Written by Yuki Ozawa Posted November 28, 2006
Yuki Ozawa, System Engineering Manager at Hitachi America, Ltd., recently attended the annual financial reporting conference of the New York Society of Security Analysts and filed this report:
This NYSSA conference spotlighted a number of financial reporting issues and the critical role XBRL can play. Even when interactive data was not the specific topic of discussion, its potential impact and usefulness were easily seen. Of special note were the following sessions:
Scott Taub, Deputy Chief Accountant of the SEC, briefly updated the audience on the benefits, issues, and current activities concerning XBRL. He highlighted the SEC's recent allocation of $5.5 million for the development of taxonomies. A roadmap to international convergence was also discussed, and Scott noted SEC activities to support International Financial Reporting Standards (IFRS). Scott introduced the subject of restatements, a key topic that was addressed several times during the conference.
Eric Linder, Principal at SavaNet, looked at XBRL from the vantage point of a financial analyst with a view toward implementation. Eric discussed several recent XBRL developments at the SEC, and he raised issues concerning the Commission's XBRL reporting program for end-users like investors and analysts. One important focus of his discussion was that, although companies are required to use certain taxonomies under the US-FRTF framework, they have wide-ranging ability to extend those taxonomies and add new items. As a result, the largest problem today is inconsistently structured and non-comparable items.
Given my own experience working with XBRL, I had much sympathy for Eric's viewpoint. XBRL can bring tremendous benefits as a standard language for financial information; nevertheless, versatility remains an important concern. To reap the greatest benefits from XBRL, there's a need to refine existing business processes first. Eric also mentioned his recommendations for current SEC approaches, which he titled the SEC Three Step XBRL Program. The steps are (1) create XBRL reporting program implementation rules, which address basic analytical needs; (2) update Regulation S-X for present-day practices of electronic reporting; and (3) be directly and intimately involved in the taxonomy development process.
Kevin J. Cameron, President of Glass, Lewis & Co. gave a talk titled When Will the Restatements Stop? In this session, Kevin reviewed the current circumstances surrounding restatements. He noted that restatements have been increasing and, if current trends are stable, there will be more restatements in 2006 than the 1,200 reported in 2005. Kevin described how restatements can affect a company's stock price and offered several examples. He provided statistics on the numbers of restatements, broken down by industry, company size, quarter, the reasons for errors, and other measures. Thus his audience gained an understanding of which companies tended to make restatements and the reasons for them. In my view, in some error categories XBRL can definitely help avoid restatement, but it's unrealistic to think that many restatements can be eliminated simply by using XBRL. Further investigation and analysis are necessary to detect the causes of restatements, and reporting and validation processes should be improved at the same time.
Near the end of the day, Elmer Huh, Senior Vice President of Lehman Brothers presented Stock Options: Too Much of A Good Thing? Elmer's discussion focused on the difficultly analysts face in forecasting the impact and assessing the real cost of stock options. It seemed to fit in squarely with one of the overarching themes of the day, namely, the complexity of the many issues raised by attempting to present meaningful, transparent, actionable financial data for highly diverse companies to highly diverse audiences.
NOTE: The complete agenda of the conference is available online.