Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation Audit Chiefs Offer Vision on the Future of Financial Reporting and the Role of XBRL — Part I
Written by Bob Schneider Posted December 12, 2006
Following the meeting in Paris of the Global Public Policy Forum in early November, the heads of six leading auditing firms made public their perspective on the future of financial reporting and the auditing profession. Titled Global Capital Markets and the Global Economy: A Vision From the CEOs of the International Audit Networks, the so-called essay has attracted much attention, both in XBRL circles and the much broader financial community.
In the essay, the CEOs initially focus on the auditing field and declare their commitment to the reconciliation of�IASB and FASB standards, among other measures. A summary of these audit-specific recommendations appears in the PWC statement on the report.
But coupled with the initiatives tapered to the auditing field is a radical proposal for revision of the financial reporting model — one made possible, in the authors’ view, by the emergence of XBRL and related XML technologies. The CEOs declare:
“A brave new world of company reporting is already visible, and may be only a few short years away from widespread implementation and use. It is a world made possible by digitization and the Internet, which have already revolutionized the way goods and services are developed, manufactured or made available, and delivered throughout the world.”
In a sidebar on page 16 of the essay, the authors introduce XBRL to readers and describe its benefits in general terms. In the body of the report, the authors cite (or imply) the advantages of using XBRL-based reporting for conveying information to investors:
(1) It can be done entirely through the Internet, affording access to billions of users;
(2) It is highly customizable, permitting users to extract just the information they need in the presentation format they want;
(3) It can convey information far more frequently than traditional statements, even on a daily basis (with the caveat that this information may be less accurate than audited data).
(4) It allows investors, through its tagging feature, to view a wide range of both financial and nonfinancial data, with the potential of revolutionizing the financial reporting model entirely. The authors cite such nonfinancial metrics as employee turnover, which if excessive might dissuade investors from buying an otherwise attractive stock.
On the other hand, perhaps recognizing the unknown and potentially convulsive consequences of discarding traditional statements entirely, the authors add:
“Even in the age of customized, personalized financial reporting that the new technologies will make possible, however, many investors, analysts and other stakeholders, also still will want standardized reports issued by public companies on a regular basis.”
As might be expected, reaction to a statement with so many implications for financial professionals and investors has been mixed. The comments of Peter Williams in Financial Director of the U.K. are particularly trenchant. Williams notes the contradiction of applauding the harmonization of FASB and IFRS rules while at the same time suggesting that the whole effort will soon be superannuated by a radically new reporting model. In addition, he notes the likely aggravation of stock price volatility in an environment where a daily stream of varied company data, open to misinterpretation and misuse, is unleashed on world markets.
Commentators have also focused on the apparent self-interest of the CEOs in some of their argument. David M. Katz in CFO.com writes that the report:
“leads off with a set of proposed current and near-term solutions that seems more self-serving than visionary. Most notably, the report argues for curbing auditing firms’ liability and relaxing the rules governing auditors’ scope of service.”
In a follow-up post set for publication December 15, I’ll discuss my own reactions to the report.