Written by Bob Schneider     Posted March 30, 2007

Under the leadership of Chairman Christopher Cox, the SEC has become a strong advocate and agent of interactive data (the Commission’s preferred term for XBRL) .Thus the SEC website has become a key resource for monitoring developments at the agency for adoption of XBRL for financial reporting. The site contains the important (and enjoyable) speeches of Mr. Cox and his Chief Technology Officer, Corey Booth; webcasts and transcripts of XBRL-related SEC roundtables; and relevant proposed rules and press releases. Moreover, it contains interactive data submitted under the Commission’s Voluntary Filing Program (VFP) and stored in its EDGAR database, as well as a tool for viewing these filings online.

Given the wide scope of SEC activities, it’s not surprising that a lot of this material isn’t easy to locate at the site. Spotlight On: Interactive Data and XBRL Initiatives is a gateway page of sorts. It contains recent press releases, archives of interactive data roundtables, a few of Chairman Cox’s speeches, and access to the XBRL RSS Feed File. But some key items are difficult to find on the page, and other important XBRL content is not included at all. I therefore hope you’ll bookmark this post and use its links to quickly locate what you need at the site. As always, if readers can suggest a better way (other than Googling), please add your comments below.

XBRL Filings Viewing an XBRL filing formerly required downloading several files into an XBRL reader, a process that was (and remains) confusing for the average user. Fortunately, the addition of the Interactive Financial Report Viewer now makes it possible for visitors to look at XBRL filings online.

The Viewer is mostly self-explanatory, but two items are worth mentioning. First, you can click Company Comparison Report (as shown in the image below, it’s tucked away at the bottom of the left-side menu) and follow the instructions to compare financial statements from two companies side by side.

Second, more sophisticated users (like programmers) may want to download the actual XBRL files. Start by clicking the filing you want, like Comcast Corp’s Annual Report (2006-12-31) in the above image. With the report now open, click the SEC XBRL Filing link (click the image below; it’s the last command on the lower-right menu).

XBRL filings are also available from the XBRL Data Submitted in the XBRL Voluntary Program on EDGAR page. For any individual filing, click the html (as opposed to the txt) link to display the XBRL files.

Speeches Not only are the speeches of Chairman Cox informative and useful, they are well-written and amusing. The Speeches and Public Statements section of the Spotlight page contains a few of his XBRL presentations. But others are absent, including his speech at the Philadelphia conference. Moreover, the links to speeches on the Spotlight page are often for audio, and you may want the text instead.

The presentations of SEC Commissioners, including the Chairman, as well as staff can be accessed from the Commission Speeches and Public Statements page. Speeches are archived by years; within years, speeches are further broken down by quarter and by commissioners versus staff.

Comments on Proposed Rules The SEC allows comments to be submitted on proposed new rules during prescribed periods. The SEC Releases section of the Spotlight page contains links to some of these rules and comments, including the comments that were made on the VFP.

However, you’ll sometimes need to visit the SEC Proposed Rules page, especially if the rules are still open to comment or the period for comments has just closed. The Proposed Rules page is obviously also a good place to find the full text of the rules themselves, should they prove elusive on the Spotlight page. The organization of the page is similar to that for archived speeches. For example, if you scan down the page, you can click 33-8781 to see the rule that extends the VFP to include mutual fund risk/return summary information. To view the comments, click the are available link at right. The page also has convenient submit comments links after each rule, should you want to comment yourself.

Written by Bob Schneider     Posted March 27, 2007

There sometimes comes a moment in great human endeavors when all of the late nights, all the hard work suddenly seems to have been worth it; when its creators look at each other with expressions that say "Look at what we’ve wrought!" It’s not a time to have a smoke or, more salubriously, take a victory lap they’re a long way from that. But they know that, whatever else ensues and whatever the ultimate success, they’ve done something big.

For the interactive data community, that sublime moment may well have occurred at the Philadelphia conference in December. As I listened to the presentations of the recent Canada meeting, more than once I heard speakers express their pride and satisfaction at seeing the men who are arguably the world’s three top accounting standard-setters assert their support for XBRL. By name, they are Christopher Cox, Chairman of the SEC; Sir David Tweedie, Chairman of the International Accounting Standards Board (IASB); and Bob Herz, Chairman of the Financial Accounting Standards Board (FASB).

Why did the presence of this particular triumvirate inspire such a sense of fulfillment among XBRL supporters I’m afraid an adequate answer requires a discussion of the recent history and status of accounting standards which, stuffed with esoteric acronyms, is more likely to induce yawns than yahoos. But I hope you’ll stick with me, because I think the payoff will be an understanding of an extraordinary accomplishment the XBRL community can savor, as well as the hope and promise it provides.

Under US securities law, the SEC has the statutory authority to establish accounting and reporting standards for publicly held companies. Since 1973, the SEC has designated the FASB as the primary organization for determining those standards, which are commonly called Generally Accepted Accounting Principles (there are also accounting standards for government, but it’s the private arena that’s crucial here). The AICPA, the SEC itself, and long-time industry practice also play roles in determining GAAP in the United States (or US GAAP), but the FASB has by far the greatest responsibility.

Let’s turn to Sir David’s IASB, established in 2001 as an independent accounting standard-setter based in London that issues International Financial Reporting Standards (IFRS). The IASB encompasses IFRIC (the acronym is sufficient), which issues interpretations and guidance on IFRS. You’ll also see mention of International Accounting Standards (IAS), which were issued between 1973 and 2001 by the IASB’s predecessor, the International Accounting Standards Committee (IASC). All of the IAS’s are now part of the international standards under Sir David’s guidance.

IFRS have been adopted by many nations, including those of the EU, Australia, Russia, Hong Kong, and so on. Indeed, nearly 100 countries currently require, permit the use of, or have a policy of convergence with IFRS. Importantly, Japan and Canada are both in the last group.

The U.S. can be counted among that near-100 too. In his recent speech to the SEC Roundtable on International Financial Standards, Chairman Cox discussed the so-called Roadmap that:

"commits [the SEC] to eliminating the current U.S. GAAP reconciliation requirement, with the result that eligible firms listing on U.S. exchanges could choose whether to report under IFRS or U.S. GAAP. If an issuer chose IFRS, it would not be required to reconcile the differences with GAAP just as today, issuers reporting under U.S. GAAP aren’t required to reconcile the differences with IFRS."

The Roadmap has its origins in the so-called Norwalk Agreement between the FASB and the IASB that was sealed in September 2002 under which the two bodies agreed to work toward making their existing financial reporting standards fully compatible "as soon as is practicable."

Chairman Cox does recognize the difficulty of total convergence between US GAAP and IFRS. Thus he has stated "Whether or not complete convergence is susceptible of practical implementation in the short term, the elimination of the present reconciliation requirement is not dependent upon the FASB and the IASB resolving all major differences between their regimes."

Let’s (finally) get back to Philadelphia. You are sitting in the audience and the aforementioned trio are getting ready to speak. In Bob Herz you have the man primarily responsible for accounting standards in the US; in Sir David, the man responsible for them in most other places; and in Chris Cox, the man who is committed to allowing companies to use either Bob Herz’s or Sir David’s standards in the most important capital market in the world.

And if your eyes happen to glance back at the agenda, you’ll note that the speakers’ roster also includes Ian Ball, Chief Executive of the International Federation of Accountants, which has 2.5 million members; Barry Melancon, President of the AICPA; Jeffrey Diermeier, President & CEO of the CFA Institute, representing 90,000 investment analysts worldwide; and other financial luminaries from around the world.

Of course, speeches are easy compared with implementation. But to have been at the dawn of XBRL creation and to watch this massive assemblage of accounting rules-making power in one room had to have been a thrilling and satisfying experience, and one the XBRL community can justly be proud of.

Written by Bob Schneider Posted March 23, 2007

What do John Candy, Mary Pickford, Fay Wray, and Lorne Greene have in common? All were portrayed on Canadian postage stamps last year to celebrate the nation’s rich tradition of providing superb (well, competent) talent to Hollywood. I knew John Candy was Canadian, but it was disconcerting to learn that the Lord of the Ponderosa and pa to Hoss and Little Joe was actually born in Ottawa.

The nation’s capital was recently the scene of a somewhat different happy event: the Third Annual XBRL Canada Conference: Better Government Reporting — XBRL for the Public Sector, held February 13 and 14. Although the weather outside was (apparently) frightful, the speeches inside were definitely insightful. I’ve already written about the outstanding presentation of Harm Jan van Burg on the Dutch Taxonomy Project. Here are a few other speeches that are worth your attention. (I’ve included the day and time of the presentation for easy location on the webcast page. Some of the recorded speeches contain the accompanying slides and some don’t. Because of space limitations, I’ve left out worthy presentations; please feel free to click the Comments link below to discuss them.)

The opening session was appropriately devoted primarily to Canadian topics. Cameron McInnis (February 13, 13:00), a manager with the Ontario Securities Commission, discussed XBRL issues vis-a-vis Canadian securities regulation. Not surprisingly, many of the topics were similar to those in the US, such as making the financial community more aware of XBRL. Following the US lead, the Canadian Securities Administrators is launching a voluntary filing program (VFP) through SEDAR (similar to the SEC’s EDGAR) and will begin accepting XBRL filings in May.

Mr. McInnis directly addressed the question of why Canada isn’t moving faster to adopt XBRL. He cited competing priorities, such as introduction of IFRS in Canada over the next few years; evolving software; incomplete taxonomies; XBRL’s complexities; and lack of demand from the financial community.

Liv Watson of EDGAR Online is no doubt a top answer to the question “Who would you most like to have dinner with in the XBRL field?” Her two talks offered sage judgment and keen observation, and were replete with great war stories and fun asides. In her first presentation (February 13, 12:30), she emphasized the enormous benefits derived from XBRL as a supply chain standard. She described how XBRL facilitates the reusability of data, which electronic publishers have traditionally ignored. She also discussed the usefulness of interactive data for both external, and, especially, internal reporting, as well as for the central management of controls. With Canada’s own VFP to begin soon, she commented on the challenges the government faces in getting companies to participate, and what can be learned from the experiences of the SEC.

In her second presentation (February 14; 11:25), Ms. Watson discussed at length how EDGAR Online adopted XBRL for its financial data products. Building on her previous talk, she discussed about the experience of United Technologies in the SEC’s VFP and the advantages companies can gain from participation. These include eliminating the XBRL learning curve, establishing a process for control, influencing the development of taxonomies, and, particularly for small-cap firms, facilitating analytics for investors.

Corey Booth, Chief Information Officer of the SEC (February 14: 9:40), discussed the workings and missions of the Commission; Internet-based disclosure through EDGAR; recent interactive data initiatives, including taxonomy development; and the promise of interactive data for helping the SEC achieve its goals.

If time is limited, go to Slide 89 and push the time slider to 38:00 to hear Mr. Booth discuss the ongoing strategic challenges facing the Commission. He talks about the amount of structure various SEC documents contain, and asks how much structure they should contain. He elaborates on changes in disclosure requirements; flexibility issues in disclosure, including questions surrounding extensibility; whether “dumbing down” disclosure is a good idea; and the issue of assurance vis-a-vis XBRL statements. He also discusses the practical and technical challenges of accommodating flexibility.

Jon Wisniewski of the FDIC gave a talk entitled Business Process Through XBRL (February 14: 10:45). What I found especially interesting was his description of how government agencies in financial areas in this case, the FDIC, the FRB, and the OCC (Controller of the Currency) are collaborating to implement XBRL. Mr. Wisniewski’s discussion of Call Reports before and after XBRL will be familiar to some readers; but if you’re new to the interactive data field, I strongly encourage listening to his entire speech.

Terry Lutes (February 14: 13:00), now a consultant with Alluvion, was formerly with the IRS and is an expert on XBRL in tax administration. He began his presentation with a global overview, citing the Netherlands, the UK, Australia, and New Zealand as leaders in adopting XBRL for tax needs. He emphasized that in most countries it’s tax administration that produces the largest share of administrative requirements for business. This gives taxing authorities a key role for reducing the burden of government and taking a position of leadership in XBRL implementation.

As with all the speeches I’ve recommended, I encourage you to listen to his entire talk. However, Mr. Lutes’s slides (which begin at 128) are unusually straightforward, and you can grasp the main points of his speech simply by reading them.

Written by David vun Kannon Posted March 20, 2007

David vun Kannon was one of the first Co-Chairs of the XBRL Specification Working Group and has been an Editor of every version of the XBRL Specification. He is a Director for PricewaterhouseCoopers, LLP.

In my last blog entry, I discussed how capturing the controls hierarchy of a company as an XBRL taxonomy could benefit from a direct tie-in to the financial data that is also in XBRL. In this post, I’ll show how to extend the controls hierarchy in a different direction, down into the actual testing of controls.

There is a good reason to separate the testing of controls from the controls themselves. Controls testing is the job of two separate and distinct organizations. On the one hand is management, on the other, the external auditor. Both can have distinct testing strategies. So the controls taxonomy can be extended by either group with distinct testing taxonomy extensions.

To go back to the bank example I’ve used previously, a single control such as Videotape cash collection activity can be tested in several ways:

• The videos can be reviewed to see if they actually catch anyone trying to steal cash;
• The employees can be interviewed to see if they feel that the videotaping is a strong deterrent;
• The cash collection can be reperformed while attempting to hide a theft from the camera.

Most controls tests will fall into this broad outline of review, interview, or reperformance.

The result of a test is a judgment of the effectiveness of a control. This judgment is in effect a business measurement on a certain day, the value of test X of control Y of entity Z was ineffective. That is an XBRL instance fact (please click the image below):

The above example uses dimensional taxonomies in the segment to capture the controls hierarchy and use it for reporting. In this form, there will be as many contexts as there are controls, which may be too many for some tastes. Here is an alternative that also uses dimensional taxonomies, but in a different way (please click the image below):

In this version, there are only as many contexts as there are tests.

The important point to remember is that these tests of controls can be represented by XBRL instance documents, which is a powerful validation of the taxonomies that support them.

Written by Bob Schneider     Posted March 17, 2007

Some question whether the federal form of the US government, designed for a nation built on 13 colonies, has continued relevance in a country unified by the interstate and McDonalds. Other argue that state governments continue to play a useful role, since they can serve as laboratories for ideas and programs that, if successful, can be introduced in other states as well at the federal level.

As an international organization and data standard, XBRL enjoys similar advantages for innovation. The many nations that are adopting XBRL each serve as potential testing grounds for projects that other countries, as well as supranational entities like the EU, can adopt to their own needs. The trailblazers enjoy (if I can use that term) the challenge of being pioneers and the prestige that comes with success; they also suffer the mistakes and mishaps of first movers.

The Dutch Taxonomy Project, a joint venture of the Netherlands’s Ministries of Finance and Justice, represents one such program in the XBRL arena. (In Holland, the Justice Department is responsible for the legislation on the filing of company records.) Abbreviated from the Dutch as NTP, the Project intends to reduce the administrative burden of the nation’s businesses by 25%.

At the Third Annual XBRL Canada Conference held last month in Ottawa, Harm Jan van Burg, a senior policymaker in the Netherlands Ministry of Finance, gave a fascinating talk on the NTP’s progress. (The presentation is available online; it’s listed under the February 14 Special Interest Sessions, 13:40-14:20.) The speech runs about an hour, but it seemed much shorter (I’m serious). Unfortunately, there are no accompanying slides (perhaps a more adroit user can locate them); however, I don’t think they’re crucial to the presentation.

Mr. van Burg has many important insights. He does not shy away from criticism, including self-criticism. Among his salient points:

1. The average company in the Netherlands has about 30 to 40 parties, both public and private, who all demand information in their own unique forms and reports. These include law enforcement and tax authorities; insurance companies and banks; and suppliers and customers. These reporting requirements put an enormous burden on firms, and much of the paperwork gets outsourced.

The NTP’s aim was to slash the administrative burden for companies in the public sector, which was accomplished through developing an XBRL taxonomy and adopting XBRL reporting for three areas: taxation, annual accounts (ie, financial statements), and economic statistics. Using XBRL, the NTP was able to consolidate filing requirements and reduce the number of required elements from 200,000 (from all forms) to 8,000 without losing any data.

2. The NTP stemmed specifically from a promise made by politicians to Dutch voters to cut government red tape. Mr. van Burg didn’t say so directly, but I believe his implication was that the political imperative helped give the project momentum.

3. The NTP did not originate nor was it designed as an XBRL project per se. Rather, XBRL was adopted because it was deemed effective in accomplishing the Project’s objectives.

4. The NTP is founded on cooperation between the public and private sectors. Mr. van Burg stressed one reason why that’s important: When you start a new project of this magnitude, certain parties are going to be very slow movers. If you wait for them, you’ll never get anything done. You need to encourage the fastest movers to get things moving.

(A covenant has been adopted that formalizes this collaboration. Signed by some 80 parties, it states “The reduction of administrative burdens for companies can only be accomplished if private and public sector cooperate, if they use the same data and process standards and if they respect their separate interests.” The signers included four Cabinet ministers, governmental bodies, accounting firms, major software vendors, employers’ organizations, and others.)

5. Mr. van Burg said that, while there are many XBRL taxonomies, the NTP taxonomy is one of only two taxonomies he knew of that is “recognized” (the other is the FDIC’s). According to Mr. van Burg, “recognized” means that the entity (in this case, the Dutch government) takes responsibility for the taxonomy and any mistakes in it, and that reporting parties (ie, businesses) know that the taxonomy is acceptable for their filings. Mr. van Burg stated his preference for recognized taxonomies over taxonomies created by volunteers.

6. Mr. van Burg said that those seeking to emulate the NTP should not underestimate the resistance to change. The accounting community, for example, has protested its complexity. On the other hand, he noted there was little opposition to a mandate for electronic filings.

This brief overview really doesn’t do justice to the NTP or Mr. van Burg; if you have the time, I encourage you to listen to his entire speech. The insights of Mr. van Burg and the lessons from the NTP implementation will undoubtedly prove valuable to policymakers and government executives as they seek to adopt similar XBRL projects in their own countries.

Written by Bob Schneider Posted March 9, 2007

I recently searched at both Google and Amazon for “XBRL for Dummies”. There’s no such book. You would think if there’s enough demand for a Cockatiels for Dummies and a Koi for Dummies, there might be room in the Dummies catalog for interactive data too.

I don’t want to demean the Dummies imprint. Contrary to the gut feel of most people in the book business, readers didn’t find the Dummies title demeaning; in fact, they embraced it. The books have performed a wonderful service in getting readers to peek into topics they may have been too scared to otherwise approach. Moreover, like everyone else, authors follow the money; as the Dummies brand has gained popularity, they’ve attracted some excellent writers, including those in computer fields.

And there have also been good books from the various Dummies imitators. But I didn’t locate any books called, for example, XBRL for Cretins either. It’s possible there’s some similar, sleeper title — which, lacking a Dummies-type imprimatur, simply hasn’t received the recognition it deserves — but I haven’t seen it.

Regardless, XBRL has reached a level of prominence and importance that it demands more than one introductory title, since different authors bring different strengths, interests, and experience to their work.

Books are a joy to write (if they’re not, you shouldn’t be doing it); but they take their toll on pocketbook and personal life. Since I have no desire to write an XBRL for Dummies-type book, I gladly offer this initial, skeletal outline as “open source” for any enterprising authors to adopt, cherry pick, or ignore as they see fit.

Chapter 1 Introduction
(a) In the beginning (Charles Hoffman, AICPA roles)
(b) Importance of XBRL International (consortium of organizations and agencies in many countries)
(c) Why the business environment makes XBRL so exciting (globalization of production, capital markets, and M&A; worldwide push to standardize financial reporting)
(d) Why the public sector wants XBRL (meet increased regulatory and compliance burdens; normalized data for numerous reporting requirements)
(e) Current status (general overview of current state and trends of XBRL adoption)

Chapter 2 What is XBRL?
(a) Part of XML family of languages
(b) What is tagged data; why it’s so useful (provides meaning and context)
(c) Key definitions (taxonomy, instance document)
(d) General, nontechnical description and overview (collaborative effort to create international data standard; creation of specifications; development of taxonomies; software development; implementations in government and industry)

Chapter 3 Benefits and Costs
(a) Introductory case study (eg, Call Reports at FDIC)
(b) Enumerate benefits (royalty-free, facilitates internal and external information exchange, eliminate re-keying, identify errors, greatly improved search and retrieval, platform agnostic, real time delivery, eliminates language barriers)
(c) Enumerate costs (capital outlays, complexity, problems in taxonomy development, shortages in trained personnel)

Chapter 4 XBRL Around the World
(a) XBRL as a truly international data standard: US lags, not leads
(b) Country examples (eg, public company filings in China; Tokyo Stock Exchange in Japan; developments in Spain, Netherlands, rest of EU; Africa and Oceania too)
(c) Use by international regulatory bodies (Basel II reporting)

Chapter 5 XBRL for Financial Reporting
(a) Role of SEC (financial statement and other filings; EDGAR; Chairman Cox, SOX)
(b) Development of international, jurisdictional, industry taxonomies
(c) Adoption by individual companies (company taxonomies)
(c) Transparency in financial reporting
(d) Standardization of accounting principles (GAAP, IFRS)
(e) Impact on individual investors (mutual funds)
(f) Impact on institutional and international investors
(g) Importance for capital acquisition (small caps)

Chapter 6 XBRL Global Ledger
(a) Relationship of XBRL-GL to XBRL-FR
(b) Uses in both internal and external reporting
(c) Improvements in internal control (improved audit trails, eliminate manual intervention, help meet SOX requirements)
(d) XBRL and BPM (Business Process Management)
(e) XBRL and SOA (Service Oriented Architecture), Web Services
(f) Facilitates data exchange with external parties (partners, suppliers, customers)
(g) Potential in M&A

Chapter 7 How XBRL Will Affect Financial Professionals
(a) External auditors
(b) Internal auditors
(c) Management accountants
(d) Bankers, credit professionals
(e) Security analysts (equity and fixed, sell-side and buy-side, fundamental and quantitative)

Chapter 8 XBRL and the Public Sector
(a) Special benefits (reduce reporting costs by cross-department filings; helps regulators comply with increased analytical needs, eg, from SOX)
(b) Special challenges (changes in political leadership, government budgeting)
(c) Increasing use by national taxing authorities
(d) Developments in Federal government (non-SEC)
(e) Examples from overseas governments

Chapters 9 How XBRL Works (Technical Description)
This will be the toughest chapter(s) to write. Figuring out how much technical information the average reader can absorb is always difficult. It’s facile to say any technical subject can be made understandable if it’s expressed in clear, simple language. That isn’t true. But any Dummies-type book that doesn’t at least try to give readers some idea of the technical underbelly of XBRL isn’t achieving its mission. The best handling of the material I’ve seen is the IASB’s and that still gets pretty technical pretty fast.

Chapter 10 XBRL Resources
(a) Websites (eg, XBRL.org)
(b) Forums (eg, XBRL-Public)
(c) Blogs
(d) Books, periodicals, special reports (such as those of the FEI)

There’s another introductory XBRL book to be written that focuses purely on its technical aspects. I guess if there can be a, for example, BEA WebLogic Server 8 for Dummies, there can be such a Dummies book for XBRL, even if I don’t think the title is appropriate. At any rate, the need for more books on XBRL is strong and apparent — although the benefit to authors may be more personal than pecuniary.

Written by Robert Kugel     Posted March 6, 2007

Robert Kugel, CFA, is Vice President and Research Director for the Finance Performance Management practice of Ventana Research. He has been an equity research analyst at several firms, including First Albany Corporation, Morgan Stanley, and Drexel Burnham, as well as a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list.

I used to be a securities analyst, so I know first hand what a pain it is to take the numbers from a company’s financial statements and get them into a spreadsheet for analysis. The SEC needs to make tagging financial statements mandatory, the sooner the better. But before that happens, public companies, their auditors, and securities analysts should get together to resolve the very nitty gritty problem of exactly which tags each company is going to use on their financial statements.

For a couple of years now, the SEC has had a voluntary XBRL tagging program but participation has been light. I think there are a couple of reasons for this, some of which stem from misperceptions on the corporate side, some of which stem from the immaturity of the of the taxonomy and software tools and some of which can be laid at the feet of the SEC. The good news is that the last two issues are being addressed through the SEC’s decision to invest money in completing the US GAAP taxonomy and overhauling the EDGAR database so investors can use it to do basic analyses using XBRL-enabled tools. The bad news is I believe that even when the work is completed, participation in a voluntary XBRL tagging program is not likely to be much higher than it is today.

As to the misperceptions issue, in the wake of Sarbanes-Oxley and accelerated filing deadlines, the SEC was reluctant to saddle public companies with another requirement. But how difficult would it be if tagging the basic financial statements were mandatory? I recently completed a bit of research to find this out. To do this, I used beta versions of Hitachi’s and Rivet’s tagging tools (time was short so I skipped using UB Matrix’s). I received minimal training from the software vendors, mostly in the form of short demonstrations. Realistically, though, it will take anywhere from one to five hours of initial training to prepare people who understand accounting and financial statements to use these tools. The amount of time will depend on their degree of familiarity with the basic concepts of how XBRL works, not a a deep understanding of taxonomic structures. Knowing how financial statements work is far more important.

I used seven public companies financial statements, representing a range of industries and from large and complex corporations to smaller and simpler ones. They were Administaff, Boeing, Brush Engineered Materials, General Electric, Gerber Scientific, Gray Television, and Kroger. One reason for choosing a range was to see how often it was necessary to create custom tags. While one of XBRL’s strengths is its extensibility, using custom tags for public company financial statements negates an important feature of XBRL tagging: enabling easy comparisons across companies financial statements.

It took slightly less than four hours to tag the first company’s (Boeing) quarterly income statement and balance sheet. It took an hour and a half to do the last (Brush Engineered Materials). We tagged only the balance sheet and income statement because the US GAAP cash flow taxonomy is far too incomplete. Of the group, General Electric was the most difficult, taking five hours because of the larger number of items that required tagging. (GE has both industrial and financial services segments and it presents these two elements and a consolidated view.) Based on our test, we estimate that on average, it will take the person responsible for tagging about five hours (plus or minus an hour or two) to become familiar enough with the tagging tool and the process itself to achieve basic proficiency. It will then take the person another five to 10 hours to do the initial tagging of the company’s basic financial statements.

Once that template is established, though, it should require no more than an hour or two each quarter (and for the proficient, probably less than that) to put the new numbers into the template and make whatever changes (if any) are needed to the financial statement’s structure. In addition, layers of review by internal resources and external auditors and initial setup time with the company’s financial publisher (typically Bowne, Donnelley, or Merrill) will consume some additional hours. In other words, we believe it would not be a burden if the SEC required all accelerated filers (companies that have US$70 million or more of public securities) to tag the basic financial statements in their periodic filings with XBRL.

That noted, I think the real barrier to companies going along with XBRL tagging is the uncertainty that would exist in their minds (and the minds of their auditors) about which tags to use and which they need to create.

Going though the tagging exercise, I tried to put myself in the position of a corporate vice president or director of public reporting. Those people will not look at making judgment calls about how to tag financial statement items as a career-building exercise. CFOs also don’t want to have one more thing requiring an auditor’s blessing and don’t relish the idea of having one more technical thing they are answerable for.

We expect auditors, if asked, to feel uncomfortable advising their clients. They may be inclined to choose a precise nonstandard tag to remove any chance that someone will consider the standard tag wrong. On the other hand, auditors would recognize that using too many nonstandard tags may create suspicion that the company is hiding something or that it will frustrate analysts trying to compare companies results side-by-side.

These concerns can be allayed with proper preparation. There should be an XBRL “dress rehearsal” before companies are required to tag their financial statements. After the newly updated and expanded taxonomies are completed, there should be a period of discussion among public companies, auditors, and securities analysts to work out the treatment of the financial statement line items. At a high level, a steering committee is needed to develop a process for identifying gaps between the U.S. taxonomy and specific items in each company’s reports. Industry-specific working groups consisting of public company representatives, securities analyst groups that focus on a specific industry, and industry-focused practice leaders in audit firms should collaborate to apply the process.

In the end, a set of recommendations from these working groups should be examined to see where additions to the U.S. GAAP taxonomy would be helpful, along with a set of specific guidelines for applying XBRL tags. This would complement some of the higher-level recommendations for applying XBRL that will be coming out over the next six to nine months.

Having the dress rehearsal before companies start tagging financial statements should eliminate most of the anxiety companies would experience if they had to make these decisions in a vacuum. It also will ensure the highest degree of accurate and useful standard tagging because all parties will have communicated their needs. Without the dialog, public companies are likely to be wary of the requirements and rightfully resist a mandatory requirement. Without the up-front discussion in a structured format, it will take several years to sort out the mess after mandatory tagging begins. Establishing a review process ahead of time will also be useful as XBRL tagging requirements expand to footnote items.

Tagging the basic financial statements would be the first step in a multi-year process that would extend tagging to the footnotes and proxy statement. It is imperative that this step be handled as a coordinated effort by companies, analysts, and auditors in a way to make a company’s implementation of the tagging process as easy and straightforward as possible. Failure to do so will increase resistance to making the process mandatory and complicate efforts to make tagging as comprehensive as it could be.

Written by Bob Schneider Posted March 2, 2007

A long-time IR professional recently suggested to me that he wouldn’t be interested in XBRL until the analysts are. In his presentation at the XBRL Philadelphia conference in December, Jeffrey Diermeier, President & CEO of the CFA Institute, noted a similar lack of interest among his membership, although he ascribed it to a lack of awareness. “The good news,” Mr. Diermeier says, “is that when our members learn more about XBRL, they appear to like it.” (To read his speech, go to XBRL Philadelphia Presentations and click Jeffrey Diermeier — XBRL: An Investor’s Perspective).

Is lack of awareness the main hurdle that XBRL faces in gaining acceptance among security analysts? Or are there other reasons why analyst interest may not be overwhelming? Here are some possible reasons of why sell-side analysts at the big institutions are not banging on the table and demanding XBRL financial statement filings now:

1. You never get a second chance to make a first impression Analysts are very busy people, and they don’t look gladly upon stuff that unnecessarily complicates their lives. Any new tech thing that starts with “X” will likely be greeted with rolled eyes and much suspicion. Their first impression may well be that XBRL will deliver something similar to what the data aggregators provide, i.e., numbers that must be reviewed and cleaned up before using.

2. The financials are just some of the numbers and it isn’t only about the numbers anyway Sure the financials are important, but they are only some of the data analysts look at to evaluate stocks. There’s numbers from the government, numbers from industry associations, numbers from private research outfits, and other numbers from the companies themselves. Then there’s all the stock market data — price action, volumes that even analysts who don’t care much for technical analysis must pay attention to.

And the numbers are just part of a company’s story. The really hard work of the analyst is assessing things like management quality, product innovation, labor relations, the legal environment, etc. These are things that the numbers reflect but often don’t help you evaluate much.

3. How much transparency will XBRL provide? Take footnotes, for example. Analysts know better than anyone that the accompanying notes are indeed an integral part of the financial statements. How much help can XBRL offer analysts in unraveling their mysteries? It may be possible to tag and thereby illuminate certain data within the note. But can XBRL help analysts avoid slogging through a densely worded note to discover its true meaning?

4. XBRL creates uncertainty Let’s put aside the issue of whether XBRL is complex or not and how much that matters. XBRL raises questions for analysts beyond complexity. For example, what about company taxonomies? Will they affect the way firms report their numbers and their comparability to those of like companies? In addition, to some extent XBRL has become associated with efforts to standardize accounting principles worldwide. Is that always a good thing? Maybe some of the to-be-discarded standards provided useful info. And as global standardization occurs, will financial people be calling the shots, or do the technologists have their own agenda?

I am not saying these fears necessarily reflect reality; I am saying they are legitimate.

5. Don’t take away Jodie! XBRL proponents point to the time and expense it will save through “enter once, format many” and the elimination of data re-keying. If I’m a top analyst, it’s likely I have a “Jodie” in one job title or another research assistant, data entry clerk, intern to help me with that busywork. I like Jodie. Jodie brings me coffee. Jodie talks to me about the Knicks. Jodie wants to be an analyst, and I get to teach her how. Now tell me again, Why do I want a new data standard that makes Jodie less essential, or even superfluous?

These are just educated guesses — it’s been a long time since I worked in a big equity research department, where I provided analysts with production and compliance support. Further, all of this discussion is strictly from the analyst’s point of view. The Director of Research at a big institution would have different objectives cheaper coverage of more names in more geographic markets, for example that may well cause him to embrace XBRL whole-heartedly.

Nevertheless, I do think the lack of analyst interest is real, and it isn’t only because they simply haven’t heard of XBRL. What would I suggest to allay analyst concerns? One thing I would do to gain the acceptance of analysts (and other busy professionals like auditors, financial executives, etc.) is to create short (two pages or so), focused primers on XBRL that introduce the standard and address the particular concerns of each professional group. While good XBRL resources are available, most of them speak to a general financial audience. Financial professionals are no more monolithic than, say, doctors, and the concerns of each financial specialty need be addressed.