Written by Bob Schneider Posted on January 29, 2009
The financial meltdown has had a mixed impact on the XBRL world. On the positive side, it has generated discussion on how interactive data might help clean up the current mess and prevent another. On the downside, it has siphoned off energy and interest that in less calamitous times would have been devoted to XBRL activities.
This diversion of attention was evidenced in sparse attendance for the XBRL for Investment Professionals conference held in London last September. That’s a shame, because as this report of moderator Chris Dreyer makes clear, the meeting included some outstanding presentations. Even though the conference was held four months ago, nearly all the material remains extremely relevant.
Chris’s account motivated me to listen to and view the presentations now available as a package from the CFA Institute. Unfortunately, not all of the talks have been archived; but of the five included, those of Messrs. Hillman, Byramji, and Krzus are extremely compelling, while the introductory talks of Messrs. Diermeier and Servais will be highly useful for readers relatively new to XBRL. Let me give you a small taste of what’s in the non-introductory presentations.
Compliance Week recently ran an article titled "XBRL: Who Will Use This Stuff?" Thomas Hillman of HOLT would quickly answer “We already do!” A consulting firm embedded within Credit Suisse, HOLT has about 600 fund managers and quants as clients who use its products for measuring corporate performance and valuation. Altogether, HOLT collects data on some 20,000 companies worldwide. Hillman said adoption of XBRL in China has allowed HOLT to expand its coverage of Chinese firms from 300 to more than 1,300.
His talk includes this great chart that shows how much faster (XBRLized) results for Chinese companies are reported than those for U.S. firms. Hillman said he was most excited about the potential for XBRL to enhance the analytics for intangibles, derivative disclosures, and deferred tax assets and liabilities. His talk also contained interesting takes on extensions, data aggregators, and XBRL’s role in the convergence in the cost of capital among nations.
Homi Byramji of Thomson Reuters addressed the question, "Whither the data aggregators in an XBRLized world?" The Pozen Committee’s Draft Decision Memo (page 79) gave this pessimistic outlook for them: “Because aggregators will not be necessary, companies will be able to maintain control over their numbers; what they report will be what goes into the models.” In contrast, the report on XBRL of the Bear Stearns accounting group saw a continuing role for the information intermediaries and stated that interactive data would help them reduce their cost structures.
Byramji makes what Chris Dreyer thinks (and I agree) is a persuasive case of the enduring relevancy of data aggregators. Of course, given Byramji’s job, it’s hard to see him saying otherwise. But as you listen to his talk, you get no sense he fears XBRL. Rather, it’s like listening to a wise astronomer who regards this latest celestial discovery as just one more bright object in the sky. He supports XBRL and sees its potential, but he’s also skeptical about some of the claims made for it.
Byramji notes that intermediaries like Thomson utilize all kinds of information, much of which – press releases, events, corporate actions, news – will not be tagged in XBRL. Furthermore, even in those information areas where XBRL will have an impact, he believes it will largely either help aggregators to cut costs or require value-added services that intermediaries provide – and Byramji has several slides that argue just how much value that is. In fact, he says his biggest fear is that XBRL will not live up to expectations, and that clients will expect intermediaries to provide products and services they are unable to deliver.
Michael Krzus, a Partner at Grant Thornton and President of the Enhanced Business Reporting Consortium (EBRC), begins his talk with a wonderful anecdote about asking former SEC Chairman Chris Cox about working on a taxonomy for nonfinancial information. Mr. Cox gives the go-ahead but warns “Just don’t bring me a convergence problem like GAAP and IFRS.”
That admonition has guided the efforts of Krzus and others in setting up the World Intellectual Capital Initiative (WICI), a global effort at improving corporate reporting information that comprises the EBRC, the EFFAS, METI of Japan, and other organizations and universities. Krzus makes the point that financial statements don’t explain everything about how investors value companies, and that there’s a crucial need to disclose KPIs, intangibles, value drivers, and intellectual assets. In October, WICI published a comprehensive information framework and XBRL taxonomy.
I finished listening to these presentations in a mood of excitement and anticipation. One senses being at the cusp of a revolution in business reporting, underpinned by ever-faster information delivery; the emergence of XML languages, most notably XBRL but other varieties like RIXML too; the convergence of national accounting standards; globalization of capital procurement; and innovation in nonfinancial reporting through KPIs and narratives that cover the gamut of company data, from employee turnover to carbon emissions.
That the Chinese word for crisis comprises not only the character for danger but one of opportunity is in fact a misconception. Nonetheless, it’s a useful fiction for viewing our current muddle as actually a solid launch point for a much better world of business reporting these presentations all predict.