Written by Gary Purnhagen    Posted on May 29, 2007

Gary Purnhagen is vice president of strategic planning at Merrill Corporation, a leading provider of outsourcing solutions for business communication and information management requirements. Merrill has been a leader in helping companies comply with the SEC’s Voluntary Filing Program.

In October 2006 I wrote a post on this blog on how the SEC was spearheading XBRL adoption here in the United States.  In that piece, I praised the agency for their brilliant promotion of XBRL.  (I love the word brilliant. I don’t have that many chances to use it other than in the first person, but I have been consistently using it to describe the SEC’s promotion of XBRL.)

I was recently asked to revisit this topic, which I have been following closely. Let me begin with a quick update. Back in October there were 29 companies that had submitted 74 XBRL exhibits; as of May 25, 38 companies have submitted over 150 filings of XBRL exhibits.  Not a huge increase, but keep in mind that during the first quarter of the calendar year companies are focused on reporting their annual reports and proxy materials, and for the most part had put their plans for XBRL on the back burner.

But not the SEC. They have been steadily moving forward in promoting XBRL. In my October post I mentioned the agency was focused on overcoming the three main obstacles to adoption: meager awareness, insufficient taxonomy development, and the lack of usefulness of XBRL to investors at that time.

Let’s look at how the SEC has addressed these issues:

Since October the SEC has held two additional roundtables on XBRL, bringing forward high-profile executives such as Indra Nooyi (CEO of PepsiCo) and John Brennan (Group Chairman and CEO of Vanguard) to give keynote speeches.  The SEC’s Chairman Christopher Cox has used these meetings to announce new initiatives in the agency’s promotion of XBRL.

On the SEC’s insistence, XBRL-US has been incorporated and has brought in an executive management team of very impressive professionals. The SEC has funded XBRL-US to complete the development of the taxonomies, which is scheduled for the third quarter of this year. Keep in mind that taxonomy development will be an ongoing effort, but by later this year XBRL-US will deliver a revised and more comprehensive set of taxonomies.

I believe that will be very significant because at a previous SEC roundtable, when directly asked the question when would XBRL be mandated, Chairman Cox said (I’m paraphrasing)  Well, other countries have mandated it, as we have heard it’s not all that difficult for companies to provide, but we can’t mandate it until the taxonomies are more fully developed.” If you are wondering when the SEC will announce a mandate for XBRL, I’ve circled the fourth quarter of this year.

The third obstacle to adoption was that, back in October, there was no apparent value in the XBRL data being submitted, and the SEC’s initiative to make an analyzing/viewing tool available by April of this year was just being articulated.  The SEC beat that date by releasing a beta version of their Interactive Financial Report Viewer (IFRV) in December and has since updated it. Back in October, Chairman Cox stated  But now imagine you’re checking out the SEC of the future say, six or eight months from now. And what you discover is that all of the information you seek is intuitively organized by company, or by fund…And now you can request exactly the information you want from any number of companies’ reports, by entering a single request.

Well, the current version of IFRV realizes that vision. It’s slick, it allows for very fast access of different financial information, it allows downloading into Excel, you can select periods and information to be compared in graphical presentations, and it even allows basic comparisons between two companies. And that’s only the beginning.

But no one really knows about it it’s like the best kept secret!  I haven’t seen any press on it.  Maybe that’s because the SEC hasn’t said too much about it, since it has information for only 37 participating companies.  It’s interesting but not very compelling.  So what’s the SEC to do?

I’ll venture to state the hottest business topic in the past six months has been executive compensation.  So what does Chairman Cox announce at the last XBRL Roundtable?  That the SEC is tagging in XBRL the executive compensation data that was submitted in the recent proxy season by several hundred of the largest companies and will make it available on their website by June of this year.

Now the editor of this blog Bob Schneider feels that this might be a wrong move by the SEC in that it skews the weight an investor should attribute to executive compensation and that the SEC might feel a backlash from executives if CEOs believe the agency is simply using XBRL to browbeat them.

That might occur, but I see it differently.  I see it as a brilliant publicity move for XBRL.  Serving up executive comp in XBRL will send journalists to the SEC’s site, where they will find this cool tool and write about it.  This will in turn send readers to it, who will then begin calling companies, asking where the rest of their financial information is in this new format, especially if their competitors have been providing their financials in XBRL. Come June a lot more people will see the value of XBRL and will be demanding it from companies.

Like I said, there’s a word for the SEC’s promotion of XBRL: Brilliant!

Written by Bob Schneider     Posted May 25, 2007

Close Fast, Close Smart (CIO Asia, May 2007) is an extremely worthwhile article about how companies can close their books faster and the resulting benefits. Shortening the period-end accounting process by a few days may not seem like a big deal. But as the article’s author Galen Gruman states:

Increasingly, the speed with which an organization closes its books and reports its financial results is being looked at by practitioners, analysts, and investors as a defining metric for evaluating whether the organization possesses the best possible processes and enabling technologies. And it turns out that many companies don’t, even those making huge IT investments and supporting equally large IT departments.

For large public US companies, faster closings aren’t simply a matter of choice. Since December 2006, “large accelerated filers” (typically those with public floats above $700 million) have 60 days to file their 10-K’s, down from 75 previously.

But the benefits of accelerated closings extend far beyond meeting SEC deadlines. As Gruman describes, fast closings demand that the company rethink and redesign its financial processes. In adopting the new technology and systems required, managers gain a near-real-time view of financial performance that lets them spot opportunities and problems much sooner. Because the relationships between all financial information are much better understood, managers can perform better analysis. And faster closing builds confidence among investors who assume, often correctly, that a company that can’t get its numbers out doesn’t have its act together, or may be trying to hide something.

Integral to speeding closing is ensuring compliance to Sarbanes-Oxley and a host of other regulatory requirements. Indeed, in one real-world example Gruman describes, SOX was instrumental in getting mangers to review the closing process because “it exposed all the touchpoints in the process where errors could creep in.” One executive cited says that truly adhering to Sarbanes-Oxley’s requirements “was impossible to do with spreadsheets, e-mail and PowerPoints” because of the difficulty of validating the accuracy and consistency of such disparate, individually maintained data.

This discussion reminded me of the XBRL-GL outreach call I wrote about a couple of weeks ago. In this talk, Walter Hamscher described how the onerous compliance regimes companies now face require them to rethink their information systems, because it’s impossible to achieve compliance goals without built-in controls. In this environment, the adoption of XBRL can be extremely effective across a wide range of compliance processes.

I was therefore happy to see Gruman discuss the benefits of XBRL at some length. He focuses more on XBRL’s impact on financial reporting than the closing process. But he also includes these comments:

XBRL has been touted by the SEC as a way to make information more easily accessible to investors and regulators, but there’s a direct benefit to the enterprise itself XBRL also provides structure for validation rules, queries and analysis rules, notes Mike Willis, a PricewaterhouseCoopers partner. If XBRL were introduced throughout the enterprise’s financial closing and reporting process, rather than simply used as a report format after the fact, users would gain new controls and insights into their data, Willis says. “They can automate analytic rules rather than auditing manually, which would reduce costs and speed the process,” he adds. Plus, the use of XBRL would ensure that a company’s reports reach their stockholders (and analysts) unfiltered by third-party aggregators. “It lets companies tell their own stories,” says Willis.

It’s always interesting when a seemingly mundane goal like closing the books a couple of days sooner can have a wide-ranging impact throughout the organization. This article offers additional testimony to the power and usefulness of XBRL, and it is well worth your time.

Written by Bob Schneider     Posted May 18, 2007

XBRL.org recently made available four short presentations that showcase the business uses of XBRL for those who have no technical knowledge of interactive data.

The nice thing about these talks is that they discuss real-world applications that are completely familiar to financial professionals. None is more than ten minutes long, which is both good and bad the brevity is appreciated, but there’s really not enough time for the speaker to expand much on the subject matter. Three of the four were produced by makers of XBRL products (Hitachi not among them), and there’s a bit (not a lot) of promotion for specific offerings.

Whatever their shortcomings, these talks are an excellent resource if you (or your client, customer, students, etc.) want to get a quick idea of what XBRL can actually do. All four are worth your time, but I’ve provided brief synopses below if you want to pick and choose. Before I do that, here’s a couple of tips for getting more out of the presentations:

(1) The slides may appear small in your browser. Click the Zoom Slide command in the upper-right corner for a bigger and better view.

(2) You can easily jump to any slide at any time by clicking the SLIDE BROWSER command in the lower-right corner and choosing from the slide menu.

The Impact of Interactive Data on the Mutual Fund Industry
Last week I gave glowing but justified praise to the XBRL-GL outreach call of Walter Hamscher of Standard Advantage that dealt with XBRL, Compliance, and SOA.  In this talk on interactive data and mutual funds, Walter first enumerates the various stakeholders in the industry investors for certain, but also staff in functions like marketing and compliance. He discusses how each group can use interactive data to accomplish objectives that would otherwise be difficult. Marketers can employ XBRL to maximize revenue by examining the trade-off between sales loads and revenue. Investors benefit from one-click updates to the prospectus that immediately relay vital information. Compliance enjoys the advantages of improved consistency and accuracy. Overall, interactive data increases the confidence of investors and makes them more likely to buy mutual funds.

Internal Budgeting with XBRL
Darren Peterson, Director of Marketing at UBMatrix, demonstrates how XBRL can benefit internal budgeting. Darren takes listeners through a real-world example of a financial advisers group that has autonomous branches but centralized budgeting. Darren offers “before and after XBRL” scenarios and shows how typical Excel tasks like inserting rows and modifying formulas that introduce errors into the system are eliminated when using interactive data.

Full Cycle External Reporting - From Consolidation to Publishing
In this talk, representatives of Cartesis, R.R. Donnelly, and EDGAR Online discuss how their XBRL-enabled products can be used for, respectively, internal consolidation of company data; preparation of that data for filing with government agencies; and the distribution of the filed data to external audiences, including investors and analysts.

Enhancing Financial Workflows with XBRL - From Loan Application to Final Approval
Dianne Mueller of Just Systems discusses the use of XBRL through the complete loan cycle, from the initial collection of data to loan reports. This process improves regulatory compliance, reduces errors, and cuts cost. Dianne shows how XBRL introduces improvements at every stage of the loan delivery process. There’s no re-keying of the data, data is validated at every stage, and an audit trail is in place. The external beneficiaries are the bank’s customers, while internally the loan processing officer, the credit risk analysts, and the senior loan approval officer all gain.

Written by Bob Schneider     Posted May 11, 2007

Last week I wrote a post about the exquisite use of analogy in Eric Cohen’s presentation What Is the Global Ledger Good For? Uses of XBRL GL, available at GaLaPoGoS (click XBRL GL Webcasts on the home page). This happy find motivated me to listen to other past sessions of the XBRL GL Working Group in the hope of discovering similar gems.

I was not disappointed. Walter Hamscher’s session on XBRL and SOA reminded me of what a music critic once said about Bob Dylan’s Like a Rolling Stone after you hear it once you have to listen it to again, if only because the first time you won’t believe anything could be so good.

That may seem like hyperbolic praise for a 50-minute talk on a couple of esoteric technology acronyms. But that’s just it most of the discussion isn’t about XBRL and SOA per se. In fact, Walter barely mentions either for the first 35 or 40 minutes of the presentation. Rather, he focuses on:

(1) The broad, complex, and, indeed, overwhelming compliance requirements organizations face.

(2) The impossibility of meeting those requirements at reasonable cost without built-in controls, which require fundamental change in the way companies organize their data and the way staff uses it. These changes mean a lot less hard coding and a lot more “indirection,” a key element of which is referring to things by name and combination of names. They also mean a lot more access to and use of live data.

(3) The recent history of IT, which includes giant strides in relational databases over the past 15 years and the advance of Web Services.

(4) The alternatives organizations face, and the political problems they encounter, in designing information systems that meet both user needs and compliance requirements.

In drawing this wide-scale but detailed landscape, Walter can be credited with two accomplishments, one intended and one likely serendipitous.

The intended achievement is a compelling argument of why “XBRL taxonomies embedded within a Service-Oriented Architecture (SOA) are effective across a wide range of compliance processes both within the enterprise and within the related supply chain.” In discussing those processes, Walter’s emphasis is their impact on applications (ie, everything from spreadsheets to ERP), which vitally affect the vast majority of employees, rather than the rules themselves, which concern a relatively small proportion of staff.

Walter’s (likely unintended) achievement is a superb overview of how large enterprises organize data, which should be mandatory listening for every first-year business school student indeed, for anybody who works with big companies.

Rather than do further injustice to a thoughtful and nuanced argument that demands to be listened to in its entirety, let me point out some ancillary rewards that may encourage you to listen to it:

(1) A simple, clear explanation of SOA that I haven’t found elsewhere. Walter draws upon the example of the average user navigating the Internet and visiting various websites, whose URLs are contained within a global registry and a central naming scheme. SOA recognizes how great this architecture is and extends it so that applications can communicate using the same basic ideas.

(2) An outstanding chart of over 35 compliance requirements faced by large US companies  — everything from anti-trust and credit reporting to drug life cycle process and medical conferences. The chart powerfully demonstrates that there is “..no way one single compliance application can possibly enforce all these regulations.”

(3) The handy acronym PAAAIN for explaining what people really mean when they use the far too general term “security,” which Walter hates. PAAAIN is privacy, authentication, access control, availability, integrity, and nonrepudiation (ie, an audit trail).

(4) An explanation of why successful software companies (like Microsoft) keep putting more and more functionality in their applications (like Word) namely, because users really, really hate switching between programs.

The XBRL-GL Working Group presentations are a terrific resource. I encourage you to visit the GaLaPaGoS website to check them out. If you want more information about participating in these outreach calls in real time, contact xbrlgl@xbrl.org.

Written by Bob Schneider     Posted on May 4, 2007

William Safire, the famed language maven, once said “There’s no such thing as a bad pun.” I don’t know if that’s true or not, but there’s certainly such a thing as a bad analogy. An everyday analogy that explains a difficult technical concept is rarely perfect. But it should never be forced and artificial.

That’s not a problem for Eric Cohen, however, who conducts regular outreach calls for the XBRL GL Working Group that are archived at GaLaPaGoS. His March 2007 presentation What Is the Global Ledger Good For? Uses of XBRL GL provides not only a wealth of information, but uses wonderful analogies that explain XBRL-GL concepts in imaginative and memorable ways.

Many speakers litter their PowerPoint slides with images like an alarm clock for “timely reports” that reveal nothing. With Eric, an image on a slide signals he’s about to make some great analogy. Here are five such images from his talk, with the concepts they illustrate listed below. Just for fun, first see if you can match the image to the concept.  The answers are given in the discussion that follows.

(a) Why data warehousing without XBRL-GL is insufficient.
(b) The difficulty of understanding all that XBRL-GL can do
(c) XBRL-GL seamlessly connects one detailed reporting system to another
(d) XBRL-GL avoids overlap as it takes you from transactions to end reporting
(e) XBRL-GL can be used for both audit and data interchange

Why data warehousing without XBRL is insufficient- As every Eagles fan knows (the band, not the team), the guests at the Hotel California can’t leave, but at least they can check out.  At the Roach Motel, however, the unfortunate guests, er, pests can’t even do that.

Although the analogy to computing may not be entirely original to Eric, he employs it expertly to illustrate the problem of a traditional data warehouse, namely, it is relatively easy to get data into it, but not out of it. The reason is that there is no standard format for data transfer. As he points out in an interview with Enterprise Systems, “XBRL [can standardize] the flow of data into data warehouses, and [standardize] the flow of data from the data warehouse.” XBRL does not replace data warehousing, but by providing a standard format, it vitally supplements it.

The difficulty of understanding everything XBRL-GL can do In an old folk tale, seven  (sometimes six, sometimes a group) of blind men touch an elephant to learn what it’s like. Each touches a different part one touches the trunk, another the tusk, etc.. Thus each has a different viewpoint, and they argue bitterly over what an elephant is. The message is that reality depends upon perspective, which is often constricted.

XBRL-GL, whose “GL” initials creates the misperception that it is simply a general ledger instead of a stunningly versatile data format, is particularly susceptible to this kind of narrow-casting.  At about 24 minutes into his talk, Eric offers the big picture of five comprehensive areas suitable for XBRL-GL adoption: data archival, data migration, data consolidation, data drill-down, and a seamless auto trail. In the discussion that follows, he enumerates dozens of specific uses.

XBRL-GL seamlessly connects one detailed reporting system to another The USB (Universal Serial Bus) eliminates the need for (nonstandard) serial and parallel ports. USB can connect digital cameras, mice, printers, scanners indeed, the whole gamut of peripherals — to your computer.

In a similar fashion, XBRL-GL is the universal device that can connect receivables, payables, job costing, payroll, inventory, etc. systems to one another. It makes it possible to connect any detailed reporting system to any other detailed reporting system.

XBRL-GL avoids overlap as it takes you from transactions to end reporting For many years, San Franciscans who wanted to take their cars across the Golden Gate Strait to Marin County had to load them on the ferry at Hyde Street Pier. The building of the Golden Gate Bridge in the 1930s allowed City residents to drive to Sausalito and points north themselves. Similarly, XBRL doesn’t overlap systems like a ferry does, but rather serves as a bridge that connects transactions and reports.

XBRL-GL can be used both for audit and data interchange Readers of a certain age will remember the Certs TV commercials, with two pretty young things arguing earnestly whether Certs was a breath mint or a candy mint. The controversy was ultimately resolved by an unseen voice of authority asserting that both were right, because Certs was two, two, two mints in one.

XBRL-GL also has dual purposes. First, it is perfectly suited to audits and for pulling actual underlying data. At the same time, its extensible, flexible, and multinational qualities make it ideal for data interchange between systems, both internal and external.

Eric’s outreach calls contain a lot more than just cool analogies, of course. It’s a good idea to check in at the GaLaPaGoS page from time to time to hear his latest presentation, or contact xbrlgl@xbrl.org to participate in real time.