Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation Pozen Committee Recommends Gradual Adoption of XBRL
Written by Bob Schneider Posted on January 22, 2008
In conjunction with its January 11 meeting, the Pozen Committee (as the SEC’s Advisory Committee on Improvements to Financial Reporting is commonly known) released its Draft Decision Memo. Despite the scary Reuters headline SEC Panel Warns XBRL Could Have Costs Like Sarb-Ox (which Christian Dreyer addressed in this post), the Committee has actually taken a very positive stance toward XBRL.
Indeed, much of this progress report reads like a publicity piece for interactive data, and readers who are often asked “Why XBRL will want to review pages 79 and 80 for the long list of answers”. Most notably, the report states:
The Committee believes that the SEC should eventually require all public reporting companies (preparing their financial statements using U.S. GAAP) to tag the financial statements (including footnotes) they are required to file with the SEC as part of their Exchange Act reports using XBRL. The Committee believes such a mandate is necessary in order to encourage the commitment of resources toward the necessary software development for tagging, viewing and reading of the XBRL tagged information, use of XBRL tagged data by users such as analysts and investors, and company use of XBRL tagging internally.
Although the word “eventually” in the first sentence does lack specificity, this statement demonstrates how far XBRL has come in that an SEC mandate — which was very much an open question just a few short months ago — now seems a fait accompli. (Financial Week has a good account of the Committee’s actions.)
The entire discussion on XBRL, beginning on page 75, is useful reading. I found two specific items of interest.
First, the report seems to downplay the use of company extensions. It states: Because the U.S. GAAP taxonomies currently out for public comment track U.S. GAAP, the Committee believes that there likely will be less need for customized extension elements. One of the purposes of the comment period is to identify additional tags or elements that should be added to the taxonomy, reducing the need for customized extensions.
Perhaps I’m reading more into these sentences than I should. Still, I find it interesting that, rather than expound on the benefits of customized extensions, the report instead explains how their use will likely diminish because of the introduction of GAAP taxonomies and the public vetting process now taking place.
Second, the authors don’t appear to see much of a future for data aggregators: Because manual input is eliminated, there will be reduced error rates in reporting and inputting of corporate data by aggregators. Because aggregators will not be necessary, companies will be able to maintain control over their numbers; what they report will be what goes into the models.
This forecast appears to conflict with that of the Bear Stearns group, which saw a continuing, if changed, role for aggregators.
The most notable action of the Committee at the January 11 meeting was to recommend that the SEC initially require 500 of the largest US companies to prepare XBRL statements. I can see why the biggest firms would be best able to undertake the task of preparing interactive data statements. On the other hand, smaller companies, who are eager to gain analyst coverage, will be important beneficiaries of XBRL implementation. It would seem having their experiences with XBRL known early on would be useful as well.