Written by Glenn Doggett     Posted on March 12, 2008

Glenn Doggett, CFA, is a policy analyst with the CFA Institute Centre for Financial Market Integrity. The Centre is the research and advocacy division of CFA Institute, the global, not-for-profit professional association of more than 94,000 investment analysts, portfolio managers, investment advisors, and other investment professional in 133 countries, of whom 82,000 hold the Chartered Financial Analyst (CFA) designation. Doggett is the staff advocate for XBRL and liaison to the member volunteer XBRL Working Group.

While finalizing the key principles document developed by the CFA Institute Centre’s XBRL Working Group, it became clear that a phased process for implementing an XBRL reporting mandate is the preferred path. The phases concept goes beyond just the scheduling of which companies begin filing with XBRL and when, or if they file a secondary or integrated XBRL document. No, to reach the end goal of all business items being tagged efficiently and effectively, both the development and introduction of XBRL reporting has to move forward in carefully orchestrated steps so as to avoid alienating any stakeholder in the reporting process.

I’d address the taxonomy first, as the core of any reporting framework is in the accounting and regulatory requirements. Yet as investors well know, this represents only part of the information delivered. So once companies become comfortable tagging the basic level of data, the next phase will be the development of expanded taxonomies for operational and non-GAAP data. Asking companies to engage step-by-step will make for a smoother and more functional transition than will simply jumping in and tagging everything from the start.

It makes sense to move forward with a first phase that requires a select set of companies to tag base financial information and then address any issues they encounter in that test process before proceeding to subsequent phases. One such issue under current discussion has to do with the impact of extensions on company comparability. Investors concerns about the degree of company-specific extensions used in SEC reports can only be addressed through practical application of the pending U.S. GAAP taxonomy in creating instance documents. As the number of companies providing XBRL filings expands over the number currently involved in the SEC voluntary program, investors are better able to determine the level of peer-company comparability from the base level of tagged information. This will set a baseline for the use of extensions as the tagging process drives deeper into the disclosure notes of the filings.

Another benefit of careful timing of this rollout is that, done correctly, it will ease the move toward an earlier integration of XBRL into a company’s reporting process. The current practice of dual filing as seen in the SEC’s voluntary program should not be viewed as the long-term process for XBRL; instead, we should continue moving toward a defined goal of additional companies adopting XBRL as their primary reporting mechanism. With use, hopefully, those companies will recognize the internal benefits of better integration of XBRL tags. The potential improvements in financial reporting from computer readable business data are applicable to multiple levels of information consumers.

Though not as large an issue for the SEC as it is for other global securities regulators, a gradual move to XBRL filings will also allow time to develop the proper tools that provide access to company reports. The EDGAR and SEDAR systems of the U.S. and Canada currently allow investors to download all annual and interim filings, as well as the XBRL instance documents and related files. Other regulators and commissions do not have such a facility for investors. XBRL report viewers provided by the SEC are giving investors a glimpse of the possibilities of XBRL tagged information, and the fully updated EDGAR system is being finalized. Again, more time to analyze the early adopters and trial use by more companies should allow for a better system in the long run. Solely relying on the limited, voluntary program or a brief review and rollout period won’t provide the breadth or depth of robust data for developers to provide the best product possible.

Ultimately, the profits of a phased approach significantly outweigh the potential losses of either asking for everything now or waiting for everything before beginning. As securities regulators and commissions adopt XBRL they should first develop a clear goal for their mandate. The phases along the path toward that goal should address the concerns of all participants in the business information reporting and consumption process.

Written by Bob Schneider Posted on March 6, 2008

About a year ago I wrote My XBRL Reading List and XBRL Blogs and Forums which suggested various resources for learning more about interactive data and keeping up-to-date on XBRL developments. Since then some excellent new resources have become available, and existing sources offer much fresh content. Now is a good time to update these old posts.

Here are some of the best resources on and off the Web for XBRL information. If you know of any key sources I’ve missed, I hope you will add a Comment about them below.

Books
A search at Amazon using keyword XBRL retrieves few useful items. One excellent book missing in those records is Interactive Data - Building XBRL Into Accounting Information Systems published by and available from The Canadian Institute of Chartered Accountants. Gerald Trites and his team provide an excellent introduction to the data standard; the book is particularly strong in offering an overview on how XBRL can be introduced and adopted for large organizations.

Also available is Hitachi’s XBRL for Dummies; both a preview and an order form are available online. The book is free; you pay only for shipping and handling.

Blogs and Forums
Charlie Hoffman recently started his own interactive blog Financial Reporting Using XBRL. He updates it regularly and, as you might expect, it has loads of interesting content. It well demonstrates the acumen Charlie brings to all XBRL matters.

John Turner’s Insight blog also brings a rare intelligence to the subject. One post that’s particularly worthwhile is IROs Shouldn’t Look for New Jobs Just Yet, a reply to a post by Dominic Jones at his IR Web Report blog (which should also be in your Favorites list his frequent posts on interactive data are timely and illuminating). Also be sure to read John’s white paper on Assurance Considerations for Interactive Data, in which he takes an-depth look at one of the most crucial issues in XBRL adoption.
Some other useful blogs:
The FEI Financial Reporting Blog often has posts about XBRL-related news and events.
Gerald Trites and others keep readers updated on the XBRL scene in Canada at the XBRL Canada Blog.
The CorporateCounsel.net occasionally has timely and interesting commentary on XBRL developments.

So far as forums are concerned, Yahoo’s XBRL-Public group is the most active, with over 1,200 members. Several XBRL mavens informally monitor the posts and are usually happy to entertain questions and information requests.

Financial Media
CFO.com offers the best XBRL coverage of all the financial magazines. In my year-ago tour of XBRL resources I mentioned the site’s excellent XBRL Special Report that has links to loads of interactive data articles. Unfortunately, the page is not updated for new material. But you can use the Search function at the site with keyword XBRL to find more recent articles; on your page of retrieved records, a click on the Newest First button will list the most recent articles on top. At the bottom of any XBRL story you open there will be links to Related Articles that also focus on interactive data content.

Among the big financial newspapers, look to FT.com for the most regular XBRL coverage. Here too the Search function works well for finding XBRL content. None of the articles I found in my searches required a subscription.

Websites
The XBRL Spotlight page at the SEC contains recent XBRL news, links to webcasts of the Commission’s interactive data roundtables, and recent speeches of Chairman Cox and other Commission members on XBRL subjects. The page for the Advisory Committee on Improvements to Financial Reporting has links to the so-called Pozen Committee’s reports and announcements of public meetings (by the way, the next meeting will be held March 13-14 in San Francisco). The SEC site also has a gateway page with links to the various interactive data viewers, and the Speeches and Public Statements page provides a complete archive of the various presentations of Chairman Cox and other Commission members, including of course those on XBRL.

The Archives at XBRL.org has links to the presentations of past conferences. Unfortunately, the archiving is irregular those for the most recent 15th and 16th conferences appear to include only the slides, while that for the 14th includes the full-text speeches by Chris Cox, Jeffrey Diermeier of the FEI, Kurt Ramin, Harm Jan van Burg, and other leading figures in the XBRL and financial communities. XBRL.org, XBRL-US, and the various XBRL country sites all provide useful information, including introductory materials, taxonomies, latest news, upcoming events, etc.

Finally, for those interested in XBRL-GL, the best resources are the webcasts archived at the GaLaPaGoS page. These outreach sessions of the XBRL GL Working Group cover a wide range of topics and provide an excellent introduction to the area.

Written by Bob Schneider Posted on March 1, 2008

Following the publication of its Draft Decision Memo (which I recently discussed), the Pozen Committee issued its interim Progress Report.

Although the FEI blog is correct in its assessment that the wording of the two reports in the XBRL area show only minor differences, I can’t disagree with the IR Web Reports description of the final recommendations as “watered down”. Notably, while the draft memo stated the SEC should mandate the filing of XBRL-tagged financial statements within a defined time frame, the progress report now substitutes the phrase over the long-term.

That certainly seems less definite.

Here are key aspects of the Committee’s recommendations:

(1) The SEC should phase-in XBRL-tagged financial statements.
(2) In the initial phase, the largest 500 domestic public reporting companies (based on market cap) will be required to furnish XBRL statements.
(3) In the second phase, beginning one year after the start of the first phase, domestic large accelerated filers (as defined by SEC rules) will also be included.
(4) Once the second phase has been implemented and certain preconditions have been met, the SEC should decide whether to move from furnishing to filing of XBRL statements (I’ll get to the distinction in a moment), as well as to extend the requirement to all other reporting companies.
(5) The Committee did not include a specific recommendation on the assurance function.

As CFO.com reports, Appendix A contains a letter of dissent from committee member Peter Wallison of the American Enterprise Institute. The letter criticizes the extended phase-in period, noting that:

Only after the second phase has begun in late 2009 or early 2010 will the SEC (in the Committee’s recommendation) begin to consider whether to require any companies to file (rather than furnish) their XBRL-tagged financial statements. Since the second phase companies will (in the Committee’s recommendation) be permitted to furnish rather than file their XBRL financial statements, that must mean they won’t be required to file their XBRL financial statements until after their 10-Ks are filed in March 2011. That means no company, large or small, will be required to file a 10-K with XBRL financial statements until March of 2012. That’s four years from now, and quite a generous phase-in, considering we are talking about only 2000 or so of the largest and most sophisticated companies in the U.S. When the remaining 13,000 reporting companies will be required to file XBRL financial statements under this mandatory phase-in is anybody’s guess.

Mr. Wallison helpfully explains the difference between furnished and filed, and how he believes that distinction influenced the Committee’s recommendation:

Under the Securities Exchange Act of 1934, companies are absolutely liable for false or misleading material filed with the SEC. However, in the case of material that is merely furnished to the SEC, liability only attaches if it can be shown that the material was intentionally false or misleading. As many readers know, companies face less legal exposure for furnished as opposed to filed information, unless the information was intentionally wrong or misleading. Accordingly, the Committee seems to have adopted the idea of furnishing rather than filing XBRL financial statements because of its concern about the possible cost of auditor assurance. It seems to have reasoned that, if XBRL financial statements were furnished rather than filed, the reduced liability would permit companies to dispense with auditor assurance entirely, and thus to avoid these potential costs.

Mr. Wallison goes on to discuss in detail why he believes the concern about assurance costs is misplaced and ultimately self-defeating. He thinks Mistakes are especially likely if the tagged financial statements are furnished rather than filed. In that case, companies will believe that they don’t have to be particularly careful with the mapping to the XBRL taxonomy, since there will be little likelihood of liability for mere negligence.

Furthermore, he believes Not only was there no need to require the furnishing of XBRL financial statements, allowing XBRL financial statements to be furnished rather than filed will severely impair the value of XBRL for investors and analysts and is an important source of what will be an enormous and unnecessary delay in the adoption of XBRL in the United States.

In essence, Mr. Wallison thinks the Committee wrongly chose furnished over filed statements because of a mistaken belief that assurance costs for the latter would be substantial. There can be little doubt that analysts seek assurance for XBRL statements. In a recent CFAI survey, some 80% of members wanted to see some kind of external audit or review performed on XBRL statements. It would seem reasonable to assume that analysts will be deterred from using (merely) furnished statements, because they lack the auditor’s imprimatur.

And yet

I’m not certain of Mr. Wallison’s contention that companies may be less than fastidious in producing XBRL-enabled statements if they are to be only furnished and not filed. If companies recognize that furnished data will be used to compare their performance against peers, won’t they have a vital interest in ensuring the numbers are accurate? Moreover, if the so-called bolt-on approach for creating XBRL statements is a relatively simple affair — as several VFP participants have indicated — why wouldn’t companies take the trouble to do the job right? Even if the statements are simply furnished, I don’t see companies being unserious about the exercise

Furthermore, while I agree that filed would be better than furnished, in practice I wonder how important the distinction will be to portfolio managers and analysts. As Ralf Frank recently pointed out on this blog, investors have long relied on less-than-perfect, incomplete numbers from data aggregators. Let’s assume that (a) companies prepare their furnished XBRL statements with reasonable care, (b) that analysts get the message that all XBRL statements are based on audited, GAAP data and vary little from the filed statements, and (c) the differences between furnished versus filed statements for key ratios like margins and capitalization are even smaller. If analysts have the opportunity to use easy-to-manipulate XBRL data that is much more complete and accurate than that offered by aggregators, wouldn’t they want to use it?

What concerns me more about the recommendations is that many industry analysts will have XBRL data for only some of the companies they follow. Suppose you’re a sector analyst where your universe comprises, say, five names in the largest 500, two in the top 1000, and two or three small-but-interesting players. Is it worthwhile for you to learn about and use XBRL data when it is available for only part of your coverage? It can be argued that, especially for portfolio managers, having XBRL data for all companies of a certain size is more important than having it for entire sectors. But getting security analysts to not merely acquiesce to XBRL data but to want it is crucial.

And that won’t happen unless they can actually use it.