Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi America, Ltd. An Interview with Charlie Hoffman
Charlie Hoffman, who is widely regarded as the originator of XBRL and has one of the most distinguished resumes in the field, kindly agreed to do an extensive interview with us. The first installment appears below; parts two and three will be published on April 28 and May 5.
(1) XBRL is still relatively unknown among the financial public, and business professionals who do know something about it have varying expectations of its utility. Some see it as the elixir for all our financial reporting ills; others believe it is merely a money-making scheme for consultants. What benefits can financial statement users reasonably expect from the adoption of XBRL for financial reporting in the US?
I don’t know if XBRL ever will or ever should be known among the financial public or most business professionals. What most people will see is information being available faster, things being cheaper, functionality being better, staff doing less rekeying, and such. Consider the US FFIEC (Federal Financial Institutions Examination Council) use of XBRL. The typical bank has no idea that they are using XBRL. This is probably the same for the typical FFIEC analyst who uses the data. They do things pretty much like they did before using the same software. But go talk to the software vendors and ask them how much easier it is to update the metadata for their applications. They used to have to cobble together information from Excel, Word, and PDFs in order to update software if the FFIEC changed the data being reported — which they did not do often because it was so painful.
Or go talk to the analysts of the FFIEC. What they do is the same, it is just that the data is available in two days rather than the average of between 60 to 75 days. The analysts are also 10% to 33% more productive. (There is more information specifically about the FFIEC on pages 31-33 of Charlie’s book Financial Reporting Using XBRL. )
XBRL is not “an elixir for all our financial reporting ills.” XBRL is a tool. Just like an electronic spreadsheet is a tool. I lived through the change from paper spreadsheets to electronic spreadsheets. There are a lot of similarities between that change and a change to using XBRL. It is a well known fact that generally people don’t like change. So some of them make up unsubstantiated statements such as “XBRL is merely a money-making scheme for consultants,” because they have no real facts to base their case on.
I am no expert on financial statement users. Being a CPA I am more on the financial statement creator side of things. But based on what I do know about using financial statements and what I have seen from the data coming out of the FFIEC project, I can highlight these benefits:
(a) Financial statement users will have data available faster (for example, the FFEIC system going from 60-75 days to two days , as cited above).
(b) Financial statement users will do less rekeying of information; they will be able to automatically extract information.
(c) Because of (b), financial statement users will have more choices of HOW they can see that information, because it is easy to extract data and repurpose it for other things. And isn’t that why people exchange business reports, because someone has information which someone else wants to use for something?
To highlight the benefits to preparers:
(a) “Smart” systems will be developed to help preparers create the financial information. This is because those systems will make use of the structured data, i.e., the metadata that will be able to drive the creation of the financial report or other business report.
(b) These same systems will be able to validate 100% of the computations within that business report using relatively inexpensive software. Therefore, quality will be improved and the cost of achieving that improved quality level will be reduced.
(c) These same systems will be able to validate that the disclosures made are appropriate. This is not about the actual information being disclosed — you cannot check that automatically. This is about the type of things caught by a disclosure checklist, which today is a paper form that CPAs wade through manually to make sure everything is done correctly. Leveraging XBRL, software will be able to use that same metadata to verify many of the anomalies discovered by a disclosure checklist. Not everything — probably about 80% of what is currently in a disclosure checklist. Here’s an example: “If Property, Plant and Equipment is on the face of the balance sheet, then the following disclosures are required: ….” In other words, simple if, then existence checks.
(d) The entire workflow of creating a financial statement will benefit from XBRL. Today it takes hours to work a change through a financial statement, such as an adjustment which impacts net income. So many different parts of the report are affected, and all the different impact points need to be adjusted. That process takes hours. With XBRL, it will take seconds. Also the consolidation process will be vastly easier because it will be more automated.
I could go on and on. I have demos of most of these sorts of things. I created these examples and use cases to be sure XBRL could do all these things during its development and to test to see if XBRL worked in the software being created.
(2) In your recent white paper titled What CFOs Need to Know About XBRL, you recommend that CFOs have their companies become early adopters of XBRL. What advantages will companies enjoy by adopting XBRL now rather than later?
The primary benefit of tinkering with XBRL is that you will determine if XBRL is useful for you or if it is not. That is what United Technologies did. They spent a little time and money to tinker around with XBRL, seeing what it would do, learning what it would not do. The results were good and they became more curious, so they did more. (See this piece in the June 2007 Journal of Accountancy for more information.)
Some companies are leaders, some companies are followers. This is pretty much a fact of life. If you want to be a leader, lead. If you want to follow, there is nothing wrong with that. United Technologies values leading in this area. Also, they like improving their processes, making things better, faster, and cheaper.
I cannot go into detail, but I can say that United Technologies is doing even more with XBRL, and some of these activities have nothing to do with external financial reporting. So I guess the bottom line here is that the best benefit to being an early adopter is figuring out for yourself if XBRL has value and where, and using the technology earlier than others.
(3) As the Father of XBRL (I hope that title isn’t tiresome for you), you have been both a key player and observer of the development of interactive data since its inception. As you look back over the past ten years or so, has the pace of XBRL implementation in the US been slower, faster, or about what you had expected? Have there been any major surprises for you in XBRL’s reception, either positively or negatively?
Frankly, I had no idea when or how XBRL was going to be adopted. I was pretty much going along for the ride. The past ten years have been pretty much one surprise after another. Me, and a lot of others, just did what was necessary for adoption to occur if anyone chose to do so. That had to be step one.
The biggest positive surprise was what the FDIC (Federal Deposit Insurance Corporation) did. And I guess really it was not what they did, it was the timing. The FDIC stuck its neck out and put it on the line. They did not do this blindly. They kicked the tires for about 18 months before they started a project; I know this because I helped them. When they wanted information, I did the best that I could to help them get it. So while risky, the risk was very well calculated and managed. They did a great job and now they have a system which they are quite pleased with and, as I understand it, they are looking to use XBRL in more areas.
So my strategy was to go with the flow and learn as much as I could during the process because I knew all this could work. And this is not to say that I did not do a little “pushing” here and there when necessary.
Probably the biggest major negative surprise is how much politics plays a part in this entire process. I think I was just naïve and did not realize how the world works. Playing those politics is something that I stayed out of. There are others who may not really know much about the technology, but they sure understand how to deal with the politics.