Paul Wilkinson is Chief Strategy Officer of CLOUD, Inc., the Consortium for Local Ownership and Use of Data. He was Senior Adviser to SEC Chairman Christopher Cox from 2005 until 2009, where he oversaw XBRL adoption. From 2001 to 2005 he was Executive Director of the U.S. House of Representatives Majority Policy Committee, handling international and economic policy. He can be reached by email.

This is the first installment of a three-part interview. Part 2 has questions 6 to 10, and Part 3 includes questions 11 through 15.

1. You recently discussed the role XBRL can play in helping to restore the asset-backed securities (ABS) market. Could you explain what benefits XBRL would bring that ASCII and HTML documents do not?

That’s a timely question. The most important near-term benefit would be exploiting XBRL’s off-the-shelf capability to support effective disclosure standardization for ABS. Longer term, I think the “faster, better, cheaper” advantages that SEC Chief Accountant Don Nicolaisen foresaw in the GAAP arena would apply in the ABS arena, as would XBRL’s disclosure maintenance capability.

With respect to the implementation process, it’s true that regulators or an industry consortium could sit down and choose standard ASCII or HTML or Excel column headings or row labels for most of the important information about ABS. In fact, they tried to do so in the run-up to the crisis, but it was a slow process and has yet to result in a fair and efficient market for ABS.

On the other hand, the open process of creating XBRL financial taxonomies in the U.S. proved extraordinarily effective. Once the technical process was underway, I was astonished by the speed, quality, and openness of the XBRL US project. White House adviser Beth Noveck wrote a book called Wiki Government about crowd sourcing patent application research. Well, the effectiveness with which XBRL US crowd sourced the GAAP taxonomy deserves its own book. Your recent interview with the CEO of XBRL Australia reflects my experience in the U.S.: The technology was simple; the politics were the complex part. We couldn’t crowd source the SEC implementation rule, but XBRL US transcended all of the typical politics associated with U.S. GAAP by crowd sourcing the taxonomy.

In addition to the process advantages, there are, of course, myriad technical reasons XBRL is superior to ASCII, HTML, Excel, or any other open or proprietary standard. Extensibility is a big advantage, as is the ability to observe the use of extensions and to create and update standard tags over time – without requiring users to buy new software.

As we’ve seen with ABS, keeping disclosure regulation up-to-date with financial innovation is critical. Over the past decade, one reason capital flowed disproportionately to ABS relative to public companies is because regulators used proven manual systems to keep GAAP up to date. SOX was expensive. It helped prevent more Enron’s and WorldCom’s, but at the same time, it drove capital toward non-GAAP investments. Despite Reg. AB, which was generally a codification of many years of asset-backed securitization legal practice, ABS financial practices continued to evolve, contributing to both the housing bubble and to the growth of multi-layered complex securities on top of basic ABS.

Non-standard ABS reporting made it difficult to see the real risk presented by ABS and by derivatives built on top of ABS. ABS, because they didn’t create human drama or present business strategy questions like public companies do, got less attention than their valuations might have merited were the information available in a larger, more transparent, more liquid market. XBRL won’t bring the excitement of boardroom fights, hostile takeovers, or new consumer products to ABS. But to the extent XBRL for ABS helps investors understand basic facts about the instruments they’re being offered, it’s analogous to GAAP for public companies.

Thanks to computers – and thanks to the fact that ABS are considerably less complex than public companies – technology that took decades to develop for GAAP is already available for ABS. The SEC has plenty of authority to mandate disclosure for securities, which are simply investments of money in common enterprise for profit derived from the efforts of others. The questions are how fast regulators can understand XBRL’s capabilities to enhance transparency and how the SEC can navigate the regulatory minefield set by those whose oxen would be gored by transparency.

2.  Part of your work at the SEC was to help mandate the use of XBRL for public companies, mutual funds, and credit ratings agencies. Are you convinced that XBRL implementations at the national level will always require mandates? Or do you see a path for voluntary adoption to be successful?

The "chicken and egg" metaphor is hackneyed but nonetheless applicable: People only want to use a standard when adoption is sufficient to make the standard cost effective. While more than 100 public companies found it cost effective to participate in the SEC’s voluntary filing program, the ultimate information users – investors – required much greater adoption rates to make XBRL worthwhile. I don’t like where this metaphor is going, but effectively we had to force companies to lay eggs. Fortunately, they’ve been AAA extra large so far. Future implementations with lower adoption hurdles may not require mandates.

One reason to support XBRL adoption was to empower independent auditors to provide faster, better, and less expensive assurance by efficiently combining integrated software tools with professional judgment to create more reliable financial statements. If investors in private companies become accustomed to XBRL-quality data from public companies, perhaps they’ll demand similar information from private companies, where more highly-concentrated investors typically have more leverage over management. It certainly makes sense for private companies hoping to go public within a few years to start using XBRL well in advance to get ready for a fast and efficient IPO.

Moreover, with fixed costs for public companies for GAAP XBRL implementation, the cost to expand XBRL to other applications becomes mainly marginal. With the most complex data set – U.S. GAAP – out of the way, implementing the same or similar technology to automate other parts of the business information supply chain is more manageable. For example, XBRL GL looks much more attractive. Someday, a supermarket will scan the UPC bar code on a can of tomatoes and the dollar of revenue will end up in a 10-K without any human intervention except to monitor the systems that ensure straight-through processing.

If the U.S. is to remain competitive in the world economy, we have no choice but to improve efficiency by automating business processes. Much of that work not only can be voluntary – it must be voluntary because it’s the consequence of competition among businesses. XBRL is poised to win its share of competitions. A nice voluntary step, for example, might be XBRL support from Google’s Data Liberation team. With Google and other market participants throwing huge support behind open standards, XBRL will have to repeatedly prove its capabilities in the years to come.

3.  An argument has been made that financial regulators like the SEC primarily adopt XBRL to help their own analysts do their job more efficiently, and the needs of investors are a secondary consideration. To what extent do you think that argument has validity?

In my three-and-one-half years at the SEC, I never saw any air at all between the interests of investors and the interests of the Commissioners and staff. People at the SEC might sincerely disagree about the best ways to help investors, but everyone believed their primary mission was to help investors. The nice thing about XBRL is that it can help both government and private analysts do their jobs better.

It’s true that SEC analysts look for civil liability more often, while private analysts mostly look for investment opportunities, but there’s significant overlap. Either type of analyst is likely to consider whether a company has accurately disclosed all material information and either is likely to act on their conclusion. A private analyst decides to invest or not; an SEC analyst could call a company, issue a comment letter, or consult with the Division of Enforcement. While it could be a big mistake to trust a company just because the SEC hasn’t sued it, it’s also very clear that the faster and better the SEC can do its job, the less likely issuers can get away with fudging the facts. The roles of the SEC experts and private analysts are highly complementary to each other – not contentious.

Because so much money is at stake, and because resources for technology at the SEC are limited, I expect the private sector, not the SEC, to continue to lead the way in using XBRL. The SEC has considerable work to do to use XBRL to support more efficient compliance and surveillance. And because the legal environment in which the SEC itself works is itself enormously complex, the constraints won’t be technology. The SEC’s constraints will be legal and policy constraints.

What sort of data discrepancies are legally sufficient to justify imposing costs on public company investors to respond to an SEC investigation? How does one use technology to differentiate among skillful, lucky, and corrupt trading to show cause for a subpoena? Compared to questions like these, diversified investing (perhaps using XBRL to differentiate asset classes and industries and to identify different but potentially correlated investments) is easy.

4.  How do you think XBRL adoption by the SEC is proceeding? Do the issues described in the observations of SEC staff  on the statements filed thus far signal substantial problems? Or are they about what you had expected, or even relatively minor?

By all accounts, adoption is going well. The staff observations are informative. The first concern on the list relates to rendering, which is somewhat encouraging given that rendering isn’t particularly relevant to XBRL’s main purpose. After all, if you want the benefit of thousands of years of experience of putting ink on paper in a visually appealing way, you can still look at the dead tree format financial statements.

I also find it encouraging that the staff is urging filers to use standard elements. But that’s not a surprise either, since the use of standard elements helps investors make comparisons among companies and of performance over time. I expect the staff comments will be particularly helpful as the U.S. GAAP taxonomy is updated. As the taxonomy and the newly codified edition of U.S. GAAP become fully interoperable, tools using XBRL should make it easier for accountants and investors alike to visualize the importance of high quality accounting.

The really neat thing is that, before XBRL, the SEC found it difficult or impossible to hold third party data taggers accountable for the changes to GAAP in the normalization process. Now the SEC has tools to understand not only the official company reports but to understand how investors use those reports. The line of accountability, from companies to investors and the SEC, is much more direct. So is the feedback loop for GAAP itself. It will be interesting to watch how data about the use of GAAP is used to improve GAAP.

5.  At least in public, Mary Schapiro, the current Chairman of the SEC, has not been as outspoken as her predecessor, Chris Cox, on the importance of implementing XBRL for financial reporting. What consequences does this have for XBRL adoption at the agency? At this stage, with a final XBRL rule in place and adoption proceeding according to schedule, does commitment at the top of the agency make much of a difference?

To be fair, Chairman Schapiro has had quite a bit on her plate the past 10 months. And during his final year in office, Chairman Cox was extraordinarily busy dealing with the crisis of opacity via proprietary financial instruments, so he couldn’t spend as much time advocating transparency via open technology as he did early in his tenure. Fortunately, he identified XBRL as a priority very early. His experience with capital markets and technology dating to his service in President Reagan’s White House and earlier made XBRL a natural priority as soon as SEC technology director Corey Booth and the SEC’s first XBRL expert, Jeff Naumann, briefed him. Getting the process started early made it possible to finish with approval of the final public company rule in December 2008.

The most important time for the SEC to speak out for XBRL was during the work to develop the rules. With the roadmap now in place, there’s no reason for the Commission to be a backseat driver. What’s most important is for the Commission to support the staff’s work to make sure the SEC’s XBRL capabilities keep up with innovation in the private sector.

There’s always a place for leadership when it comes to transparency. Fair, fast, and efficient disclosure of asset-backed securities won’t happen without leadership from the top. I hope Chairman Schapiro and the rest of the Commission leverage the success of the GAAP and other XBRL programs to make ABS disclosure fairer, faster, and more efficient.
 

Trevor Pyman is Director and CEO of XBRL Australia Ltd. and an independent consultant to PriceWaterhouseCoopers (PwC). He has been heavily involved in the development of the XBRL taxonomy  for Australia’s Standard Business Reporting (SBR) program.

His comments are only his personal views, and do not represent those of the SBR program, PwC, or anyone connected with the SBR program.

1. What is Standard Business Reporting? What role does XBRL play in SBR? Is it possible to have SBR without XBRL, or are the two inextricably woven together?

SBR is a much broader concept of government agencies collaborating to improve business to government reporting. It could theoretically exist without XBRL, but the plain fact is that it could have occurred decades ago if that were the case. XBRL facilitates SBR by removing two significant roadblocks to inter-agency cooperation: (1) the need to agree on terminology between agencies and between business and government; and (2) the need to agree on the classification of things between these parties.

Obtaining agreement between government agencies on anything is a substantial task, so the less such agreements are needed, the greater the chance of success. The use of jargon is a natural human evolution in any economic activity, so it is counterproductive to try to eliminate it. Jargon is created to facilitate understanding, and XBRL taxonomies are likewise engineered to do the same thing. Allowing data concepts to be defined by many different references, each tailored to a specific audience, helps people understand how to use computers to share information. This runs counter to traditional IT thinking that dictates that every concept must be uniquely defined and everyone needs to agree on the definition.

XBRL says that you only need to agree that the concept is uniquely identified (so a computer can deal with it) and the people are free to use whatever human language suits them to describe it.

2. The SBR Conference 2009 included key figures from both the Australia and Netherlands SBR programs, as well as XBRL experts like Mike Willis. Do you foresee the formation of an international organization, perhaps along the lines of XBRL International, to facilitate adoption of Standard Business Reporting?

I would like to see that happen because it makes sense. SBR is a concept that is applicable to many governments and the infrastructure needed to implement it is common.

Little is gained by going it alone and repeatedly reinventing the wheel. Moreover, every new government that takes it on learns from those who went before and does it better, allowing the earlier implementations to evolve as well.

3. SBR implementations are currently being pursued in Netherlands, New Zealand, and Singapore. But the most ambitious adoption, beginning in July 2010, will be in Australia. Led by the Treasury, it will include the Australia Prudential Regulation Authority, the country’s Securities and Investments Commission, Australia’s taxation office, and the state and territory government revenue offices.
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What factors do you see in Australia’s political and business environments that made it particularly hospitable for an SBR implementation on such a broad scale?

Reducing reporting burden is a common theme with governments around the world and has been for a while now. Economic downturns also bring the focus back to costs, and SBR is mostly about reducing cost in an area that adds little to business objectives. Not insignificantly, the Netherlands experience took much of the bravery out of the decision for Australia.

The key in both countries was political will. The endorsement and public support of a key political sponsor is essential. The technology is simple – the politics are highly complex.

4. As expansive as the planned adoption of SBR in Australia is, it is still primarily confined to fiscal and securities regulation functions. Longer term, do you see SBR being adopted by the Australian government and states in diverse areas like housing and law enforcement? What are the roadblocks to more widespread usage in government?

The biggest roadblock to government usage is probably government itself. There is a lot of talk about expanding the SBR approach into other areas, and this makes a lot of common sense – the problems it solves are common to most areas of information exchange. However, there is an enormous investment in the status quo. Many in powerful positions are huge beneficiaries of inefficiency and shifting the mindset is really hard, especially when very few have been exposed to the ways things CAN be done, rather than the ways things are done.

People who advise government have a vested interest in maximizing their time (and chargeable hours) in solving government’s problems, so efficiency and speed are often sacrificed to self interest. Proprietary solutions lock in future revenue streams for the provider that solutions like SBR would otherwise open up to competition through their use of open standards. As a new player, SBR-based solutions have a long way to go to break down long-established and well-financed barriers.

5. In a recent post on this blog, Nils-Bro Müller of XBRL Denmark wrote, even though XBRL’s benefits are well known, "Nobody seems to file in XBRL before it is mandatory to do so." However, SBR adoption in Australia, beginning in July 2010, will be on a voluntary basis. Are you concerned that Australia "will build SBR and no one will come"?

There is serious doubt as to whether SBR will achieve its target implementation rate without a mandate. The software vendors have long been asking for a mandate so they have certainty of a market for the functionality, but the SBR Program has resisted this.

One “problem” is that the reporting burden imposed by government is not that bad. While several hours of wasted time per quarter certainly adds up to a large amount of wasted time across the whole economy, it does not add up to a lot of wasted value. Small business people do not value their own time the way economists and consultants do, so they are unprepared to pay for software that gives them this time back.

Also, the government burden is only part of the reporting cycle in some cases and so automating only a part of the process does not create the efficiencies business is looking for. As soon as a manual step is introduced anywhere in the chain, the bulk of the benefits are lost.

I hope that enough vendors are encouraged to get into the market with XBRL-aware functionality that does more than just convert the existing output into XBRL format. Hopefully they will “see the light” and begin to use XBRL to make the entire process more efficient. Other uses (like online real time loan approvals) can then be offered that do resonate with the marketplace and thus kick off a virtuous cycle of adoption and benefits realization.

Written by Bob Schneider     Posted on October 15, 2009

Three years ago keeping up with developments in the XBRL world was fairly simple: create a Google Alert for keyword XBRL, do periodic searches in a couple of engines, and sign up for daily digests from the XBRL Public Yahoo group.

Social media’s emergence, along with the creation of new XBRL-related blogs and websites, has made the XBRL conversation much richer, but it has also made it more difficult to track. In addition to the microblogging site Twitter, which generates a continuous stream of XBRL info and chat, there are XBRL groups in social media services like LinkedIn and Facebook, and several multi-purpose XBRL sites and aggregators — including XBRLSpy, XBRLBlog, and XBRL Network — have been inaugurated or upgraded. Although a little diminished by all the competition, the XBRL Public group remains alive and well.

Among these innovations, the most important has been Twitter. I now continually monitor Twitter Search results for XBRL because most XBRL-related blog posts, articles, events, and the like get mentioned here in some way. Occasionally, however, something noteworthy — like an interesting thread on the XBRL Public group — does go unnoticed, so I still haven’t abandoned any of the search methods I used three years ago.

What’s more, the 140-character-or-less tweet suffices to alert you to what’s happening in the XBRL world, but as a forum for developing XBRL themes and debating ideas, it has its limitations.

For example, recently, in response to CFO.com’s somewhat mixed appraisal of XBRL, a quick-witted observer tweeted “Vendors 1 | Everyone else 0.” It was the perfect tweet: pithy, clever, penetrating. It also seemed worthy of a detailed rejoinder, though, to dispute the notion that XBRL vendors were the primary drivers for the adoption of a data standard that now has been embraced for financial reporting by most major nations. But such a response would have taken more than 140 characters, and in the Twitter environment it also would have been unseemly and maybe unfair. After all, a tweet like “Vendors 1 | Everyone else 0” was just an imaginative quip on the topic of the moment, not a sweeping indictment of the XBRL movement. (Or was it?…)

My real concern about Twitter, however, is that its immediacy and brevity will lead to more tweets and fewer articles, blog posts, and blog comments. Twitter is fine for providing a link to an Internet resource or sharing a sweet bon mot, but it’s not a venue for sustained argument and debate.

Turning to Facebook, the other social media outlet that has made a huge splash, I have to admit I still don’t get it. I can’t comprehend a service whose taxonomy classifies my niece, college roommate, and business acquaintances all as “friends,” nor can I contemplate a conversation that simultaneously would be appropriate to all of them.

Facebook does have groups for those with similar interests, however, and currently there are a couple for XBRL; the main one has about only 50 members, and it’s fairly inactive.

In contrast, LinkedIn has numerous XBRL groups. Several have more than a hundred members, and some have as few as three. There’s some good stuff here. A few months ago, Dan Roberts published a short post on LinkedIn’s XBRL Matters group. Like Dan’s contributions to this blog, it was filled with interesting insights on relevant topics and themes: SEC Commissioner Mary Schapiro’s “not the picture of enthusiasm” comments on interactive data; XBRL as “background, infrastructure” that could be “better served by [the SEC] taking it off the front page,” and so forth.

All the same, I wonder how many people who would be interested in Dan’s post got to see it. While the XBRL Matters group does include many of the top names in the XBRL field, it still has no more than 200 members. And while Google does a good job of indexing LinkedIn profiles, I don’t see much evidence that it indexes LinkedIn group posts with the same efficiency.

Google also doesn’t seem to index messages of the XBRL Public group on Yahoo. (To be fair, Yahoo itself doesn’t seem to make much of an effort.) That’s a shame, because this group shows the XBRL community at its best. If you post a question, you’ll find the likes of Charlie Hoffman, Walter Hamscher, and Hugh Wallis answering it. Sure, if your query is “Can anybody here tell me what XBRL is?” you will be quickly and unceremoniously dispatched. But everyone who posts comments of import is treated with courtesy, and there continue to be some great debates. (One quibble: participants often aren’t fastidious about clipping quoted text, which makes it cumbersome to read a daily digest with a long thread.)

As you can see, there’s no shortage of XBRL venues in which to learn about XBRL and make your voice heard. But is the XBRL community best served by this “let a hundred flowers bloom” environment? I’m not sure.

Certainly different platforms are suitable for different users and purposes, and the variety is mostly welcome. But as I’ve indicated, I’m worried that, (1) the appeal of publishing real-time one-liners in Twitter will displace more detailed commentary; (2) the proliferation of groups and forums makes users wonder where to contribute; and (3) a lot of good content isn’t being seen because it’s not being indexed.

With the speed at which the Internet proceeds, however, my suspicion is that these concerns already are being addressed, and solutions and alternatives won’t take long to appear.

Written by Nils-Bro Müller     Posted on October 8, 2009

Nils-Bro Müller is Senior Advisor at the Danish Commerce and Companies Agency (DCCA), where he is responsible for the Danish XBRL solution. He has been working with XBRL since 2005 and is on the board of XBRL Denmark.

Denmark, where XBRL will be mandatory for company reports in 2011, has been making significant progress toward adopting XBRL since it became an Established Jurisdiction in November 2007. Starting in March 2008, small- and medium-size companies have been able to submit full annual reports in XBRL to the DCCA, the official registrar for Danish companies. As well, the submission taxonomy encompasses tagging for transmitting data to the Danish tax authorities and Statistics Denmark. All companies need to do is submit their data to the DCCA once yearly in XBRL format; the DCCA segregates and processes the document’s data and re-transmits it to other relevant public agencies. A company’s accountants can upload instance documents to the DCCA portal from their own computer; they also can use a Web service that delivers an instance directly to the DCCA’s backend.

One of the DCCA’s main objectives in publishing these reports is ensuring that their display and presentation be exactly the same as when they were signed at a company’s general assembly (stockholders) meeting. Therefore companies (or their accountants) choose a style sheet to be uploaded with the XBRL instance document. DCCA has developed a default style sheet that can handle the “look” of company accounts’ annual filing, which we expect many firms will use, but we can accept any PDF style sheet that the company or its accountants choose. We publish both PDF and XBRL versions of each financial statement, and an Excel version can be chosen as well.

Our XBRL implementation is based on the same software as that used for the Spain’s national banks’ XBRL solution. This platform originally was developed by Software AG in Spain, but DCCA converted this to run on a Linux platform. The application front-end and enterprise service bus (ESB) are standard JBoss software, which we use in many of our applications.

Our taxonomy is approximately 2,900 elements and includes both Danish and English text. Currently it covers what are classified in Denmark as Class B companies, which represent approximately 90% of all Danish companies. The taxonomy is based on the EU’s accounting directives Nos. 4 and 7, which prescribe P&L and balance sheet, as well as generally accepted accounting principles for Danish small companies (mainly for the notes to the statements). The taxonomy encompasses a full annual report, containing the following sections: statement by the board of executives and board of directors, independent auditor’s report, executive report, accounting policies, profit and loss, balance sheet, and notes.

Our solution was introduced because we believe companies, the financial sector, and the public sector will benefit from significant cost savings when XBRL is used for both internal and external reporting. A current problem is that companies and auditors aren’t yet ready or motivated to use XBRL, nor are systems in place to create instance documents. As a result, thus far we have received a relatively few 250 reports. This paucity of submissions is typical of other countries where XBRL filing is merely voluntary, however. Even though the benefits are well known, nobody seems to file in XBRL before it is mandatory to do so.

This is the paradox — that XBRL’s benefits are manifest, but companies won’t adopt it until they have to — that the international XBRL community must contend with. In my view, we’re currently ignoring that reality. Instead, we praise XBRL and all its benefits in well-worn phases each time we meet at international XBRL conferences.

At any rate, you are welcome to visit our XBRL portal, which is called DRP (digital reporting platform). Unfortunately we only have a Danish version at the moment, and you need a Danish certificate (OCES certifikat) before you can log in. But if you can, have a look.