What can be done to promote more widespread adoption of XBRL?
Accountants have a love for the Annual Report. When they think about reporting innovation, the Annual Report seems to be their starting point. In the investing world, however, readers of the annual report tend to look at corporate reporting from the angle of granularity. Often, we do not need the granular level of detail provided by GAAP-compliant financial statements to do our investment analysis. Moreover, many financial indicators that are important to investment analysts – such as EBIT, EBITDA, ROCE, or P/E – are not regulated by GAAP.
And let’s not forget we are living in interesting times. The concept of financial reporting is expanding to include more integrated performance reporting. Concepts like environmental/social/governance reporting, integrated reporting, and sustainability reporting are becoming more mainstream.
We have always been in favor of a strategy for XBRL that rests on spreading it as quickly as possible. For that, a vehicle such as Core Financials would do the job. Dr. Heinz Hense, chief accountant at ThyssenKrupp, mentioned this as an idea to hasten acceptance and adoption at XBRL International's 2008 conference in Eindhoven.
Under a “Core Financials” approach reporting would be wide, not deep. XBRL instances containing broad, core financial summary sheets for a large number of companies would be provided rather than detailed, granular instances on fewer companies. So investment analysts would have, say, 50 items from each of 10,000 companies instead of 1,500 items from each of 1,000 companies.
However, it’s important to remember that taxonomies for US GAAP and IFRS are real assets, even if financial analysts and investors only selectively use elements from these frameworks; screening instances from the SEC Mandatory Filing Program, for example, offers insights into reporting practices.
A forensic approach, an idea that was mentioned to me recently by a staff member at the Securities and Exchange Commission, would seek to identify patterns of reporting. This would give investors an opportunity to better understand trends in transparency of corporate reporting, and take action when transparency levels decrease. XBRL can be used as a tool for raising awareness of Corporate Governance requirements.
Is there anything else that might inspire greater adoption?
Integrated reporting is an idea whose time has come, according to Bob Eccles and Mike Kzrus, authors of the seminal "One Report." Integrated reporting is currently taking shape through the work of the International Integrated Reporting Committee. It rests firmly on the concept of interactive data for obvious reasons.
The successful integration of financial data and non-financial information must not lead to an increase of corporate performance data. The host of corporate reporting data disclosed even within the current reporting regimes is already over-burdening investors. More data is simply more data. It is not necessarily an improvement towards greater transparency. Integrated reporting needs to embrace the idea of the paperless paradigm, according to Eccles and Krzus.
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