Was XBRL Below Chairman Cox’s Pay Grade?

Written by Bob Schneider     Posted on October 12, 2008

A few months ago, Toshinori Kobayashi of Japan's Financial Services Agency contributed three posts (on May 5, June 6, and July 1) on the FSA's implementation of XBRL for financial reporting. One thing that struck me about the XBRL adoption in Japan was that -- unlike in the US, where SEC Chairman Chris Cox has been at the forefront of the implementation effort -- there was no mention of any involvement by the Minister of the FSA. In email correspondence, Mr. Kobayashi confirmed that the role of the political leadership of the agency had indeed been quite limited through much of its development stage.

In Japan, XBRL adoption was treated simply as a technology decision that did not require much political muscle from the top. And as a technology decision, the logic for XBRL adoption is straightforward:

1. The financial reporting arm for a nation like Japan collects and manages an enormous amount of data.
2. To manage huge amounts of data, the IT world is moving toward the adoption of computer languages that structure data to give it context and meaning, and offer flexibility, extensibility, greatly enhanced search, and other advantages.
3. In the field of financial reporting, a huge investment in money, time, and energy has already been made in developing one such language, namely, XBRL.
4. Many countries -- large and small, developing and advanced -- are adopting XBRL, further strengthening the argument for implementation in those countries that have yet to do so.

However, as I mentioned, in the United States, Chairman Cox has expended much of his energy and political capital in championing interactive data. His assumption of the role of XBRL evangelist made me recall these thoughts of Walter Hamscher from our recent interview:

Consequently, it is a lot easier for some countries -- the Netherlands has a thrifty culture, as does Japan -- to look at something like XBRL and figure out pretty quickly that, yeah, this is good for everyone; it will be more efficient and therefore we will all benefit, so let's do it. Now, I am not saying it is trouble-free and that everybody in these countries has jumped on the bandwagon right away. But, by contrast, in the United States, so many other things pile on to our considerations around business and government decisions, things that really have nothing to do with thrift or efficiency.

In this light, it's not surprising that in the United States XBRL was viewed, not as a technology decision, but as a major policy initiative (with political overtones) that required a forceful voice at the top. The strong resistance and controversy that met Sarbanes-Oxley (SOX) -- a wide-scale and multifaceted response to corporate malfeasance -- was likely one factor that compelled the SEC to see that XBRL adoption might follow the same path.

The concern I have is that when XBRL is viewed as a major policy initiative with such high visibility by the agency's top managers -- rather than as a technology improvement implemented at lower management levels -- expectations may be raised unreasonably high, especially at a time when there's a desperate search for solutions to problems in financial markets. Given that surveys of financial professionals still show many have little knowledge of XBRL, I'm not sure it's widely understood that XBRL financial statements are GAAP financial statements, with all their accompanying limitations. To the extent that GAAP accounting fails to provide sufficient clues about the true exposures and underlying weaknesses of financial institutions and corporations, putting GAAP statements into XBRL isn't going to help matters.

Chairman Christopher Cox has been a strong friend of the XBRL community. We can only be thankful to Mr. Cox for the leadership he has displayed in championing interactive data and bringing an XBRL mandate close to reality. I only hope in doing so he hasn't raised hopes too high of what XBRL can accomplish in the current reporting framework.