Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi America, Ltd. XBRL: Short-Term Costs Will Yield Long-Term Benefits - Part II
Written by Bob Schneider Posted February 23, 2007
Last week I discussed how the outlays companies made for Y2K and SOX yielded benefits they had not anticipated. Should there be an SEC mandate for XBRL financial reporting, I believe complying companies will enjoy similar, unexpected returns because (a) XBRL is gaining wider acceptance at the Federal level, and (b) governments and agencies overseas are increasingly adopting XBRL for reporting purposes.
Interactive Data Is Gaining at the Federal Level XBRL has friends in high places in the government. I have previously noted the enthusiasm of SEC Chairman Christopher Cox; but interactive data has boosters throughout the Federal system, including the Treasury and Labor departments. In an interview with GCN published this week, Richard Campbell, enterprise architect at the FDIC, cited both HUD and Interior as departments currently using XBRL. Mr. Campbell’s own agency has been at the forefront of interactive data adoption: the FDIC’s adoption of interactive data for banks’ Call Reports has been widely heralded as a major achievement.
Critics may say that the FDIC experience often cited by XBRL proponents remains an isolated victory. But as XBRL adoption moves forward, more success stories will emerge. Just this month, Chairman Cox described how interactive data was instrumental in helping his agency uncover the backdating of stock options for which�dozens of�companies are now being investigated.
As described at Law.com, the SEC recently required Form 4 the form companies use to report exercises of stock options to be in interactive format. At the same time, the Commission issued new rules that required option rewards to be reported within two days of the grant. Chairman Cox stated: “Once real-time disclosure was combined with interactive data…we began to find clues that had previously gone undetected. That led directly to the discovery of what we now know were billions of dollars of backdated stock option awards.”
As such success stories multiply, the reputation of interactive data for transparency and efficient analysis grows, and more Federal bodies will require that their reports be submitted in XBRL. Thus companies’ initial investment in interactive data can be spread over more projects. The marginal cost of new mandates will continue to decline, as companies acquire the experience, employees, and tools to fulfill XBRL reporting requirements.
XBRL Is Making Headway Internationally Even though it began in the U.S., XBRL is not in any way considered an instrument of American financial imperialism. Indeed, the U.S. has been behind other nations in adopting it. XBRL is a truly international standard that is being implemented on six continents. The AccMan blog of Dennis Howlett recently cited an analysis by Jay Hammond that says the leading adopters of XBRL include Japan, China, India, Spain, and the Netherlands.
Spain is perhaps the most surprising name among the group. Howlett concludes that “Spain aspires to become the benchmark nation for the Spanish speaking Latin American world Spain is perceived as a technology laggard. Yet here we have a country not just leading the way, but opening up all sorts of opportunities for itself as a technology leader.” Citing Hammond, Howlett writes that Spain’s centralized XBRL taxonomy project “…aspires to include environmental and social performance as well as economic performance.”
I am not asking readers to become gooey-eyed at the prospect of XBRL saving the whales. What I am suggesting is that the breadth of XBRL adoption promises to be extremely wide, both geographically and functionally. As US companies seek to comply with the information needs of overseas taxing authorities, financial agencies, interior ministries, stock exchanges indeed, the whole host of international regulatory bodies it will be more likely they will be making those filings in XBRL. Once again, their inaugural XBRL investment for training, software, staff, etc. will yield benefits down the road as they comply with regulations mandated overseas.
All of this discussion ignores the non-regulatory benefits XBRL is likely to produce for communicating with customers and suppliers, improving operational efficiency, and facilitating M&A. But if we just consider the regulatory arena alone, the cost/return equation on the initial XBRL investment from an SEC mandate for financial reporting will likely be better than it now appears.
February 25th, 2007 at 5:38 am
I doubt that the SEC will mandate XBRL anytime soon. Aside from the legal issues, namely that the Commission does not have the authority to tell filers to employ XBRL for disclosure required by the Securities Act of 1933, the lack of “pull” from the filer community is a major obtacle. Historically, the SEC has not embraced new technolgies for EDGAR until they are in general use in the private sector. Aside from the vendor community, there is very little of such activity at this time.
Indeed, I continue to think that public sector adoption (excluding the SEC example) is the brightest area for the growth of XBRL. All of the examples of “wins” to date are in the public sector. Eventually even the XBRL community must take notice of this fact. This is not to say that adoption by the private sector is DOA, but it certainly does not seem to be generating much attention outside of the XBRL community at the moment. Perhaps the marketplace is trying to tell us something.