Written by Bob Schneider     Posted on April 15, 2010

The website of the Office of Interactive Disclosure – the SEC’s XBRL unit -- is an essential XBRL resource, with avenues to filings, news, taxonomies, tools, and so forth. Among its many parts, a particularly revealing page is the SEC Speeches and Public Statements Related to XBRL and Interactive Data. It has links to such discourses for the years 2005, 2006, 2007, 2008...and suddenly stops there.

Given the bureaucratic venue, this premature termination reminded me of a decades-old cartoon from a MAD Magazine series called “road signs we’d really like to see” that took a slap at the ways of government. A gleaming new highway abruptly ends in a swamp with frolicking brontosauruses; the sign at highway’s end reads “Road Stops Here (because so did Federal funding).”

That punch line, however, is not appropriate here: construction of the SEC’s XBRL infrastructure is on schedule and proceeds apace. Given that steady progress, I found it curious that no one at the SEC had bothered to mention interactive data in any public pronouncement for more than a year. Another, perhaps more likely reason for the 2008 terminus could simply be that, as often happens on the Web, nobody had bothered to update the page recently.

I did a search on both XBRL and interactive data for all News and Public Statements from January 1, 2009, to date to see if that was the case. Compared with preceding years, there were indeed few hits, and, at the Commissioner and Chair levels, only three records. Kathleen Casey mentioned XBRL in a November speech; Troy Paredes raised the subject in May and October orations. Notably, Ms. Casey gave the keynote address at the 15th XII Conference and Mr. Paredes has written for this blog; both Commissioners have long been enthusiastic interactive data supporters.

In terms of both quantity and executive level, the recent history is a far cry from the heady days a few years ago when, in one 12-month stretch between September 2006 and August 2007, Chairman Cox discussed interactive data in 16 of his 42 speeches. He even extolled the virtues of XBRL to audiences like the National Italian-American Foundation, where he might have been expected to devote his time instead to, say, Frater Luca Bartolomes Pacioli, whose Summa de Arithmetica... was the first to chronicle the Venetians’ pioneering system of double-entry bookkeeping.

Needless to say, Mr. Cox’s hard work was greatly appreciated by the XBRL community. It can be debated whether XBRL would eventually have been made mandatory for financial reporting in the US without his support. But it’s difficult to deny that his efforts accelerated implementation. Some XBRL supporters may be disappointed that, as exemplified by its silence on the standard, the SEC’s current leadership has not had the same focus (even allowing for the necessary shift in priorities because of the financial meltdown).

A few weeks ago, columnist Charles Krauthammer made an interesting point about American democracy that I find applicable to the current environment for interactive data at the Federal level. Krauthammer is, of course, a man of the right, but I think it is fair to say his argument here is non-ideological. He writes:

The rotation of power is the finest political instrument ever invented for the consolidation of what were once radical and deeply divisive policies. The classic example is the New Deal. Republicans railed against it for 20 years. Then Dwight Eisenhower came to power, wisely left it intact, and no serious leader since has called for its repeal…True, the rotation of power inevitably results in stops and starts and policy zigzags. Yet for all its inefficiency, it in the end creates a near miraculous social stability by setting down layers of legitimacy every time the opposition adopts some of its predecessor's reforms -- while at the same time allowing challenges to fundamental assumptions before they become fossilized.

I’m naturally hesitant to include interactive data among the landmark government policies that command Krauthammer’s attention. Nevertheless, I do find his words applicable to XBRL adoption in the US.

Skeptics of the SEC’s continued commitment to interactive data can point to the newly proposed rule on asset-backed securities and note that the Commission is recommending an XML, not an XBRL, solution. But consider the discussion the SEC offers on its preference for XML, in which XBRL figures prominently. Post Cox and the SEC’s adoption of XBRL for financial reporting, the terms of the conversation have changed. It’s no longer “Why XBRL?” but “Why not XBRL?”  In Krauthammer’s terms, the current Administration has adopted its predecessor’s reforms, while challenging the fundamental assumption that XBRL is always the solution of choice. 

The SEC has elected XBRL not only for company final reporting, but mutual funds as well. XBRL is being promoted for use in federal financial management: the Comptroller of the OMB has said, according to Federal News Radio, that making the data generated by agency financial offices compatible with XBRL coding is a big priority. NextGov reports that efforts are underway for using XBRL to make it easier for the public to review federal spending and how government uses funds. Interactive data is under discussion for delivering the ratings history from nationally recognized statistical rating organizations. At least at this point, the path toward continued, wider adoption of XBRL in the US seems reasonably clear.

XBRL provides a better, faster, more efficient solution for exchanging business information. Who knew it would provide an excellent civics lesson as well?   

UPDATE 4/20/10: Overall, the best gateway page for XBRL activities at the SEC is not the OID site but rather xbrl.sec.gov. The link-laden homepage makes it easy to find and open XBRL resources. 

Written by Bob Schneider     Posted on April 2, 2010

The stereotype of the timid accountant was established long before Hollywood started taking its shots. Leo Tolstoy captured this apparently timeless stereotype exquisitely in his epic War and Peace. As Napoleon’s soldiers battle with Russian forces, the accountant provides the comic relief: 

Behind Prince Bagration rode an officer of the suite, the prince's personal adjutant, and…an accountant who had asked permission to be present at the battle out of curiosity. The accountant, a stout, full-faced man, looked around him with a naive smile of satisfaction and presented a strange appearance among the hussars, Cossacks, and adjutants, in his camlet coat, as he jolted on his horse with a convoy officer's saddle.

"He wants to see a battle," said Zherkov to Bolkonski, pointing to the accountant, "but he feels a pain in the pit of his stomach already."

His reputation for timidity notwithstanding, today's accountant may well be forgiven for feeling a pang of torment when he first encounters XBRL. Taking a look at the XBRL section of the EDGAR Filer Manual, he finds most of it sounds like this:

The URI content of the xlink:href attribute, the xsi:schemaLocation attribute and the schemaLocation attribute, after XML Base resolution, must be relative and contain no forward slashes…

Told to get a feel of what an instance document looks like, he likely finds even the simplest of examples forbidding:

<HelloWorld:Land contextRef="I-2007" unitRef="U-Monetary" decimals="INF">5347000</HelloWorld:Land>

OK, the accountant rationalizes, XBRL is a markup language, so of course it’s going to have many more <’s and >’s than dr’s and cr’s.  As he navigates the new financial reporting superhighway, the accountant comforts himself that he can remain in the financial reporting driver’s seat, while the XBRL technician slaves under the hood.

At least that has been the assumption. As John Turner recently said in an interview with this blog: 

Since the early days of XBRL, there has been a mantra within the Consortium that XBRL models existing reporting processes, it doesn’t change them. XBRL doesn’t alter GAAP, or impose a standard chart of accounts on companies.

But despite the best efforts and intentions of XBRL’s leaders, I wonder if this powerful technology, like so many others, changes the game simply by being there.

When accountants first learned about XBRL several years ago, they were indeed concerned that it would entail a standard chart of accounts. They were reassured that it did not. Extensiblity is part and parcel of XBRL – it’s even part of the name itself.

But isn’t something like a standard chart of accounts where we’re headed? At the July 2009 XBRL Technology Workshop, Campbell Pryde of XBRL US said that extensions that appear often in instances will be added to the US-GAAP taxonomy – which, if I heard correctly, was reiterated by SEC staff at the SEC’s March 23 XBRL Public Education Seminar.

Fast forward five or eight years. At that point, won’t any extension be viewed with a whiff of suspicion by analysts and investors?  A company must be doing something unusual if the line item it needs to describe has not yet been incorporated in the US GAAP chart of…er, taxonomy. 

Financial analysts are already circumspect about extensions (see page 9 of the most recent CFAI XBRL survey). Perhaps they’ll become less so, but it seems more likely that, as taxonomies are refined, they’ll become more wary. When considering a new item for financial statements, won’t accountants look first to taxonomies for an existing element and try hard – very hard -- to find one?

What about XBRL’s impact on accounting processes? In the recent SEC XBRL Seminar, Tony Mealey, Senior Accountant at the Office of Interactive Data, said (beginning at 54:12):

“The third rule, to use the standard element with the narrowest definition, can be illustrated by the following example.

“In the statement of cash flows, the filer reports the payment for common stock repurchases. Instead of selecting the standard element “payment for the repurchase of equity,” the filer should select the element “payment for repurchase of common stock,” because it has a narrower definition.

“I might also point out that, even if the line item label in the traditional format financial statements reads  “payment for the repurchase of equity,” if the transaction represents only the payment for repurchasing common stock, that is the concept that needs to match the element selected.”

This surprised me. I would have thought the SEC’s instruction here would be “pick the element that most closely matches the line item on the traditional format financial statements.” The financial statements are the product of the hard work, debate, and compromise among management, company accountants, and the auditors. In this case,  that process yielded “equity,” not “common stock.”

Well, six of one, half-dozen of the other, right?  But the impact may be more significant. In her post on this blog last November, Chie Mitsui said:

When selecting sales from Japanese financial statements, users just choose the element “NetSales” from the “IncomeStatement”  and the “Current year” period context. All Japanese companies’ taxonomies have the same name for this element, hence users can easily select it.…[But] naming for US XBRL financial statements varies. Each company decides its own names for elements, presentation links, and contexts. For users unfamiliar with US company financials, such inconsistent naming causes confusion during the selection of elements for comparison.

This too surprised me. The item to be mapped and tagged is the top-line, i.e., net sales or total revenue. On traditional financials, the terminology chosen by companies varies little. How many different elements could there be for the top line?

The 3Q 2009 report of Progress Energy, a utility holding company, provides an example of what Chie was talking about. In the instance, the element selected for the top line was UtilityRevenue. The standard label for UtilityRevenue is “Electric and Gas Revenue.” The company extended the taxonomy to overwrite the label with “Operating Revenues,” which matches the top line in the traditional income statement. 

I don’t know if UtilityRevenue was chosen because it was the narrowest definition. I don’t know whether -- given the many objectives that financial reporting might have, from international comparability of financial statements to improved company analysis by SEC staff -- UtilityRevenue is the best choice or not.

What I do know is that “utility revenue” does not appear anywhere in the company’s  3Q financials (which were reviewed by the company’s auditors). Like “equity” versus “common stock,” perhaps the choice of UtilityRevenue for the top line of a utility company seems like a quibble – in fact, most definitely an improvement.

But suppose it was a forest products company whose business is 92% wood and 8% paper. The traditional P&L has “Net Sales”; the US-GAAP taxonomy offers both TimberRevenue and SalesRevenueNet elements. Which is better? At the least, such choices and the decision-making it requires seem like a non-trivial change in traditional accounting processes (not to mention what additional auditing procedures it may entail).

Perhaps that’s inevitable; perhaps that’s all to the good. But like so many other industries where new technology is introduced, it is reasonable to ask what the impact on accounting will be, and whether XBRL will merely express accounting output, or change it in important ways.