Neal Hannon is an XBRL consultant and the former Director, Financial Reporting Technologies for the Financial Accounting Foundation (FAF). . Prior to joining the FAF, Neal was a member of the accounting departments at the University of Hartford and Bryant University . In addition, he has held various controllership positions with companies such as United Technologies and Monsanto. Active in the XBRL community since 2000, he served on the first XBRL US steering committee and has written over 60 articles on XBRL. You can contact him by email.

This second part of a three-part interview contains questions five through eight; questions one to four appeared in Part 1, and nine to twelve are in Part 3. 

(5) You published your first article on XBRL in November 2000, and since then you’ve been arguably the most prolific — and certainly one of the best — writers on the standard. What initially drew you to XBRL, and why have you found it so compelling?
 
Thank you for the compliment and the question.  I was introduced to the Internet back in 1993 at Bryant University and quickly became fascinated by the ability to tap into vast sources of information.  Trained in accounting, I began to wonder how this untapped resource could be used in the finance profession; I developed a course, Internet Essentials, and a book, The Business of the Internet.
 
Around 1996, I began an email newsletter focused on new internet developments and started to hear about XML.  By 1998, new markup languages based on XML began appearing.  I reported on the first AICPA announcement about using XML for financial information in late 1999, when Wayne Harding invited Charlie Hoffman to make a proposal for developing what was to become XBRL.  From the beginning, I speculated that this technology would eventually change everything we knew about business reporting.  I just didn’t expect it to take as long as ten years.
 
(6) That’s interesting, because upon passage of the final rule, Charlie Hoffman told a reporter “It was Jan. 15, 1999, when we made our first presentation. There is no way anybody would have convinced me that the SEC would have been doing a mandate in 10 years. It was inconceivable. We thought 25 years.…” So as someone involved with XBRL almost as long as Charlie,  you don’t share his surprise at the speed of adoption? 
 
I recently discussed this point with Louis Matherne, the first president of XBRL International. Louis said that we could have been there two or three years earlier if the proper funding had been in place. 
 
Here’s why. The XBRL technical specification was locked down in December 2003.  An understaffed and virtually unfunded (except for the AICPA) volunteer team of techies and accountants built the core taxonomy in 2004.  Brad Homer and Jeff Naumann (now with the SEC) from the AICPA staff led the efforts. The resulting core taxonomy was used by participants early in the SEC’s Voluntary Filing Program (VFP), but it was only “ankle deep.”  The US GAAP taxonomy circa 2004 had just enough depth to make a splash, but it was not ready to swim in.  It was not unusual for companies to create over 30% of the needed tags to cover their normal face financial statements (statement of financial position, income statement, statement of stockholders’ equity, and statement of cash flow).
 
A few software companies supported the early efforts, but they too were underfunded, mainly owing to a lack of a specific major project on the horizon. All of this could have been different if SEC Chairman Donaldson had done in 2004 when the VFP was first announced what Chairman Cox did in 2006. – namely, the SEC announced its intention to fund XBRL on September 26, 2006, and awarded a contract to XBRL US for the build-out of US GAAP taxonomies. The building of the taxonomy required 18 months of creation and testing, culminating with the release of the 2008 taxonomy dated March 31, 2008.
 
(7) How important do you think the US adoption of a final XBRL rule will be to other countries considering an XBRL mandate for financial reporting?
 
I’m not so sure that it’s all that important to other countries. Over 100 countries use or have plans to use IFRS within the next five years.  Given the world’s reliance on IFRS, I believe we need to look at how this worldwide data will be used before assessing the impact of the SEC’s rule. For example, Canada is moving to IFRS reporting by 2011. This means that there will be considerable focus on (1) transitioning to IFRS accounting, (2) collecting data in a Canadian IFRS extension taxonomy, and (3) changing the Canadian regulatory system to accept IFRS XBRL.   
 
(8) Speaking of our northern neighbor, you were recently involved in a project mapping the IFRS taxonomy to Canadian GAAP.  Do you have any insights relative to the IFRS taxonomy you would care to share with us?  What XBRL-related issues do you see as the Canadians prepare to transition to IFRS?

The key word regarding the project to attempt to match Canadian GAAP to the IFRS taxonomy is frustration. The present IFRS 2008 taxonomy is modeled directly from the IFRS bound volume of accounting regulations. IFRSs are set by the International Accounting Standards Board (IASB), the independent standard-setting body of the International Accounting Standards Committee Foundation (IASC Foundation).

The taxonomy covers required reporting only. Every element created in the IFRS XBRL taxonomy can be traced to a paragraph in the bound volume. The frustration is that the IFRS bound volume does not go beyond the main idea or principle behind the accounting concept. This creates a very high level of abstraction when examining basic financial statements. For example, the IFRS 2008 taxonomy covers the entire face balance sheet in 30 elements. To contrast, the US GAAP 2008 taxonomy has 69 elements (not including subtotals) available for tagging current assets alone.

The new 2009 IFRS taxonomy, published in draft form on December 31, 2008, contains some improvements, but it still falls far short of the needs of SEC filing companies to express their financial reporting without major custom extensions. Summarizing the documentation of the changes in the 2009 taxonomy as compared with the 2008 taxonomy, here are a few numbers.

Deleted elements:       111

Added elements:          62

Renamed elements:     135

Of the deleted elements, 19 were eliminated owing to “non-IFRS term,” 28 were elements superseded by new IFRS regulations, and the majority of the additional eliminated elements were dropped because of structural changes. Of the added items, 48 were added owing to changes in regulations, 9 for common practice, and 5 for structural reasons. The renamed elements add to the clarity of the taxonomy.

The added elements are interesting in that they represent the first foray for the IFRS team into creating elements that are not directly tied to IFRS authoritative literature.

Elements Added to 2009 IFRS Taxonomy for Common Practice

Borrowings

CurrentPortionOfLongTermBorrowings

IncreaseDecreaseCashAndCashEquivalentsBeforeEffectOfForeignExchange

LongTermBorrowings

NoncurrentPayables

NoncurrentReceivables

ShortTermBorrowings

TradeAndOtherCurrentPayables

TradeAndOtherCurrentReceivables

Needless to say, neither the IFRS 2008 taxonomy nor the 2009 taxonomy is anywhere near ready for comprehensive reporting in the depth the US market is accustomed to. 

This reminds me of the 2005 start-up of the SEC’s Voluntary Filing Program, when Microsoft used over 400 custom tags out of 1,077 discrete facts to complete their first XBRL filing. I think this is a major problem that needs addressing at the SEC and the IASC.

 

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