Written by Bob Schneider     Posted on June 29, 2007

KPMG in the UK has released online a report titled International Financial Reporting Standards: The Quest for a Global Language that is essential reading. With special reference to IFRS, eleven leading figures in the financial world — including standard-setters, CFOs, auditors, and analysts discuss the key issues facing global accounting (the full list of participants is at the bottom of the press release). Among the topics they focus on:

the complexity, comparability, and consistency of financial statements;
principles-based versus rules-based standards;
continued differences in national accounting standards, even among those countries that have adopted IFRS;
fair value accounting;
convergence of IFRS and US-GAAP;
the role of the SEC;
the usefulness of conceptual framework efforts;
the varied needs of financial statement users and how they can best be served;
the plusses and minuses of narrative reporting; and, of course,
XBRL.

These guys (and gal) don’t mince words.  Take this nugget from Ken Lever, Finance Director of Tompkins, plc:

“…’Even the US feels they want to head in a principles-based direction, he said.  The US can be unnecessarily prescriptive. But that is the nature of the country. It seems they have their whole lives driven by rules. But we will head towards a principles-based regime.”

For Americans imbued with a picture, accurate or mistaken, of a sclerotic, overregulated Europe where circus performers must wear hard hats and greengrocers can’t sell excessively curved bananas, such zingers can be unsettling.

The opinions of these financial mavens are not only pungent, they are also highly diverse. But while this diversity exemplifies the richness and intricacies of international financial reporting, I also found it disconcerting. Here are some of the best minds in the financial world expounding on the most crucial reporting issues. Although on certain key points they concur, on numerous others whether rules will prevail over principles, the usefulness of fair value, the efficacy of a conceptual framework — their views vary widely.  In the herding-cats world of global accounting standards, I’m not sure if this “let a hundred flowers bloom” intellectual climate is the one most congenial for getting results. But I suppose it’s inevitable, given the enormity and complexity of the issues to be resolved.

XBRL is by no means exempt to a wide assortment of views. In summarizing the thoughts of these leaders on interactive data, the report states:

The issue of electronic reporting languages like XBRL and other technology solutions in financial reporting divided opinion. Peter Elwin said he was deeply skeptical about XBRL.  I have enough experience of data systems to know there is a huge potential to go off the rails, he said.  XBRL looks very desirable. But all it is really doing is saving me the hard graft of digging out the detail myself. It doesn’t change the way the numbers were produced in the first place. Likewise Philip Broadley of Prudential said that: It would simply increase the possibility of manipulation. But Robert Herz of FASB was an enthusiast.  Once you can tag data and disassemble it that could change things, he said.  Narrative reporting and financial reporting becomes easier with tagging, he said.  Turnover? Would you like to see the six different components of turnover? Click! And so on.  It will be a facilitator, said Lever.  XBRL is just like a giant spreadsheet for data. It is a good thing. But it will take time to get there.

The individual comments of participants on XBRL are well worth your time. I don’t want to steal the authors’ thunder (not to mention their copy) by posting them all here. Instead, let me direct you to their location in the report, and also encourage you to (literally) read around their edges:

Phillip Broadley, Group Finance Director, Prudential — Page 11, below Explanation not just information subhead

Peter Elwin, Head of Accounting and Valuation Research with JP Morgan Cazenove Page 15, Catch-phrases subhead, 2nd paragraph

Robert Herz, Chairman of the Financial Accounting Standards Board Page 23, above “Current” value subhead

Archie Hunter, Chairman of the audit committee of the Royal Bank of Scotland Group Page 25, Reconciliations subhead, 3rd paragraph

Kenneth Lee, Head of Accounting and Valuation Research for Europe with Citi Investment Research Page 27, below Opportunities through XBRL subhead

Ken Lever, Finance Director at engineering group Tomkins plc Page 31, Rules and principles subhead, 2nd paragraph

Cees Maas, Honorary Vice-Chairman of ING Group Page 35, 2nd paragraph

Sir David Tweedie, Chairman of the International Accounting Standards Board Page 45, 2nd paragraph

I’ll write a follow-up post next week that discusses some of the leaders’ more salient comments vis-a-vis XBRL. In the meantime, please feel free to post your own reactions in the Comments section of this article.

Written by Bob Schneider     Posted on June 22, 2007

The 15th International XBRL Conference was held in Munich, Germany, from June 4 to 7. The plenary session on June 4 was conducted entirely in English and a symposium in German took place on the fifth; there were also numerous track sessions on international adoption, external reporting, taxonomy development, and other important XBRL topics.

For this American who did not attend the conference, listening to the presentations now available online was a mixed bag (more about downloading them in a moment). It’s extremely useful to be reminded that, while the acronyms in my world prominently include FASB, DJIA, and FDIC,  there’s a parallel universe across the Atlantic where the talk is of IASB, IBEX, and CEBS. In addition, as someone who has given short talks in broken, poorly articulated Japanese to small groups of puzzled faces, I can only imagine how challenging it must be for those born on the Continent to give a major address to a huge audience in English.

But as unfair and as unsympathetic as it may sound, I have to say that listening to some of the drier presentations in heavily accented, stilted English can be a challenge itself. Moreover, the logistics of finding and downloading the speeches are tortuous. I hope someone will post a comment that shows I’m wrong and simplifies the following directions.

First, go to the XBRL.org Latest News page. In the middle of the page you will see the links to the audio recordings for the various first-day speeches — PD-01, PD-02, etc. These are big files of up to 25MBs and, as the site suggests, I downloaded them first to my hard drive rather than open them directly online.

What about the visuals? The slides are stored separately in the Munich conference’s public session page. Scroll down to the presentation (PD-01, PD-02, etc.) for the matching PDF file of slides. Open the audio file in your media player, open the PDF in Adobe Reader, and enjoy.

Unfortunately, for a number of important presentations, there are no slides. Most notably, in her speech SEC Commissioner Kathleen Casey apparently gave demonstrations of the Interactive Financial Report Viewer, mutual fund risk/return summary in XBRL, and, most interestingly, the new executive compensation viewer. You can read her speech online or download the audio (PD-04), but I couldn’t find any visuals.

They’re also not available for the talk of John Turner, Chair of the XBRL International Standards Board, which focuses on the various XBRL working groups for formulas, versioning, XBRL-GL, etc. The talk is still well worth listening to (it begins at about 11 minutes into PD-03), but slides would be helpful.

Similarly, I was eager to view the presentation of Tadashi Shiozaki of Takara Printing.  In introducing him to the audience, Walter Hamscher said he was highly impressed by the talk (PD-15). Japan’s Financial Services Agency will require XBRL statements by fiscal 2008, and Mr. Shiozaki’s discussion centers on a user-friendly application for preparing such statements for those who don’t know XBRL. Although there is a link for the slides on the public session page, I was unable to download them on either of my machines (perhaps you’ll have better luck).

Happily, both audio and visuals are available for the talk of Mr. Sebastian Muriel, President of XBRL Spain (PD-06). As I have noted, Spain is at the forefront of the XBRL movement. Indeed, it is constantly seeking out new frontiers, both geographic (Latin America) and functional (local government, SMEs), for the XBRL effort. Mr. Muriel’s discussion demonstrates just how broad and deep the potential for interactive data is.

I especially enjoyed the talk of Robert Garnett (PD-07), a Board Member of the International Accounting Standards Board (IASB) and Chairman of the International Financial Reporting Interpretations Committee (IFRIC). Mr. Garnett has a dry sense of humor, and his talk on the implementation of International Financial Reporting Standards (IFRS) is both highly informative and amusing. His presentation is by no means limited to XBRL, and it’s well worth the time of anyone interested in international financial reporting.

Finally, Eric Cohen gives an excellent overview of the Global XBRL Academic Competition (PD-14). Every intellectual endeavor, especially one as intricate as XBRL, needs to foster the creativity and imagination of young people doing research in the field. To some extent, the great slides that accompany this talk which are filled with useful links offset the lack of visuals for other speeches. I hope downloading the speeches of future conferences is made easier, so that those not fortunate enough to attend them can easily access the presentations online.

Written by Rita Ormsby     Posted on June 15, 2007

Rita Ormsby is assistant professor and information services librarian at The William & Anita Newman Library Baruch College, City University of New York. She reports on an XBRL program she organized for the Special Libraries Association (SLA) annual conference in Denver on June 5.

About 75 attendees from academic libraries, corporations, government agencies, law firms, mutual funds, and vendors came to a 90-minute session on XBRL and Financial Reporting. The session was organized by the Business & Finance Division’s Investor Services and College & University Business Librarians sections.  From comments of thanks received after the session, it is apparent that for many attendees it was either the first or most detailed explanation that they had heard of XBRL.

My colleague at Baruch College’s Newman Library, Prof. Louise Klusek, gave an overview and explanation of XBRL, discussed how to use it, described XBRL International and the Securities and Exchange Commission’s (SEC) voluntary filing program (VFP). She also provided information about the Federal Financial Institutions Examination Council’s (FFIEC) filing requirements in XBRL and proposals of the Investment Company Institute and the Canadian Securities Administrators.

Prof. Klusek briefly demonstrated the SEC’s Interactive Financial Report Viewer. She also gave an overview of XBRL around the world, including pilot programs and other XBRL initiatives, including earnings releases, Global Reporting Initiative sustainability reports, and tax returns in the United Kingdom and the Netherlands. She referred to a September 28, 2006, Gartner report that predicted a change in the marketplace for SEC basic fundamental data, and more accurate, broader, and more effective (and less expensive) research coverage.  In noting that information relating to XBRL efforts is changing rapidly, she suggested that librarians should keep abreast of the SEC’s activities, test free XBRL tools, and talk to data vendors.

Courtney Cowgill, CFO and Treasurer of Oceanic Exploration, a Colorado-based corporation, presented the practitioner’s view.  Ms. Cowgill explained how she became one of the first CFOs in Colorado to make a financial filing with the SEC using XBRL (she volunteered when she was contacted, as she kindly had for this SLA presentation). She demonstrated the filings. Although she said adopting XBRL was the right thing to do, in light of global efforts to adopt XBRL, she also discussed the effort and expense involved for a small company such as Oceanic Exploration.  She discussed XBRL and provisions of the Sarbanes-Oxley Act.

Like Prof. Klusek, she encouraged librarians and information professionals to keep abreast of XBRL efforts, both here in the United States and abroad.  She also said that XBRL will likely open opportunities for librarians with knowledge of financial statements and analytical skills.

Since the session, I have thought how rare it is to hear a CFO speak to librarians, and I am very grateful that Ms. Cowgill agreed to talk to SLA members. There is much education to be done about XBRL for many potential user groups, including academic librarians.

Here are some other thoughts I’ve had about XBRL since the conference:

• Standardized financial filings will help individual investors, beginning students, and faculty researchers.  A big question for the academic librarians who help researchers is, How will vendors handle prior filings?  Will there be a greater reluctance to purchase needed data if XBRL does make data available faster, cheaper, and better (i.e., fewer errors)?
• There is much education to be done about XBRL for many potential user groups, including academic librarians.
• When the data is freely available, how will academic librarians make a contribution to analysis of that data? If we don’t have a role, is this another event that might lead students to think the library’s resources have limited value?  How will students learn about XBRL? Through course assignments? Library workshops or tutorials? How will I find the time to keep up with XBRL and all the other accounting-related changes that are occurring?

The materials from the session, along with some helpful XBRL-related resources compiled for librarians, will soon be posted on the SLA Business & Finance website.  You can also contact me for them.

Written by Bob Schneider Posted June 12, 2007

As recently reported in the Economist, some $2 trillion in global M&A deals have been unveiled thus far this year, a pace that points to a 60% rise for all of 2007 from 2006 levels. Strong equity markets, cheap debt financing, globalization of M&A, and lenient antitrust policy (especially in the US) are among the main factors fueling the huge expansion.

Like previous booms, the current frenzy has its own wrinkles most notably, a burst in private equity buyouts, which according to Mergermarket totaled $121 billion in the first quarter of 2007 compared with $58 billion a year earlier (for deals where the target firm was in the US and Canada). Also like previous spurts, there’s much speculation about a succeeding bust, with some averring that “This time really is different” and that the boom will continue, and others drawing up timetables for a bubble burst.

Opinion has long varied on M&A. Critics say many mergers are driven simply by fees and ego with little thought given to the new company that will emerge. Others argue that solid business reasons extending geographic and product markets, reducing overcapacity, enhancing R&D, and capitalizing on the convergence of industries and technologies underlie most M&A deals.

Similarly, views differ on whether most M&A ultimately does anybody much good (with undeniable exceptions, of course, like investment bankers, CEOs, and Ferrari salesmen). Past research studies of M&A have given rise to the belief that “most mergers fail,” and critics can easily point to unsuccessful combinations like Time-Warner and DaimlerChrysler to support their case. Other studies, however, show a more mixed picture, at least more recently, and M&A advisers cite evidence that stock prices of acquirers have actually gone up (at least for the first post-acquisition year).

Of course, given its current proportions, M&A is no more monolithic than the global economy, and success rates will vary depending on size, country, and circumstance. Certainly much M&A is part of the normal course of business enterprise. If recent history is any guide, M&A is likely only to get bigger. How can it also become better?

The widespread adoption of XBRL is one answer. First, interactive data can play a vital role in assuring better deals are made. As noted by CA.com:

In the scoping and due diligence phases of M&A activity, XBRL can be used as a uniform means to gather and compare information on target companies, allowing management to make better-informed decisions and project pro forma performance of the combined enterprise.

XBRL can be even more crucial in executing a completed deal. Chief information officers have often lamented that they are among the last to find out about a merger, yet the integration of IT systems is absolutely essential to a successful combination. Differences in data and account structures across organizations present huge challenges for consolidation. But CIOs are often under enormous pressure to combine IT quickly, as well as generate some of the cost savings that supposedly justified the merger.

The wide-scale implementation of XBRL would make their jobs much easier. In a recent article for Strategic Finance titled “The Global Ledger for Financial Services,” Gianluca Garbelotto noted the advantages of XBRL GL for M&A:

XBRL GL facilitates the consolidation of data and the migration from one information system to another, offering important additional advantages in the process in terms of standardization and ownership of the data independent from the applications in use, which is particularly important in a transition process.

Although Gianluca was speaking specifically about the plusses of XBRL for mergers in financial services, his comments can be applied to combinations in a wide variety of sectors.

Moreover, the international effort to adopt XBRL offers peculiar advantages for global M&A. The current round of mergers has seen burgeoning activity in formerly quiescent areas like the Middle East and Africa, and cross-border M&A is beginning to flow both ways between the so-called advanced and emerging economies. As an open, truly international data standard, wide-scale adoption of XBRL would make integrating cross-border mergers quicker and easier.

The vision I have outlined of XBRL in M&A is not immediately in view, because company IT is not yet widely based on interactive data. But the argument for adopting XBRL for migrating data across systems is powerful, and wide-scale implementation may well change how M&A is seen — even by CIOs.

Written by Bob Schneider Posted June 5, 2007

Gary Purnhagen’s recent post on the SEC and XBRL prompted me to listen to the webcast of the Interactive Data Roundtable the agency held in March. It includes speeches by SEC Chairman Christopher Cox and various luminaries, as well as an hour-long panel on the Voluntary Filing Program (VFP), very ably moderated by Chicago Sun-Times columnist Terry Savage.

The webcast runs over two hours and, as you would expect, some parts are better than others. Most of the speeches will hold few surprises for those who keep current on XBRL developments. But while the references to March Madness are now stale, much of the content remains extremely relevant, and along the way you’ll hear some discussion that is well worth your time.

Here are the highlights as I see them, along with their start and end times in hours/minutes (you can jump around by using the time slider at the bottom of your media player):

(1:29 1:34) Terry Savage asks Harold Zeidman, a partner at KPMG, whether the adoption of XBRL will ultimately make auditing easier. His initial response is certainly unpromising: “It depends.” But stick around for his superb exposition on XBRL’s (modest) impact on auditing in the current “papercentric” world (where tagging occurs only at the end of the accounting process), and in the “datacentric” world of 10 or 20 years from now (where data will be tagged much earlier in the information stream and XBRL will become crucial to the audit). Although Mr. Zeidman’s remarks address auditing specifically, his vision has wide application across the spectrum of information providers and users.

(0:56 1:24) The Roundtable featured an impressive group of participants in the Voluntary Filing Program from top companies like 3M and Pfizer, as well as a few XBRL experts like Mr. Zeidman. Individually, the comments of the VFP participants are not intriguing; Ms. Savage does her best to coax some war stories, but with little success. But taken together, their VFP experiences are revealing:

(a) Some used outside consultants, others didn’t;
(b) Either way, the accounting department was central to the effort;
(c) Most started off by doing the 10-Q, although Dow Chemical went back and did their 2005 10-K too;
(d) Most tagged just the P&L, balance sheet, and cash flow statements;
(e) Opinions varied about the extent of the initial time investment, but all agreed tagging got much easier on succeeding filings;
(f) Most didn’t seem to have too much trouble using existing taxonomies. A notable exception was Ford Motor Credit, which required “a number of” extensions.

(1:12-1:20) One participant on the panel, Lawrence Salva of Comcast, said that “he almost forgot to tell his audit committee that we were going to do this,” and in turn committee members subsequently wondered about their own responsibilities vis–vis the VFP. This discussion eventually led to a very interesting exchange between Ms. Savage and Chairman Cox about the role of auditors with respect to tag creation.

It’s one thing to read a news account that says the SEC won’t require external audits for the XBRL tagging process. It’s another to hear Ms. Savage give the Chairman three opportunities to clarify his position on this issue, and each time hear him say that XBRL tagging will not require attestation (although it wasn’t clear how far along the XBRL adoption road this would remain true).

One can sympathize with Chairman Cox’s desire to avoid the “crib death” he believes audits of XBRL tagging will engender. Nevertheless, I must say it is difficult to read Robert Kugel’s piece on making XBRL tags mandatory and still think there is no role for external auditors in the tagging process.

(1:24 1:28) Elmer Huh, an analyst at Lehman Brothers, made the important point that much of the “value drivers” in Item 6 of the 10-K that are useful to analysts (eg, revenue per subscriber for a cable company; square footage for retailers) are not yet being reported under the VFP.

(0:32 0:45) John White, the SEC’s Director of the Division of Corporation Finance, gave an excellent demonstration of how XBRL will change the work of preparers of SEC disclosures. Using the revenue-related parts (revenue line item in the income statement, the revenue discussion in the MD&A, and the revenue recognition policy in the footnotes) of a Microsoft 10-Q, Mr. White shows how preparers can compare text (a) within the document; (b) over time; and (c) across companies. Moreover, XBRL allows preparers to view the underlying authoritative literature.

White drums home the point that not only preparers, but investors, analysts, journalists, etc, will all have instant access to the same documents once filed. The immediacy of these releases, filled with financial information that is easy to manipulate (in the good sense), presents both opportunities and challenges to the officers who must explain company results to external audiences