Posted by Bob Schneider on October 31, 2007

Mike Willis, Founding Chairman of XBRL International and partner with PricewaterhouseCoopers, kindly agreed to the following interview with us. Mr. Willis discusses the many uses and benefits of XBRL, and he elaborates on important interactive data issues that face financial professionals.

(1) Some observers have expressed concern that XBRL will push companies into publishing "one-size-fits-all" financial statements. Other argue that interactive data actually allows companies to tell their story more fully and completely. How do you see the impact of interactive data on the ability of firms to provide complete and accurate information to financial statement users?

As I wrote in my post on this blog in July, market intermediaries are already tagging company reports without any guidance from CFOs. Forcing unique or company-specific concepts into these third-party standard reporting templates restricts communication and inappropriately normalizes, aggregates, or otherwise homogenizes information, thereby diminishing or omitting its intended meaning and value.

If CFOs really want to tell their own story, they should tag their reports themselves. The extensibility of XBRL taxonomies provides CFOs with the flexibility to articulate unique and highly distinguishable company information. Companies can thus be assured that their company-specific, unique information is being used and interpreted as intended.

(2) Data aggregators have long provided company financial information to security analysts and other users. What problems do you see in the data they provide, and how would the wide-scale adoption of XBRL ameliorate those problems?

Roughly 30% of the information reported in the primary financial statements is NOT provided by data aggregators to analysts. Roughly 90% to 95% of the information reported in the notes to the financial statements is NOT provided by data aggregators to the analysts. The number of data quality issues with the currently reported data is very high -- errors, transpositions, and re-labeling are common problems.

(3) How can the adoption of interactive data generate cost savings for firms as they work to meet their financial reporting requirements?

It can lower the costs of reporting by automating many of the steps now done by manual processes. Most companies manually assemble and prepare their reports in desktop word processing and spreadsheet documents. Automating the currently manual reporting and quality review and assessment processes would be a start. Migrating the idea of standardized information even further back into the enterprise compliance processes via the XBRL Global Ledger will provide even greater levels of interoperability between systems, as well as standardization of controls, processes, and analytics.

(4) In what other areas and functions can the implementation of XBRL generate cost savings for the firm?

Here are a few fairly pervasive compliance process opportunities where XBRL can be applied to generate cost savings:

(a) Dramatically improve the interoperability of disparate systems;
(b) Abstraction of the information model, business rules, controls, and process designs, thereby enabling them to be accessed and applied across a wide range of disparate applications (rather than the current model of individually and redundantly embedding them within the disparate software applications);
(c) Report rendering process redesign (i.e., reusability of templates for rendering or production of subsequent period information); and
(d) Language labels used across a diverse range of applications.

(4) How do you see XBRL adoption changing the nature of the work and responsibilities of external auditors and internal auditors?

With the migration from largely manual assessments to more automated approaches, we will see auditors spend more of their time on analysis rather than on manual, heavy-lifting data access. There will be more complete assessments of data populations rather than statistical sampling. Auditors will use a rules-based approach for testing and assessments, and apply reusable testing and controls of intellectual property applied across various processes and reporting outcomes.

And what about management accountants?

For management accountants, the greater transparency of internal information will enable them to offer more sophisticated assessments of value and cost. We will also see a migration from historical cost to broader, more relevant value assessments. Management accountants will give greater attention to business processes that drive enterprise value, as well as relevant best practices and benchmarking efforts.

(5) What steps should the accounting profession take now to encourage more companies to publish their financials in XBRL format and ensure the successful implementation of XBRL for financial reporting?

The profession needs to raise the level of awareness of the economic benefits of XBRL adoption. Accountants need to discuss the applications relevant to existing business processes, and how standardization will reduce cost and increase reporting and compliance process effectiveness. The discussion is not about XBRL, rather it is about enhancing compliance process effectiveness.

Two specific steps accountants can take are:
1. Attend one of the free XBRL US webinars to learn how to cost effectively participate in the SEC's Voluntary Filing Program. Interested professionals can sign up for future sessions or view prior archives here.
2. Review and comment on the US GAAP XBRL Taxonomies scheduled for release on December 5th. (Readers can find updates on XBRL US activities here.)

(6) How can the adoption of XBRL across the company's information supply chain improve the firm's internal controls and help meet its compliance obligations?

Abstraction of controls enables them to be articulated outside of the software layer and applied in a more consistent, complete, and timely manner to relevant information stored across a wide range of internal software applications. This SOA-centric model is simply more agile and cost effective than the currently hard-wired integration approach with all of the manual process workarounds.

(7) In what ways can the adoption of XBRL help speed the firm's closing process?

XBRL allows greater transparency of information relevant to the close. It will also permit automation of many of the currently manual process steps dictated by the pervasive use of disparate data stores that are opaque and inflexible for closing purposes. Interactive data will also enable more collaborative and automated review processes for draft reporting information, thereby eliminating the document-centric serial versioning approach that is currently the norm.

(8) What advantages will accrue to security analysts by the wide-scale adoption of XBRL?

In an article I wrote with Christopher Dreyer for Professional Investor last year, I discussed the many benefits XBRL provides to the analyst community, including:

(a) Greater transparency of information in company filings and disclosures;
(b) Increased speed in accessing and using company-reported information;
(c) Enhanced and more accurate data included within analytical models;
(d) Better management of analytical processes;
(e) More effective management and sharing of analytical intellectual property within firms and between firms and their customers; and
(f) More automation of business and analytical processes.

[For the full discussion of benefits for the analyst, please see page 5 of the article.]

(9) What do you think the benefits of XBRL adoption will be for both capital providers and capital users?

They are the major economic advantages common with any supply chain standardization effort such as XBRL:

(a) Lower costs
(b) Higher precisions
(c) Increasing volumes
(d) Accelerated frequencies
(e) Enhanced resource allocations
(f) More efficient processes
(g) New market opportunities

(10) Commentators have expressed varying views on whether the US lags or leads other nations in XBRL adoption. What is your take on this issue? Should the US be in the vanguard of XBRL adoption, or is it better to let other countries go first and learn from their mistakes?

The US is lagging when compared with the more macro market approaches underway in the Netherlands, Australia, Spain and Japan. The cost efficiencies of these efforts overseas provide significant economic advantages for these territory economies. Why would the US not want to realize economic benefits sooner rather than later?

If readers want to learn more about the current state of international adoption, they should consider attending the XBRL Vancouver Conference on December 3rd. It promises to be a valuable learning experience for all attendees.

Written by Bob Schneider Posted on October 19, 2007

At a press conference held in New York on September 25, Chairman Christopher Cox of the SEC announced the completion of all work on developing data tags for the entire system of U.S. generally accepted accounting principles.

But did he also say that XBRL will be made mandatory for filers?

Traditional and Internet media expressed a wide range of views on what Chairman Cox did (or did not) say on this crucial point. Here's a sample of leading sources:

Reuters
"U.S. regulators will decide next year if companies should be required to file financial reports in a machine-readable computer code to make data more easily comparable, Securities and Exchange Commission Chairman Christopher Cox said on Tuesday."

AP
The Commission expects to decide early next year whether to require companies to submit filings in a format that will make it easier for investors to search and compare financial data.

CPAOnline
Cox plans to consult with the top accounting firms and with the various offices at the SEC this spring to get their opinion on when XBRL should become mandatory.

TheCorporateCounsel.net
However, I am a bit concerned about the Chairman's remarks that rules could be proposed this Spring, and adopted as early as next Fall, mandating the use of XBRL. A change this big -- and this technical -- takes time, particularly if our historical experience with EDGAR is any indication.

footnoted.org
I freely admit that I may be missing something and to be sure, footnoted spends more time focusing on weird text strings than funky numbers, but it's hard to get all that excited about today's news, especially since it seems like just another step in the process. Even the press release said that investor-friendly financial reporting moved closer to reality today as opposed to was already here.

FEI Blog
Our understanding is this means the SEC staff has been charged with coming up with a proposal for making XBRL reporting mandatory, potentially including staged implementation [emphasis in the original].

So what did Chairman Cox say? Was it more like "There will be a study that will make recommendations for a proposal that may or may not at that time create a committee that will" Or did he really say "MANDATE!" Or was it something in between?

I listened to the webcast of the press conference, and I think the FEI blog got it about right. Crucially,"the Chairman" was specifically asked by Ellen Heffes, Executive Editor of Financial Executives magazine published by the FEI, to cut to the chase and tell us whether there will be a mandate or not. Mr. Cox responded:

"Well, this is the recommendation that we'll be seeking from all the divisions and offices that I mentioned within the Securities and Exchange Commission, and our process will commence informally to consider recommendations in proposed form in spring of next year. If it follows the course of an ordinary rule-making, then it will probably be completed in the fall of next year, and would lay out a schedule for implementation."

Earlier, Mr. Cox stated he had asked seven of the SEC's offices -- the Office of the Chief Accountant, Division of Corporation Finance, Division of Investment Management, Office of Information Technology, General Counsel's office, Office of Economic Analysis, and Office of Investor Education and Advocacy -- to work together to finalize a recommendation to the Commission we could act on next spring about how to deliver maximum benefit of tagged data to investors, including converting all public company disclosure to interactive data format.

Even though there's definitely a lot of officialese in these statements and some wiggle room, the relevant question on an XBRL mandate seems when, not whether."

Moreover, if you listen to the entire webcast, its overall thrust is that XBRL filings are something that's going to happen. So many key XBRL players were introduced by Mr. Cox: Charlie Hoffman, the Father of XBRL (how he must get tired of hearing that tag!); FASB board members; XBRL board members; people from companies in the VFP; investor representatives; CFA Institute staff; big brokers, like UBS and Citi; representatives from the top six accounting firms, the CEOs of the AICPA and IMA; XBRL vendors, and, not least, SEC top brass.

Would the Chairman call together all these people to celebrate the completion of a taxonomy that won't be used?

In addition, Mr. Cox's remarks consistently assumed implementation. There were references to how all investors will be helped; that we're at the "penultimate step"; that we haven't landed on the moon yet, but we're at the point where we're rolling out the Saturn rocket. The listener comes away with the sense that, one way or the another, most, if not all, companies will be filing statements in XBRL a couple of years from now. This sense of inevitability is only strengthened by the announcement last week of a new office for interactive data within the agency to "...lead the transformation to interactive financial reporting by public companies."

Rather than tack on a "to be sure" paragraph of counter-argument, which I can trot out two years hence should an XBRL mandate fail to materialize, let me do something more useful and address a key question:

If I was a staff accountant and my CFO asked me -- given everything that's on our plate right now whether we should join the SEC's Voluntary Filing Program, what would I say?

I would say that the expected value of joining the VFP is now positive, and now is the time to sign up.

Written by Mike Skutinsky, Jr. Posted on October 3, 2007

Mike Skutinsky Jr. will complete his two-year term as Executive Director of RIXML.org on November 30. His delivery milestones include establishing a Level One specification compliance timeline, release of current specification 2.2, and aligning and establishing RIXML.org as a provisional jurisdiction of XBRL.org.

In my July post I provided a brief overview of XML applications in the financial services world XBRL in general, and RIXML specifically. Both standard groups have great support organizations, with talented and dedicated people involved, and are financially supporting themselves.

But one still has to ask, "Where is the traction?"

In my opinion it's fairly simple, and I feel there are a lot of true-life scenarios out there to support my premise. In the world of Wall Street, applications and endeavors work much better when they come from the top/down, not bottom/up. If you look at the many Wall Street mergers and acquisitions over the years, the Y2K effort, and the Global Research Analyst Settlement dictates of a few years ago, all were handled and implemented very efficiently and in a timely manner. Why? They were top/down, not bottom/up, efforts. Regulatory stuff gets immediate attention on Wall Street!

While XBRL U.S. does have a great champion in Chairman Cox, the call for filing in XBRL is still voluntary for companies, not mandatory. Wall Street does not like changes or surprises, and I feel that "voluntary" is just not going to make it happen. I have been the Executive Director of the RIXML.org standards effort for over two years, and while we have made inroads (without a champion of the stature of Chairman Cox), progress has been steady but slow.

Research analysts would be eager to use filings in XBRL formats, but they are not going to switch or make the commitment until there is a critical mass of companies filing in XBRL. Ergo, analysts will not be pushing their Directors of Research to lobby for XBRL, and this demand for filings will not go further up the food chain (bottom/up) within a financial services company. In my opinion what is needed is a working group comprising the SEC, sell-side financial services firms, and a handful of companies willing to take the plunge and come on over to the XBRL side. (We now have about 40 U.S. companies filing in XBRL format, but that just isn't going to make it happen at that level.)

We at RIXML have the same dilemma as our XBRL partners. We have a great schema and fantastic professionals involved from many firms -- BUT adoption and traction can be better and happen faster. We also are a bottom/up effort! RIXML joined XBRL International as a provisional jurisdiction this past June, and we are confident that we can make more progress together than we can individually. I feel that by focusing on the vertical forces within our market we can start to make an impact. We have to tell our story to the industry associations such as SIFMA, get involved with the professional certification groups such as the CFA Institute, and possibly take our story to Congress and the applicable financial committee heads. We shall see...