The XBRL Moment

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.