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Wilson So is the Director of Hitachi America, Ltd. 
Steve Adelman has been working at the intersection of financial services and technology for more than two decades. As the Managing Director of XBRL: The Long and Winding Road
Written by Matt Kelly Posted on April 21, 2008
Matt Kelly is editor-in-chief of Compliance Week, a magazine and online newsletter on corporate governance, risk, and compliance. Prior to his role at Compliance Week, Kelly was a reporter and contributor on corporate compliance and technology issues for magazines such as Time, Boston Business Journal, eWeek, and numerous other publications.
It seems the Securities and Exchange Commission is finally ready to make good on its promise to decide the fate of XBRL adoption in U.S. financial reporting. In its own bureaucratic way.
The Commission startled Corporate America last week with an announcement that it would vote April 21 on whether to amend its rules to require use of XBRL — and then just as quickly postponed the meeting until May 14. SEC spokesmen say the delay is merely due to unforeseen scheduling conflicts. It also gives commissioners time to hear more input from two (supposedly) important meetings: an April 22 congressional hearing on the state credit ratings agencies, and a May 2 meeting of the SEC’s own Committee to Improve Financial Reporting.
Regardless of whether the SEC’s stated reasons are its real reasons — and it’s always hard to tell with government agencies — the time has come to strap yourselves in. The SEC is actually going to start moving, and a rocky road lies ahead. The plain truth is that for all the past enthusiasm about XBRL, powerful and vocal skeptics still abound.
Granted, the Commission has already sunk a lot of effort into promoting XBRL, so I’m hard-pressed to believe the technology will not eventually become law of the land. But getting there will be a long, slow process. The problem? Well, the problem is likely to be the SEC itself.
Start with the agency’s long history of underestimating how complex its financial reporting reforms will really be. The star example here is, of course, the Sarbanes-Oxley Act, which requires companies to test and document their internal controls over financial reporting. In 2003, the SEC originally estimated that SOX compliance would cost an average of $90,000. Today for a large company, that bill routinely runs into the millions. XBRL proponents — who, in my observation, tend to come from the technical side of things —should be absolutely clear: Their counterparts on the corporate finance side bring up fears of another SOX disaster every time anyone mentions an XBRL mandate. The SEC needs the trust of the business community to pull this off. Right now, the SEC doesn’t have it.
Worse, to gain that trust, the SEC will need a deliberative, collective process to hammer out exactly what its XBRL mandate will say. That does not make for a swift implementation of anything, let alone a complicated new technology. Expect hearings, proposals, comment letters, more hearings, revised proposals, more comment letters, and then a final rule for some phased-in approach over a period of years — and that will get comment letters as well. There’s always the risk that someone from Congress could file a bill to slow (or even stop) the process, too.
All of this will last well beyond Christopher Cox’s tenure as chairman of the SEC, which expires in January. XBRL has had no stronger friend in the United States than he, so it’s worth wondering how much momentum XBRL can maintain when he’s gone. Whoever leads the Commission after Cox will have plenty of other concerns, including calls for reform of the financial regulatory system that would overhaul the SEC right out of existence.
Those are pretty formidable obstacles, and we haven’t even delved into the small detail that most companies either have not heard of XBRL at all, or couldn’t care less to implement it. So I’m not surprised that the SEC is off to an inauspicious, hurry-up-and-wait start of announcing its first XBRL meeting and then promptly delaying it. That may well be a the tenor of things to come for a long while.