The news lately has sounded like there is a massive revolution building up for small (or more accurately) unmeddlesome government. Government regulations are bad, they steal away the hard-earned money from small business owners and big publicly traded companies alike (and thus from the millions of stock market investors and municipal funds in the country). Furthermore, government is so intrusive as to be a veritable police state.
This sounds good in theory, until you look at what has just happened in Japan. In the middle of the afternoon on March 11, about 150 miles NW of Tokyo, the North American Plate slipped against the Pacific plate, releasing more energy than the US consumes in a year, in the space of about five minutes. This triggered earthquakes across the entire ring of fire. The biggest one hit the island of Honshu in Japan, where Tokyo is located. The earthquake, at a magnitude 8.9 on the Richter scale, was the seventh largest in the past 200 years, and the largest to ever hit Japan. Two hours later, the wall of water displaced by the quake hit the Northeast coast of Honshu, leveling several coastal towns, and shorting out a couple of nuclear reactors that were on back-up power. Ultimately leading to an explosion at one, and a partial core meltdown.
Godzilla hit Japan. Thousands are dead, and it's likely the death toll may rise up to ten thousand or more people. It will likely take a decade or so before Japan is back up to its full capacity. And yet, when the earthquake hit, the high rise towers of Tokyo swayed like grasses in the breeze, rather than cracking apart. Schools that could have collapsed and killed hundreds of thousands of children didn't. Homes in and around Tokyo will likely need some repair, but most of the damage came from downed trees or cars being thrown into buildings - the buildings themselves held up remarkably well. The tsunami that hit later in the day similarly was blunted by large breakwaters, levees, and retaining walls. Tsunami warning sirens went off in plenty of time for people to move to higher ground.
What made the difference? Exacting building requirements with strict enforcement that enabled most buildings in Japan to be earthquake hardened. Contractors and developers hated these; they added to the cost and time of building, while providing very little profitability. The levees and breakwaters were publicly funded and expensive, money that no doubt many in the business community felt could have gone to more productive uses (especially those that made them more money). Publicly funded schools included regular earthquake drills, and homeowners had to have some kind of tsunami warning devices (akin to smoke detectors) in their homes in order to pass inspection. People grumbled and complained, but the taxes they paid went to these projects and others. Including helping to pay for the monitoring network out of Hawaii that watches for tsunamis to occur.
This tale of what was done right has been lost in the recent news coverage. The story that hasn’t gotten a lot of play is one of regulations and good governance resulting in far fewer deaths from a magnitude 9 earthquake and a thirty foot high tsunami than happened in a similar situation to Indonesia in 2006.
It shows that governance matters. The regulations and enforcement on those regulations were no doubt costly and time consuming for the investors involved. I have no doubt that many real estate developers hated them with a passion. And yet, Tokyo is still standing. And while bruised, it's no doubt that the people of the city will pick themselves up, shake off the dust and debris, and move on with their lives. Don't believe me? Consider that six years after Hurricane Katrina swept into New Orleans, the Big Easy is roughly 40% of its previous size, and Katrina was far less devastating than the 1-2 punch that Tokyo took.
So what does this have to do with XBRL? Quite a great deal, actually. XBRL is a language for performing accounting. It lies at the heart of both regulatory monitoring and regulatory enforcement. It's used quite heavily in Japan, including in regulatory and safety enforcement areas. And provides a map for regulators to see what areas are (and aren't) up to code. It's electronic, which means that you can perform analyses on XBRL resources that would be far more time consuming (and well nigh impossible) with paper forms.
Because XBRL is not paper, it means that with the right account management tools, any time capital acquisitions are made, from purchases of reinforced steel, shock absorbers and "giant rubber bands" used in construction, to paying for training programs or potentially hazardous equipment. This information can enter into the life-cycle of the company's accounting history. It can be inspected by those same regulators, and can be used to more accurately and adequately insure that minimum safety requirements are met. By incorporating the information at acquisition time, it becomes far less necessary for those same investors and business owners to spend large amounts of time on regulatory paperwork.
It also means that, when a major catastrophe like this does occur, such XBRL files, stored in both secured storage and in the cloud, can then be used by insurance companies to determine the extent of liabilities and damages to be paid. When the catastrophe is of this magnitude, those companies that have electronic XBRL files up to date can be settled quickly. Owners are not having to reconstruct what was lost (with the floating question of potential fraud), and insurance companies in turn can allocate their funds in a triage more quickly. Typically working first with those whose records are most up to date, then further back to those who have paper records only (which might have been destroyed). The disruption to a business owner's business from the regulatory overhead of maintaining these records doesn't even begin to compare with having to wait for five years for an insufficient insurance settlement.
It's worth understanding that it is very much XBRL's role in regulatory governance that makes it such an integral part of disaster mitigation strategies. When properly implemented, the history of XBRL documents can serve to provide for a company exactly the same information that a person's medical record serves to a doctor. It provides a way of insuring that the company is continuing to remain healthy, and can be used as a diagnostic tool in determining when they're ailing. In the event of a disaster, that same XBRL can play a crucial role in determining what is and is not necessary for the company to get back on its feet. In the worst case scenario, XBRL serves the same purpose in the electronic realm that the reinforced beams and giant rubber bands do in the physical world; protection against the unthinkable, providing the flexibility necessary to stand tall even when the world is shaking beneath your feet.
by Kurt Cagle
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