Dominic Jones, who writes the highly regarded IR Web Report blog and is a leading voice in the investor relations field, kindly agreed to do an interview with us. He is a principal of Clarity! Communications of Canada  and has more than 15 years of experience in journalism, investor education, and online investor relations communications. The second part of the interview, beginning with question (7), appears below; the first part was published last week.

(7) The SEC has tried to familiarize users with XBRL by making available several viewers with various types of data – company information, executive compensation, etc.. What is your opinion of these viewers? Do they do the job of convincing investors and other users that XBRL has something special to offer?

The viewers are quite basic in their functionality, but they are a good foundation for further development. It was important for the SEC to develop its viewers and make the source code available. But the best viewers will come when vendors start designing products based on investors’ needs.
 
One thing I don’t think the XBRL community realizes is that human-readable applications of XBRL, such as Microsoft’s Investor Central, are actually not as good or as usable as what is already being done on a few investor relations websites with considerable effort using old-fashioned, hand-coded HTML.

Some companies produce interactive quarterly reports in HTML that include functionality that is more sophisticated than that being done by Microsoft’s Investor Central. These HTML reports are being published simultaneously to the companies’ earnings releases, whereas Microsoft’s Investor Central is only updated several days after it has released its earnings. 

Of course, the companies that are currently doing things the hard way in HTML are going to benefit handsomely from the efficiencies that XBRL will bring. They will be able to do what they are currently doing in a fraction of the time and at much less cost.

It concerns me that the XBRL community has not managed to engage the mainstream web development community to use and experiment with XBRL data. My sense is that many people view XBRL as some kind of closed technology for financial software vendors and accounting firms. They don’t see it as open web technology similar to other semantic technologies.

(8) Advocates of interactive data say that the greater transparency and ease of analysis that XBRL statements offer will reduce the cost of capital for smaller companies. Others suggest that XBRL will have the opposite effect for at least some companies, revealing negatives that had previously been hidden. Do you think interactive data is a boon to smaller companies seeking capital, or do you think the advantages are overstated?

Both outcomes are probably true. Well-managed smaller companies will probably see benefits, while poorly managed ones will suffer. The same goes for big companies.

For me, the telling thing will be how management uses XBRL inside the business to make better decisions. Simply bolting XBRL on at the end of the financial reporting process might give investors data in a standardized electronic format, but it doesn’t help management beyond the opportunity to potentially be included in the universe of companies investors are applying their screens against.

If I am investor, a key data point will be to know if and how management is using interactive data inside the business. If XBRL allows investors to make better, faster decisions, it can do even more for you if you are managing and growing a business. In that sense, one of the most important tags in an XBRL filing with the SEC might be the one that identifies the vendor and technology a company used to prepare its XBRL documents – are they integrating XBRL into their internal reporting or bolting it on at the end by sending it to a financial printer?

(9) Companies now use their websites to varying degrees for IR purposes. The SEC’s proposed rule includes a provision that companies provide their XBRL files on their website simultaneous with their submission to the SEC. Overall, how do you see an XBRL mandate affecting the use of a company’s website for IR purposes?

By itself, the requirement to post XBRL files on corporate websites will have little or no impact on corporate investor relations websites. Companies simply have to post raw XBRL files on their sites. There’s no requirement to render those files in a human readable format or provide them via a web feed.

Until regulators recommend specific standards and recognize corporate website postings as being sufficient to meet broad disclosure requirements, companies will not invest in their websites. Interestingly, in countries where there were until recently no established newswire services or web-based regulatory databases – such as Germany, Sweden, and even the UK – companies have invested in their corporate websites, and those sites are on the whole much better than what you will find in the US.

Investors have been complaining for years that they want better web resources from US companies, but the vast majority of companies have failed to respond. I don’t think XBRL by itself will change that.

(10) Where do you see XBRL adoption three years from now? Do you think, as planned, most public companies will be submitting their financial statements and notes to the SEC in XBRL format? Or will there be numerous delays before a broad-based XBRL mandate is achieved? 

I don’t see anything delaying the proposed schedule because it is already very conservative. If anything, there is a strong case that can be made for moving a lot faster. And this might happen if new technologies come along that make it easier to tag financial and other information in XBRL and then distribute it to investors in real time at little or no cost. 

Even though XBRL has been 10 years in the making, we are still only in the very early stages of adoption. We shouldn’t forget that under the SEC’s proposed schedule, after three years fewer than half of US issuers will be tagging the face of their financial statements and their footnotes in detail. The rest will still only be tagging the face of their financials in detail and their footnotes will still be in block tags.

The MD&A will remain untouched. Proxy statements and the executive compensation information in them won’t be tagged. And perhaps most important, earnings releases won’t be in XBRL. Then there is still the problem of ensuring that XBRL data from one country is directly comparable to that from a company in another country.

So three years from now, I think we will still be waiting for the promised revolution that interactive data was supposed to bring.   

Add to Del.icio.us | Digg this

This entry was posted on Wednesday, July 23rd, 2008 at 3:09 am and is filed under General, . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.