Written by Matt Kelly Posted on July 15, 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.
Not long ago, Compliance Week polled its readers — financial reporting and corporate compliance executives — to see how prepared they are for the XBRL mandate hurtling towards them from the U.S. Securities and Exchange Commission (SEC). The results were less than encouraging.
It’s true our survey did go out in early June, just after the SEC published its proposed rule to mandate XBRL technology. Perhaps the results are a snapshot in time, and will improve in coming months as the XBRL mandate comes closer to (and eventually becomes) reality. But from what we saw, the picture right now is a raucous high school class: everyone still doing his or her own thing, while the teacher pleads for them to pay attention.
Specific findings include:
• Of the 236 respondents, 104 (or 44 percent) said they had just begun researching XBRL and their companies had done no previous testing. Another 26 respondents (11 percent) said they had no knowledge of XBRL at all.
• A substantial majority of 79 percent said their companies had no XBRL expert on staff at all. Nineteen percent had an expert on the financial reporting team, and 2 percent had an expert in the IT department.
• Sixteen respondents (7 percent) participate in the SEC’s voluntary filing program. Another 6 percent say they’ve done some small pilot tests, and 2 percent say they’ve been testing their own systems comprehensively.
• Some 30 percent of respondents say their companies haven’t yet tested XBRL, but say they’ve been following the topic closely.
What’s more, the results suggest that large companies — the ones that will start adopting XBRL probably in a matter of months — are just as unprepared for the change as small companies. Of the 47 respondents with 20,000 or more employees, 34 percent had either just started researching XBRL or done no homework at all. Thirty-eight percent of companies with $5 billion or more in annual revenue were in the same predicament.
The SEC is not sounding any alarm bells yet. Officials there believe most of Corporate America will come around to the reality of XBRL soon, and they’re probably right. Standard procedure among most corporations is to ignore any new rule from the SEC until the last minute, and then scramble to comply with it as quickly as possible. That’s what happened with the Sarbanes-Oxley Act four years ago, and that’s what is happening now.
The SEC also has one invaluable card to play: XBRL genuinely isn’t as hard to implement as SOX and its dreaded Section 404 provision. That had been everyone’s fear two years ago, when SEC Chairman Christopher Cox began his campaign to make XBRL the law of the financial reporting landscape. But Compliance Week has been keeping tabs on the several dozen companies participating in the SEC’s pilot XBRL program. Almost universally, their opinions boil down to: “Oh, that? It was confusing for a quarter, but then it wasn’t anything special after that.”
Words to warm any securities regulator’s heart. And words to suggest that, despite the current confusion, the SEC may yet just pull this XBRL thing off.
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