEC; they will only be posted on their websites.)

(4) The OID is no longer part of the SEC’s accounting area, but rather a section of the new Division of Risk, Strategy, and Financial Innovation. As such, it is now within the broader scope of the SEC’s data collection activities, providing information to the agency’s economists, analysts, statisticians, etc.  Walter observed that, while during the Bush years the emphasis was on the market, in the new Administration, there’s much greater stress on “what can the agency itself do with the data.” Overall, he thought the OID’s new position in the SEC’s organization chart, with the information customers it now serves, was “a very good idea.”

(5) At several points, Walter indicated that the SEC mandate was proceeding smoothly, and that it’s absolutely possible to have a data repository system that accepts XBRL data with extensions. He said that when people are disdainful of the SEC’s XBRL data, it’s because there’s only three quarters’ worth, which would satisfy no financial analyst.

(6) About 20% of companies are now doing their own tagging, as opposed to using a service provider. This move toward in-house processing has been “faster and earlier than expected.”

(7) In Walter’s view, the first filing of a company of XBRL data is hard. It’s a novel experience and an awful lot of tagging decisions have to be made on a taxonomy that is very large and very granular.

(8) XBRL filing is changing traditional financial statements. Data that may have originally appeared in a few tables in the traditional financials can sometimes be consolidated and better represented in XBRL by using a single table.  In turn, the company may decide to use that single table next time for the traditional financials. Overall, XBRL is helping to reduce text and narrative in the traditional statements.

(9) The quality of thought going into XBRL statements is high. Walter finds it encouraging that, informally, early filers are mentoring later filers. In addition, working groups are expanding the number of tags for certain industries, like oil and gas.

(10) The voluntary filing program (VFP) was of tremendous benefit, allowing the agency to get feedback throughout the information supply chain. Within government, the VFP helped to smooth the path of implementation.

(11)  Walter is “very excited” about Inline XBRL and the promise it holds for improving presentation of financial information. He is “very heartened” by its acceptance by HMRS, the UK taxing authority.

(12) Great strides are being made by the International Taxonomy Architecture Working Group, comprising Japanese (EDINET), American, (US GAAP) and European (IFRS) members, in coming up with a common architecture.

Walter’s speech, along with those of the other keynote speakers, can be found at the XBRL website. At least for me, the files worked erratically, and I had difficulty in moving to specific parts of his presentation (thus the absence of time stamps in the above points, for which I apologize). But try to listen to Walter’s talk (preferably in IE, which seemed to be a better browser option than Firefox). It will be an extremely well spent half hour.

Written by Bob Schneider     Posted on May 20, 2010

Solvency II is a new regulatory structure for Europe’s insurance industry being developed under the direction of CEIOPS. The framework’s primary goals are (1) to facilitate the development of a single European market in insurance services, and (2) provide an adequate level of consumer protection. Among other objectives, it seeks to improve product development and pricing, increase the transparency of risk reporting, raise industry standards of risk management, and upgrade companies’ internal controls. Toward these ends, Solvency II comprises three so-called pillars:

• Pillar 1 consists of quantitative requirements (including rules relating to the calculations of capital requirements)
• Pillar 2 sets out qualitative requirements for governance, risk management, and effective supervision, including internal controls
• Pillar 3 focuses on disclosure and transparency requirements

Europe’s insurers, supervisory agencies, and other industry stakeholders are now gearing up for adoption of Solvency II, which is scheduled to go into effect in October 2012. Discussions are under way concerning the implementation of information systems, including the harmonization of reporting standards and formats. Among the possible candidates for a data standard are a flat-file format, such as comma-separated value (CSV); XML; and XBRL. A basic flat-file format has substantial shortcomings, however, for data of some complexity; for example, it would not permit syntactical validation. The more realistic choice is therefore between XML and XBRL.

In his Financial Reporting Using XBRL (pp. 56-65) and XBRL for Dummies (pp.33-34), Charlie Hoffman contrasts XML with XBRL and enumerates the latter’s advantages. He points out that:

• While XML articulates only syntax, XBRL expresses meaning XBRL can express business meaning or rules, called semantics, such as Assets = Liabilities + Owners’ Equity. (Charlie recently wrote a great post about this topic.)
• XBRL allows content validation against the expressed meaning “With XBRL, you can exchange [across business systems] both the information itself and the business rules that support creating accurate information, allowing you to effectively communicate business information.” Business rules enforce the integrity of information, which is key for ensuring its usefulness along the business reporting supply chain.
• XBRL separates concept definitions from the content model, which allows you to express multiple hierarchies of explicit relations This feature increases XBRL’s flexibility and allows it to better express complex dimensional disclosures often contained within business reports.
• XBRL provides organized, prescriptive extensibility, whereas XML is endlessly extensible “XBRL provides flexibility where you need it, whereas XML provides too much flexibility where you don’t.”
• XBRL provides a multidimensional model “Online analytical processing (OLAP)-type systems can use XBRL’s multidimensional model to provide flexible information presentation and the ability to ‘slice and dice’ information.”  
• XBRL enables intelligent, meta-driven connections to information “With XBRL, business users can connect information by adjusting metadata rather than by requiring technical people to write code. As such, rather than build multiple-point solutions, XBRL enables the creation of effective and efficient solutions that allow extensibility and that don’t require programming modifications to connect to new information or new information models.”

Taken together, these advantages provide valuable benefits for the business information supply chain:

• Semantic meaning from existing taxonomies that enhance comparisons, benchmarking, and analysis
• Standardized formulas that increase data and validation quality
• Standardized references that allow explicit relationships between regulated disclosure elements and the relevant regulations, laws, instructions, or solvency rules

The upshot is that XBRL improves company reporting processes, helps regulators enhance analytical processes, and permits both to share references to relevant regulations and rules in ways that XML cannot.

In his paper Solvency II and XBRL: New Rules and Technologies in Insurance Supervision, Professor Enrique Bonson notes that the EU has already supported the XBRL standard in having the Committee of European Banking Supervisors (CEBS) adopt it for both financial reporting (FINREP) and common reporting (COREP), which includes capital requirements. Summarizing his analysis, Professor Bonson has three arguments for implementing XBRL for Solvency II:

• The standard possesses proven technological quality;
• The organizational qualities of the XBRL consortium have been demonstrated to be of great help in the implementation of analogous regulatory frameworks (eg, FINREP/COREP);
• Previous experience represents a background of inestimable value, with a substantial number of persons and entities ready to give support in this venture, from the XBRL consortium itself at the European and international levels, to the myriad entities that comprise the consortium in their individual capacities.

Importantly, Professor Bonson notes that it is IFRS that “…will  really provide the financial information support to enable the effective application of Solvency II; of particular relevance is IFRS 4, which specifically addresses contracts of insurance.” The XBRL taxonomy framework for IFRS is designed to implement each of its standards, and thus there is an XBRL taxonomy specific to the reporting needs of insurers.

This XBRL taxonomy will no doubt be extended for IFRS Phase II, which will modernize the insurance accounting reporting framework. In a paper prepared by Deloitte titled IFRS Phase II and Solvency II: Heading in the Same Direction, the authors state:

Although there is still uncertainty around the final outcomes of SII [Solvency II] and Phase II, we believe that the calculation of the core components of an insurance liability can be used carrying out similar bases and models, with the possibility to develop adjustments that reflect the differences as they emerge from the parallel refinement of the detailed requirements…We believe, regardless of the differences between the two regimes, there are already tangible opportunities for synergies and companies should consider the requirements of Solvency II  and Phase II in an integrated way to minimize implementation costs and maximize benefits.

It would certainly seem that if companies will be tackling Solvency II and Phase II together, then adopting a common data standard of XBRL would make sense for both the insurers and their regulators.

Some benefits for XML over XBRL could be suggested, such as initial start-up cost and the availability of both human and nonhuman resources.  But XBRL has been adopted extensively by business registrars throughout Europe, and the pool of available XBRL talent and software products is continually increasing.

Indeed, as XBRL Planet’s World Wide Adoption Survey documents,  the key trend of all business reporting in Europe is toward XBRL. Standard Business Reporting (SBR), which incorporates XBRL, is being adopted in the Netherlands for the electronic filing of financial, tax, and statistical statements for all companies. XBRL is being implemented in Spain for banking, local governments, financial reporting, and other reporting needs. In the UK, both Companies House and HMRC is working toward implementations for company accounts and tax information.

If XBRL is becoming the data standard in Europe for company registrars, banking, tax, and statistics – and is also gaining favor in areas like sustainability reporting and government budgeting –  wouldn’t it make sense to harmonize all forms of  reporting, including insurance, on XBRL as well?  

Written by Bob Schneider     Posted on May 8, 2010

A few days ago, Jeff Henson of the XBRL USA blog published a highly useful post on the pluses and minuses of the data standard. Listing the disadvantages, he writes:

XBRL facilitates near real-time disclosure. The potential to quickly report information in automated ways is a double edged sword. On the one hand, near real-time disclosure improves transparency and sharing of information for a variety of beneficial purposes. On the other hand, near real-time disclosure may emphasize short-term results at the expense of long-term objectives. Some argue that financial information shared in a real-time way may cause undue volatility in stock prices and impulsive decisions by investors, suppliers, customers and business managers.

A few years ago, the audit chiefs of the big accounting firms published a paper that offered their vision of the future of financial reporting. In discussing a new paradigm of real-time reporting that includes nonfinancial indicators, they offer a different view than the one Jeff describes:

Finally, and perhaps counter-intuitively, more frequently reported information may reverse some or much of the “short-termism” about which corporate managers and others have long complained. Once investors have almost real-time access to financial and other information about companies, forecasting “quarterly” profit numbers will no longer be relevant, while forecasts of daily or weekly profits will be pointless. As a result, by having more frequent information, investors and their companies may begin looking over longer time horizons. The disclosure of more useful, non-financial forward-looking information should reinforce this outcome, along with continued compensation reforms by public companies themselves that reward long-term performance.

Note the “perhaps counter-intuitively” in the first sentence. American companies have long been accused of “short-termism,” which includes a focus on managing earnings to meet quarterly targets (and hence analyst expectations) at the expense of long-term goals and the overall good of the firm. If, as some have argued, reporting quarterly is an important reason for the “short-termism” of American managers compared with their counterparts in Europe (who still typically report semi-annually), won’t continuous reporting merely exacerbate this tendency?

It is conceivable that reporting a continuous stream of information will give some managers the perspective of day traders, and they will give all their energies to polishing whatever bit of data will next be made public.

But it seems much more likely that, as the audit chiefs imply, the sheer futility of this exercise will make managers unconcerned about individual data releases. Because investors are being constantly updated on company performance, quarterly reports won’t be the headline events they are today, and they will contain far fewer upside or downside surprises. Managing quarterly earnings will be not only less necessary but more difficult: reporting stellar net income will raise suspicion if you’ve been giving the market mediocre numbers on a host of indicators for the past twelve weeks.

This new world of financial reporting was envisioned in a CFO.com article Back to the Future: What the SEC should really do about earnings management that was published more than ten years ago, before the first international XBRL conference:

…There are those who say the only way to stop earnings management is to render the quarterly earnings release obsolete. In fact, these forward-thinking accounting experts argue that most current rules and reporting practices have outlived their usefulness, especially with the emergence of new knowledge-based industries. They contend that layering on new guidelines and new disclosures only further encumbers a system whose artificiality encourages earnings management… Instead, they envisage something completely different — a real-time financial reporting system in which analysts and investors have continuous, networked access to a wealth of disaggregated corporate data.

What about the charge that continuous reporting will increase the volatility in stock prices, which occurs when new, relevant information is released to markets that surprises investors? Here’s what KPMG partner Bob Elliott said about volatility in the CFO.com article I cited earlier:

To the extent that you disclose more corporate information on a more-frequent basis, it seems to me that uninformed volatility would be reduced. You’d still have volatility when exogenous events occur that change the real value of the company, but you’d have less volatility from lack of information or misinformation in the marketplace.

It does seem possible to me that continuous reporting could increase intraday volatility slightly, as some trading becomes geared toward that particular day’s release. But as Mr. Elliott expresses, the substantial volatility often associated with quarterly reports would decline significantly. 

Quarterly reporting for US companies has been around for many decades, and it is part and parcel of the investing environment. But there is nothing sacrosanct about it, and if new technology makes better alternatives feasible, they should be adopted. That XBRL can be the facilitator for this new era of financial reporting should be counted among its advantages, not one of its minuses.

Written by Bob Schneider     Posted on May 1, 2010

About three years ago, I wrote a post on why retail investors are entitled to XBRL-enabled statements. At that time, the S&P 500 stood at 1,474; a few months later, it peaked at 1,562. By the time the index bottomed in March 2009, it had fallen more than half to 683. The index currently stands at 1,186, up 73% from the trough, but still down about a quarter from its top.

Former Chairman of the SEC Chrisopher Cox often extolled the virtues of XBRL for the individual investor, making these comments in early 2006:

The retail market is where the SEC also has high hopes, because we’re focused on the average investor. We’d like to see the democratization of financial information and analysis, and the empowerment of individual investors. Software that consumers can use to help make wise investment choices, designed either for their personal use or integrated into websites, will run the gamut from RSS feeds about companies and funds to analysis tools built into personal financial software.

Given the extraordinary gyrations of stock markets in the past few years and the heavy losses individual investors have incurred, their response to Mr. Cox’s offer of democratized data (at least with respect to equities) may well be “Uh… let’s wait.” 

Investment data for 2009 reflect this attitude. Last year, individual investors poured money into bonds and international equities, while avoiding US stocks, despite their impressive gains later in the year. People are seeking safety: according to Investment News, first-quarter 2010 sales of life insurance policies at major independent broker-dealers (including whole term policies, which have a significant investment component) were up by at least a third. 

Nevertheless, there may be some signs that small investors are finally showing some interest in domestic equities: in recent weeks, some money has begun to flow into US stock funds and investor sentiment has turned up.

It is not the purpose of this blog to dispense investment advice. Riding better economic news and rising investor confidence, stocks may push higher…or, as bearish forecasters argue, future inflation from accommodative monetary policy, persistent high unemployment, and precarious finances at all governmental levels will, separately or in combination, limit any stock market gains for years to come.

With respect to the SEC’s effort to make XBRL-enabled data available to the general public, however, I still see significant trends that support that decision – even if current investment conditions do not.

The first is the healthy – and, given the experience of the past years, surprising – optimism of the so-called Millennials, young Americans 18 to 29 years of age. Pew Research has found that:

Millennials are actually slightly more optimistic about their future earning potential than they were in 2006, before the recession. What’s more, the portion of young people who are satisfied with the way things are going in this country increased from 30 percent in 2008 to 41 percent in 2010. In the aggregate, Pew concluded that Millennials are "confident, connected and open to change.”  

Some of that optimism may simply reflect the change in Administrations and the political tendencies of that cohort. But it’s still remarkable and encouraging that young people should be so optimistic about themselves and the country’s future, given the economic headlines and the job market they have faced in recent years. 

Equally significant, almost a quarter of young people see technology use as their generation’s distinguishing characteristic. One particularly stunning statistic: some 75% of this age group now use social networking sites, compared with just 7% in 2005.

Of course, right now much of this cohort is just trying to pay the bills, not invest for the future. But as these investors move into their 30s and 40s, they will be quick to adopt new online technologies for managing their portfolios; in fact, they will expect technologies to be available to meet their needs. As evidenced by the meteoric rise of Twitter, which wasn’t even around in 2005, we don’t know what those technologies will be. But whatever form they take, young people, in both their outlook and capabilities, are well positioned to take full advantage of the democratization of data that Mr. Cox talked about, specifically the XBRL infrastructure for data delivery and analysis of US equities.   

In conjunction with a new generation of optimistic, technologically savvy investors, we’re also seeing rising interest in international investing. As I indicated earlier, overseas equities have become popular with investors discouraged with the US market, and financial firms are making it easier and cheaper to trade them. Country allocations will always fluctuate with investment conditions; but it’s likely that, as US investors become more comfortable trading internationally, participation levels will rise. The main avenues for overseas investing should continue to be funds and ADRs; however, investors will also be better able and more willing to buy individual foreign stocks denominated in local currencies.

Anthony Fragnito, CEO of XBRL International, recently stated that “Markets representing two-thirds of the world’s total market capitalization have mandatory or voluntary XBRL filing programs in place.” It is only natural to forecast that younger investors — who have come of age in a “smaller” world of increasingly faster and cheaper international communications; who are technologically savvy; and who will be seeking returns they cannot achieve in domestic markets — will be eager consumers of this data.
 

Written by Javi Mora Gonzálbez     Posted on April 22, 2010

Javi Mora Gonzálbez is Manager at XBRL Spain.

XBRL momentum continues in Spain, as we can see from these recent developments:

Business Register: Spanish GAAP 2007
As announced at the recent 5th XBRL Spain Conference, Spanish business registers have more than 600,000 annual financial statements in XBRL format, which is approximately 70% of the total submitted, as required by the order JUS/206/2009. At the end of 2009, culminating the efforts begun several years ago, the Mercantile Registers made XBRL-based annual financial statements available to users and the public on the website of registrars. These documents and the annual financial statements can be downloaded in PDF format. This is the result of the combined effort of the Ministry of Justice, the creator of the General Accounting Plan 2007, and the Ministry of Economy, in charge of the annual financial statements through the Mercantile Registers (Companies House). The taxonomy PGC2007 is available online.

XBRL for Reporting Data of General Identification (DGI) from Economic Agents
The DGI taxonomy was created by a working group comprising the leading Spanish supervisors, disseminators of information, and a number of the major Spanish technology companies. Its purpose is to report non-financial business information identifying entities using a varied range of information, as well as to report documentation information on the XBRL report itself, such as who wrote the document. Its broad scope, modularity, and bilingual labels, as well as its acknowledgement by XBRL International, allows its use in other European or Latin American countries. The DGI taxonomy has been extended by the GAAP 2007 taxonomy; the DGI v2.3.2 taxonomy has been acknowledged by XBRL International, and approved by XBRL Spain. More information is available at XBRL Spain.

XBRL for Central Balance Sheet Data Office
One of the missions of the Bank of Spain is to collect, process, and store the financial information of nonfinancial companies in Spain, with the objective of increasing knowledge of each Spanish sub-industry. A GAAP 2007 XBRL extension is used to model an annual questionnaire, according both to the normal and abstracted formats. Using this XBRL Annual Questionnaire, it is possible to collect, on a voluntary basis, information about the entity’s annual balance sheet, income statement, features, activities, and other data, including a complete identification with the DGI taxonomy. The taxonomy ES-BE-CB v4.0 is available online.
 
XBRL for Municipalities and Local Governments — LENLOC and CONTALOC
In Spain, more than 17,000 reports from approximately 8,000 local governments and subsidiaries can report budget information to the Central Administration using the XBRL-LENLOC Taxonomy. In 2006, only 5% of municipalities used this procedure; the percentage increased to 25% in 2007, and 49% in 2008. The LENLOC Taxonomy will soon evolve into a new taxonomy, CONTALOC, covering most of the main local financial statements. More information can be found online.   

XBRL at the Securities Commission
In July 2005, the Spanish securities regulator CNMV (Comisión Nacional del Mercado de Valores) made reporting in XBRL mandatory. Since that date, the CNMV has received and made available at its website more than 23,000 XBRL reports submitted by 441 entities (listed companies and mutual fund managers). More information can be found at the CNMV site.

XBRL in Banking Supervision
More than 2,743 entities are filing yearly 109,554 reports in XBRL format to the Bank of Spain. The Bank of Spain gathers information from Spanish financial institutions as part of its role in overseeing the country’s banking system, collecting statistics and reporting data for all companies to the European Central Bank. The introduction of XBRL for this reporting has enabled automatic data validation, better quality data, and reduced manual effort. The Bank of Spain is now pushing ahead with plans for the expanded use of XBRL, such as the use of formulas in the new taxonomies: Solvency Information (COREP), Financial Statements (FINREP), Mutual Guarantee, and Exchange Offices & Appraisal companies. More information is available at the Bank of Spain site.

XBRL for Corporate Social Responsibility (CSR)
This concept emerged in the official discourse of the EU in 2000. It represents an integrated approach for external reporting on economic, social, and environmental issues, among others. CSR can be seen as a competitive advantage in 21st century business environments, such as for the growing use of green stock market indexes.

CSR is expressed in different formats (presentations, PDF, MS Excel spreadsheets, video, and so forth) which lack usability for automated processing. Much work is needed to process and audit CSR information in an efficient manner As a result, CSR lacks a certain degree of clarity, is too industry-specific, and the format in which it is based is not suitable for making comparisons. To address this challenge, the Spanish Association of Accounting and Management’s XBRL taxonomy offers a two-pronged solution: an efficient digital format and a semantic, internationally valid consensus that addresses more than 20 quality standards in the environmental, financial, social, human rights, and labor arenas. This taxonomy has been recently acknowledged by XBRL International; we are now starting the international implementation stage, where feedback will be crucial. More information about the XBRL-RSC report repository is available online.   

Written by Bob Schneider     Posted on April 15, 2010

The website of the Office of Interactive Disclosure – the SEC’s XBRL unit — is an essential XBRL resource, with avenues to filings, news, taxonomies, tools, and so forth. Among its many parts, a particularly revealing page is the SEC Speeches and Public Statements Related to XBRL and Interactive Data. It has links to such discourses for the years 2005, 2006, 2007, 2008…and suddenly stops there.

Given the bureaucratic venue, this premature termination reminded me of a decades-old cartoon from a MAD Magazine series called “road signs we’d really like to see” that took a slap at the ways of government. A gleaming new highway abruptly ends in a swamp with frolicking brontosauruses; the sign at highway’s end reads “Road Stops Here (because so did Federal funding).”

That punch line, however, is not appropriate here: construction of the SEC’s XBRL infrastructure is on schedule and proceeds apace. Given that steady progress, I found it curious that no one at the SEC had bothered to mention interactive data in any public pronouncement for more than a year. Another, perhaps more likely reason for the 2008 terminus could simply be that, as often happens on the Web, nobody had bothered to update the page recently.

I did a search on both XBRL and interactive data for all News and Public Statements from January 1, 2009, to date to see if that was the case. Compared with preceding years, there were indeed few hits, and, at the Commissioner and Chair levels, only three records. Kathleen Casey mentioned XBRL in a November speech; Troy Paredes raised the subject in May and October orations. Notably, Ms. Casey gave the keynote address at the 15th XII Conference and Mr. Paredes has written for this blog; both Commissioners have long been enthusiastic interactive data supporters.

In terms of both quantity and executive level, the recent history is a far cry from the heady days a few years ago when, in one 12-month stretch between September 2006 and August 2007, Chairman Cox discussed interactive data in 16 of his 42 speeches. He even extolled the virtues of XBRL to audiences like the National Italian-American Foundation, where he might have been expected to devote his time instead to, say, Frater Luca Bartolomes Pacioli, whose Summa de Arithmetica… was the first to chronicle the Venetians’ pioneering system of double-entry bookkeeping.

Needless to say, Mr. Cox’s hard work was greatly appreciated by the XBRL community. It can be debated whether XBRL would eventually have been made mandatory for financial reporting in the US without his support. But it’s difficult to deny that his efforts accelerated implementation. Some XBRL supporters may be disappointed that, as exemplified by its silence on the standard, the SEC’s current leadership has not had the same focus (even allowing for the necessary shift in priorities because of the financial meltdown).

A few weeks ago, columnist Charles Krauthammer made an interesting point about American democracy that I find applicable to the current environment for interactive data at the Federal level. Krauthammer is, of course, a man of the right, but I think it is fair to say his argument here is non-ideological. He writes:

The rotation of power is the finest political instrument ever invented for the consolidation of what were once radical and deeply divisive policies. The classic example is the New Deal. Republicans railed against it for 20 years. Then Dwight Eisenhower came to power, wisely left it intact, and no serious leader since has called for its repeal…True, the rotation of power inevitably results in stops and starts and policy zigzags. Yet for all its inefficiency, it in the end creates a near miraculous social stability by setting down layers of legitimacy every time the opposition adopts some of its predecessor’s reforms — while at the same time allowing challenges to fundamental assumptions before they become fossilized.

I’m naturally hesitant to include interactive data among the landmark government policies that command Krauthammer’s attention. Nevertheless, I do find his words applicable to XBRL adoption in the US.

Skeptics of the SEC’s continued commitment to interactive data can point to the newly proposed rule on asset-backed securities and note that the Commission is recommending an XML, not an XBRL, solution. But consider the discussion the SEC offers on its preference for XML, in which XBRL figures prominently. Post Cox and the SEC’s adoption of XBRL for financial reporting, the terms of the conversation have changed. It’s no longer “Why XBRL?” but “Why not XBRL?”  In Krauthammer’s terms, the current Administration has adopted its predecessor’s reforms, while challenging the fundamental assumption that XBRL is always the solution of choice. 

The SEC has elected XBRL not only for company final reporting, but mutual funds as well. XBRL is being promoted for use in federal financial management: the Comptroller of the OMB has said, according to Federal News Radio, that making the data generated by agency financial offices compatible with XBRL coding is a big priority. NextGov reports that efforts are underway for using XBRL to make it easier for the public to review federal spending and how government uses funds. Interactive data is under discussion for delivering the ratings history from nationally recognized statistical rating organizations. At least at this point, the path toward continued, wider adoption of XBRL in the US seems reasonably clear.

XBRL provides a better, faster, more efficient solution for exchanging business information. Who knew it would provide an excellent civics lesson as well?   

UPDATE 4/20/10: Overall, the best gateway page for XBRL activities at the SEC is not the OID site but rather xbrl.sec.gov. The link-laden homepage makes it easy to find and open XBRL resources. 

Written by Derek Abdinor     Posted on April 8, 2010

Derek Abdinor is a business communications consultant based in South Africa who writes often on XBRL topics. He wishes to thank the South African Institute of Chartered Accountants (SAICA) for their assistance in preparing this post.

Adoption of XBRL in South Africa has been characterised by a bottom-up approach. For this jurisdiction, the approach is highly effective in that it wins well-placed converts along the way and creates a well-knit apparatus that makes it attractive to regulators.

The various regulators (tax, treasury, bourse, etc.) have all indicated great interest, but stopped short of mandating XBRL in their various offices. IFRS was adopted in 2005, and the capital markets are efficient and sophisticated. Therefore, an organic growth of XBRL is well-suited to South Africa, where market participants are not (yet!) exhausted by compliance requirements.

The most successful XBRL projects to date include:

Voluntary Fling Program (VFP)
The Johannesburg Stock Exchange (JSE) is driving a voluntary filing program to the publicly listed environment, accepting the two compulsory periodic financial statements (interim and final), as well as particular JSE listing requirements and the SA Companies Act disclosures. They are marketing the VFP concept as “Digital Reporting”  (XBRL is an acronym daunting enough in a country with 11 official languages!).

The JSE made its own statements available in XBRL early in the decade and is a key figure in the local jurisdiction. They launched a proof-of-concept of some entities that could be compared in the mining and financial services sectors and have taken this to the analyst community. Deloitte has been instrumental in assisting with this project, as well as creating consensus on taxonomy development within the different sectors.

Pension Funds
The Financial Services Board (FSB) is a major regulator and, amongst other duties, receives financial statements from pension fund administrators. These arrive in a variety of formats and were therefore deemed to present a perfect opportunity to experiment with XBRL. Along with a major administrator and a taxonomy developer, the interface and consumption have been very successful. Although wider adoption is planned for 2011, a phased approach is envisaged: key standards in pension administration are changing and most participants are on various technical platforms..

Marketing
South Africa is a full jurisdiction of XBRL International and celebrates five years of membership later this year. The jurisdiction is supported by the South African Institute for Chartered Accountants (SAICA), who lobby key regulators and bring them to international conferences. One could say the movement in South Africa is at that stage where the choir is well-versed in the sermon.

There are opportunities in the market for consultants, vendors, and taxonomy designers, and XBRL SA has been the recipient of interest from many African countries. We believe the VFP will increase the visibility of both XBRL and the companies involved, adding to the demand for in-depth reporting. This should pave the way for a mandate on the JSE and, with some back-office successes by the other regulators, should provide the impetus for XBRL to cross the chasm.