Written by Michael Alles     Posted on August 26, 2010

Dr. Michael Alles is associate professor at the Department of Accounting and Information Systems at Rutgers Business School and editor of the International Journal of Disclosure and Governance. His specialties are continuous auditing, XBRL, and governance.

You get what you pay for, goes the old saying, which came to mind when I recently attended the 2010 annual meeting of the American Accounting Association in San Francisco and listened to a large number of paper presentations and panel discussions on XBRL.

What in particular prompted my thoughts was the revelation that Microsoft’s latest XBRL filing to the SEC cost $100,000. Even for only the second-largest (!) technology company, this strikes me as a trivial amount.

Certainly a business innovation that is too expensive poses problems and controversy — consider the supposed $30 billion cost of implementing Section 404 of the Sarbanes-Oxley Act — but I think we have yet to fully understand what it means for something to be too cheap for its own good.

To return to an old question, consider auditing the now-mandated XBRL statements.

Stephanie Farewell from the University of Arkansas at Little Rock along with Roger Debreceny from the University of Hawaii at Manoa presented a fascinating teaching case on attesting to the XBRL filings of a (fictional) airline with SOP 09-1 Performing Agreed-Upon Procedures Engagements that Address the Completeness, Accuracy or Consistency of XBRL Tagged Data released by the Auditing Standards Board in 2009 (ASB 2009).

This is a wonderful accomplishment by the authors, providing students with “engagement file cover sheet, signed engagement letter with attachments, client representation letter with attachments, client interview, third-party communications, rendered XBRL files, mapping and extension reports and validation reports” — in other words, all the complicated information necessary to even begin an assessment of an XBRL filing, and this only for an agreed-upon procedure, not a full-blown XBRL audit, whatever that might look like.

At the conclusion of her presentation, I asked Stephanie, “So, would you agree to do an audit of Microsoft’s XBRL filing for $25,000?” She bravely said “yes,” but she is not a partner at a Big 4 firm facing the ever-present risk of litigation and the constant pressure to get the next large revenue engagement. I seriously doubt that any Big 4 auditor would be willing to assume the risk of auditing an XBRL filing from any Fortune 500 company for so piddling a sum as $25,000, even assuming that this sum covered its outlay costs.

Then again, why would a client pay even as much as 25% of the cost of an original filing to audit it? To be blunt, doing so is an entirely non-value-adding activity to the filer.

The other major implication of XBRL’s being so cheap to implement is that few market opportunities exist for developers of XBRL software. In particular, software only designed to prepare SEC-mandated XBRL filings has a market of a few thousand accelerated filers at most. Furthermore, in practice the number of potential customers for this software is smaller still, perhaps eventually being restricted to the handful of commercial printers who appear to be doing most of XBRL filings’ preparation. Given this small size, it is very difficult to imagine major software firms finding this market large enough to be worth entering. Notably, Microsoft has not released an XBRL product despite being one of XBRL’s earliest and most significant corporate proponents.

My main concern in this regard concerns academic research into XBRL.

At the AAA meeting, there was a great deal of it presented, and much of it was highly innovative and insightful. Diane Janvrin from Iowa State University and Won No from Iowa State University, for example, presented an interesting field study in which they detailed the steps that several first-time XBRL filers undertook in preparing their filings. As a result of this investigation they posed a long series of research questions about the XBRL process which they felt deserved further study.

I entirely agreed with Janvrin and No that their questions were interesting and perhaps even important. Nonetheless, would devoting academic effort to investigating them really be worthwhile when the entire process costs no more than a few tens of thousands of dollars? At some point, doesn’t research into the minutiae of a process with trivial cost become an exercise in academic navel gazing?

Among Janvrin and No’s more surprising findings was that in many instances the entire focus of senior management was in making sure that renderings of XBRL instance documents exactly matched paper annual reports. As long as they matched in that way, managers did not really care what underlying tags looked like. This obviously demonstrates a total lack of understanding about the purpose and benefits of XBRL — namely, to liberate financial data from its paper-based format. At the same time, however, it’s difficult to blame these managers when the SEC also places so much emphasis on matching XBRL renditions with paper-based filings.

Incredibly, Janvrin and No also found in several cases that the commercial publishers on which their sample firms relied to make the actual submission to the SEC promptly re-entered company data using their own filing software, totally ignoring the company’s laboriously-prepared instance documents. Apparently no one from the company complained about the procedure, perhaps because they didn’t realize what was happening, but also, I suspect, because they didn’t want to increase the cost of the operation by making a fuss. (Once again, remember that you get what you pay for.)

As one looks forward to fully-tagged footnotes in the next filing year, it may well be the case that management will pay more attention to the tagging process. Then again, perhaps not: if expenditure decisions are delegated once they fall below a certain (very large) threshold, is seems unlikely that a CFO will personally supervise tagging in its second or third year, when the costs have fallen even further from what they are today.

The logical outcome of this process is that XBRL will come to be considered part of the infrastructure of a company, something that can be outsourced as secondary to its core competency. If that sounds fanciful, consider that this is precisely why companies hire commercial publishers to undertake their SEC filings. XBRL is simply an optional service today for these publishers — a service that will become part of the standard package in the future.

Before asking whether XBRL can avoid this fate, consider whether that would be such a bad outcome. PDF remains a highly valuable tool for document publishing even if no one outside Adobe knows or cares how the conversion process is undertaken. Perhaps those who have been so intimately involved with creating XBRL have a distorted view of the importance of the means of tagging rather than simply focusing on its outcome.

That is not to say that XBRL cannot enhance its value added. At the AAA many interesting examples of the use of XBRL in non-financial applications were presented, from bill collection by the state of Nevada to Standard Business Reporting in Europe and Australia, while Glen Gray from Cal State Northridge and Rick Hayes of Cal State L.A. discussed the synergies between XBRL and continuous assurance. In a similar vein, Marlon Attiken and Santosh Nair from IBM Global Business Services have advocated the use of XBRL to accomplish nothing less than saving the US financial system!

These examples of innovative uses of XBRL are interesting, and many are, in fact, already in operation. This demonstrates the versatility of XBRL as a tagging tool that helps aggregate disparate data systems. That is the point: these applications use XBRL generically as an already-developed and readily-available tagging mechanism. If XBRL did not exist, they would use some other taxonomy for that purpose rather than inventing XBRL in particular. While the utility of XBRL in these examples should not be minimized, it also has to be acknowledged that XBRL was not designed with these purposes in mind, which surely has to imply that in at least some circumstances XBRL is not as well-suited as a custom designed taxonomy would be. After all, XBRL is meant for tagging income statements, not tax forms or accounts payable.

There is, of course, one variant of XBRL that is precisely meant for a much wider application than financial reporting, and that is XBRL-GL. At least at the AAA, however, not many examples of the use of XBRL-GL were presented. Perhaps that will change as the value of XBRL outside financial reporting becomes apparent.

In fact, I think this is the only way that XBRL can avoid the trap of being too cheap for its own good: become a multi-purpose tool despite having been conceived and designed with one very specific task in mind. Just as one could not have imagined every application for the telephone or the computer until they were invented, perhaps XBRL’s unintentional versatility as a cost-effective tool to bring together legacy data systems will prove to the real source of its value.

This subject deserves further exploration some other time. Let me just close with another old chestnut of a saying, that something that remains a bargain is no bargain. XBRL has turned out to be a lot cheaper than anyone ever imagined only a few years ago, but for its own good, it has to be worth more than it costs.

Written by Bob Schneider     Posted on July 17, 2010

SEC requirements for XBRL disclosures affect three types of entities: operating companies, mutual funds, and credit rating agencies that are Nationally Recognized Statistical Rating Organizations (NRSROs).

The mandate for operating companies has, quite properly, received the great bulk of the attention, and there has been a continuous flow of information and commentary. For mutual funds, the Commission’s recent webinar on providing XBRL data for the risk/return summary offers an excellent outline and many of the specifics.

Comparatively little has been written about the requirement for NRSROs. I hope this short Q&A is useful.

1. What is a Nationally Recognized Statistical Rating Organization?
NRSROs are credit rating agencies (CRAs) that are registered with the SEC under guidelines of the Credit Rating Agency Reform Act of 2006 and whose ratings are consequently deemed acceptable for a variety of regulatory purposes, including capital requirements. Given their Federal government imprimatur, NRSROs enjoy enhanced status vis-à-vis other CRAs, and their ratings are widely used by other government entities and investors.

2. How many NRSROs are there, who are they, and what securities do they rate?
As listed on this SEC webpage, there are currently ten NRSROs which “…may be registered with respect to up to five classes of credit ratings: (1) financial institutions, brokers, or dealers; (2) insurance companies; (3) corporate issuers; (4) issuers of asset-backed securities; and (5) issuers of government securities, municipal securities, or securities issued by a foreign government.”

3. What was the process for adopting XBRL disclosure for NRSROs?
Unlike the XBRL-specific interactive data rule for operating companies, the regulations to implement XBRL for NRSROs were part of a series of amendments to the larger set of rules that govern these entities. As readers are aware, many observers place substantial responsibility on credit rating agencies for the subprime mortgage meltdown and consequent financial crisis. In response, in 2008-2009, the Commission proposed amendments — including provisions for XBRL disclosure — to existing rules governing NRSROs, modifying them after considering the Comments they received from the NRSROs and other parties.

4. What views were expressed in the Comments to XBRL implementation?
The Comments I reviewed were mostly unconcerned with either the utility or difficulty of adopting XBRL. Instead, the Comments – particularly those from NRSROs – focused on the threat to the agencies’ subscription revenues from public disclosure of ratings data soon after the rating was issued. One Comment noted that the drop in subscription revenue from fast public disclosure would have the perverse effect of making NRSROs even more reliant on income from issuers – a revenue source at the heart of the criticism credit rating agencies received for their role in the financial crisis. 

5. What are the current requirements for XBRL disclosure by NRSROs?
NRSROs must post on their websites in XBRL format a random sample of 10% of their issuer-paid credit ratings and histories of ratings actions for each class of rating for which the NRSRO is registered and has issued 500 or more issuer-paid ratings. In addition, they must disclose ratings histories for all credit ratings initially determined on or after June 26, 2007. Apparently recognizing NRSRO concerns about revenue impairment, the SEC ruled that, for issuer-paid ratings, ratings actions must be disclosed 12 months after they were taken; for other ratings, ratings actions need not be disclosed until 24 months after they were taken.

6. What is the status of the XBRL taxonomy for NRSRO disclosures?
The taxonomy has been developed by XBRL US, and the SEC hopes to release it shortly. Because the rule requires an NRSRO to use the List of XBRL Tags for NRSROs published on the Commission’s Web page and such a list is not currently available, NRSROs “can satisfy the requirement…by using an XBRL format or any other machine readable format, until such time as the Commission provides further notice.” (see Release No. 34-60451).

For readers who want to do further research on the requirements, the SEC’s Spotlight on Nationally Recognized Statistical Rating Organizations has the links to the relevant documents. Also, note that the financial reform bill passed a few days ago has numerous provisions that will affect NRSROs. I’m not aware that they will have an impact on XBRL disclosure rules, but please let me know of any possible effect. 

Written by Bob Schneider     Posted on June 19, 2010

With the adoption of Rule 33-9006 last year, the SEC mandated that mutual funds (i.e., open-end management investment companies) provide their risk/return summaries in XBRL format. Gearing up for the compliance date of January 1, 2011, the SEC held a seminar for filers on June 4, which is now posted online along with the accompanying slides. (The presentation is embedded on the page, but click the Windows Media Player link below it for a better view and a lot more flexibility.)

Here’s a roadmap to the 2 ¼-hours presentation which highlights key points and, I hope, helps readers find what they need.

(0:00 to 28:45) These introductory presentations by David Blaszkowsky, Director of the Office of Interactive Data (OID), as well as Andrew “Buddy” Donohue, Stephen Sadoski, and Brent Fields, all of the Division of Investment Management, will be of primary use to those new to XBRL.

(28:45 to 40:00, Slides 7 to 14) Mr. Fields’s discussion of which mutual fund filings require interactive data exhibits, requirements for posting XBRL data on company websites, penalties for noncompliance, liability issues, and so forth will be mostly of interest to practitioners with specific responsibilities for mutual fund filings. Mr. Fields reiterates that on April 12 the SEC announced completion of the updating of all the technology infrastructure necessary for filing risk/return data in XBRL; the risk/return taxonomy, Previewer, Viewer, and EDGAR validator have all been updated.

(40:00 to 1:02:00, Slides 15 to 24) Much of this general overview of XBRL and its use by the SEC by Mr. Sadoski is not specific to mutual funds, but it will be helpful for those relatively new to XBRL. At 49:00 – 50:30, he makes the useful distinction between mapping – the matching of line items within traditional statements to elements in a taxonomy that is typically done by accountants – and tagging, the technical process of representing those elements in XBRL files which is typically performed by IT staff. At 58:00 – 59:15 (Slide 27), Mr. Sadoski’s discussion becomes specific to mutual funds as he describes exactly what XBRL data needs to be posted to the fund’s website. At 1:00:00 to 1:01:00, he discusses important documentation for guidance in filing (Slide 28). 

(1:03:00-1:13:00) Walter Hamscher of the OID begins his talk by discussing the key points (Slide 31) he wants to emphasize:

The 2010 risk/return (R/R) taxonomy:

Is like the US GAAP Taxonomy
"[The 2010 risk-return taxonomy] is intended to be…very consistent with the architecture of the US GAAP and the corporate filings and the other XBRL activities that we are undertaking here at the SEC.”  As with corporate XBRL filings, there is heavy use of text blocks and dimensional tables.

Is only 2% the size of the US GAAP Taxonomy
The taxonomy is not only considerably smaller but considerably simpler. He urges listeners to pay very close attention to the samples the SEC has provided.

Requires few custom elements for most filings
While extensions are common for XBRL corporate filings, they will be relatively rare in risk/return filings. The only extension elements that will need to be created will be those based on series and class identifiers associated with the funds being reported. (Later on, he adds that where there are multiple prospectuses, sometimes there will need to be extensions for those too.)

The SEC Viewer/Previewer upgrades:

Support different layout and styles of tables
The Previewer and Viewer have been substantially upgraded and now offer more flexibility for layouts and table styles.

Renders distinct series in a filing consecutively
Mr. Hamscher says that the corporate filing Previewer did a “rather poor job” of reporting on multiple entities. An enhancement allows mutual fund series to be handled much better.

Integrates closely with the risk/return 2010 taxonomy
The risk/return taxonomy is tightly integrated with the rendering engine enhancements, and the Viewer and taxonomy now work much better together. Mr. Hamscher urged filers to take advantage of this improvement.

(1:13:30, Slide 32) Mr. Hamscher describes three resources that technical staffs will find crucial for successful compliance: Architecture, Rendering Guide, and Sample Instances. (The URL given on Slide 32 for the last item generated an error message for me; I believe I have provided the correct URL here; but please let me know if that’s not the case.) He emphasizes that the Sample Instances will be very helpful for filers.

UPDATE 6/22/10    In my original post, the Samples Instances link in the paragraph above pointed to an earlier, superseded group of files. I have corrected the link, and the SEC is correcting the URL on Slide 32.  

(1:15:00-1:48:00) Mr. Hamscher walks the audience through four filing samples with varying numbers of series, classes, and prospectuses (Slide 33). For each, he shows the original document; the rendering on the SEC website; a rendering of the details, i.e., a data view that will help filers check their work; the extension taxonomy; and finally the code in the instance document. He wraps up with a discussion of formatting enhancements. 

(1:50:00 – 2:10:00) The Q&A session. One point Mr. Hamscher emphasizes is that filers should download the Previewer on their own machines (which the SEC has made it easy to do) and use it locally, rather than struggle with wait times on the SEC site.

(2:10:00) – 2:14:00) Mr. Blaszkowsky makes his closing remarks.

As with other SEC seminars, this presentation was highly useful and informative. If your time is limited, I suggest you listen to Walter Hamscher’s talk for about the first half of the second hour to get the gist of the presentation.
 

Written by Bob Schneider     Posted on November 30, 2008

Matt Kelly and Gary Purnhagen have weighed in — at opposite ends — on whether there will be an XBRL mandate this year. They know much more than I do about how the SEC works, and I have little insight to add to their remarks. FWIW – and I’m not saying it’s worth much – here’s whatever evidence I’ve seen in the public realm in the past several days:

11/25 InfoWorld published The XBRL Mandate is Here: Is IT Ready?; both the title and the content made it sound like a mandate is a fait accompli. But it appears the author merely jumped the gun in declaring metaphysical certainty on implementation.

11/21 In the course of writing up an interview with Charlie Hoffman, a reporter calls the SEC and asks if there will be a mandate. A spokesman says “…the commissioners may have an announcement within a month.”

11/21 In a Business Wire webcast on preparing for an XBRL mandate, David Blaszkowsky, Director of the SEC’s Office of Interactive Disclosure, is asked “When does it happen?” He replies ‘Our commitment is to bring this before the commission in the fall, recognizing we are deep in to the fall….This is an important issue to the chairman and this will be reviewed. You’ll see some news shortly, I expect. No, I’m not ready to give a particular date.”

11/18 Chairman Cox discusses XBRL in his valedictory speech to the FEI; here are his entire remarks on the subject:

This focus on the investor’s minterest in global comparability is also evident in the aggressive support of the IASC Foundation for eXtensible Business Reporting Language — a priority shared by FEI. In the same way that IFRS might someday soon make financial statements understandable to investors anywhere on earth, the 30 different spoken languages that will someday soon be embedded in XBRL data tags attached to public company financial statements could let any investor read an IFRS financial statement from any country in his or her own native language.

This account says Mr.Cox “highlighted” the XBRL initiative in his speech. But compared with the emphasis interactive data has received in the Chairman’s past speeches, and because there’s nothing in his remarks about a mandate, I think “mentioned” is a more appropriate word.

Nevertheless, I did find it positive, if unsurprising, that an XBRL requirement was included in the November 14 release of the proposed rule for the adoption of  IFRS by U.S. issuers. In the Milestones to be Achieved Leading to the Use of IFRS by U.S. Issuers section, there is “Improvement in the Ability to Use Interactive Data for IFRS Reporting,” including this language on page 28:

“…the state of development of an IFRS list of tags for interactive data reporting will be a consideration in the Commission’s determination of whether to require the use of IFRS for all U.S.issuers…the Commission staff is actively involved in the improvement and monitoring of the IFRS list of tags via participation in the IASC Foundation’s XBRL Advisory Council. The Commission believes it is appropriate to consider the IASC Foundation’s progress in the development of IFRS taxonomies prior to proceeding with rulemaking on IFRS for all U.S. issuers.”

I don’t want to read very much into this. Facilitating the use of interactive data had been part of the prerequisites for IFRS adoption announced earlier in August; it would have been surprising had it been left out of the proposed rule.

Nevertheless, I think it does provide evidence that, after considerable investment in resources, XBRL has become part of the infrastructure — if not the culture — of the SEC. Infrastructure can, of course, be discarded or fall into disuse. But since it’s in place, there may be enough momentum to decide to just go ahead and use it.

Written by Bob Schneider     Posted on January 5, 2008

The SEC launched its long-awaited Executive Pay Reader just before the holidays, and it is receiving strong press coverage, almost all of it positive. After working with the tool a bit, I agree with Gary Purnhagen’s forecast last spring that the Reader is likely to be "a brilliant publicity move for XBRL."

There is a tremendous amount to like about the Reader. Investors will be impressed by the tool’s ability to quickly retrieve pay data for top executives of the 500 firms covered in the database. I like the quick links to company proxy statements (which contain the detailed comp data) for more exhaustive analysis. Ascending and descending sorts are speedily applied on any field in the dataset. As Gary predicted, it’s likely that many users, realizing how cool interactive data can be, will become firm supporters of adopting XBRL for companies’ quarterly and annual filings.

Here are some tips for getting better use out of the Reader:

(1) Using the tool is a two-step process. First, search for the companies you want. Second, click Display Compensation Data to retrieve the pay info, which appears on the Summary of Executive Compensation page. Don’t worry if you left a company out in your initial search — the Reader allows you to add comp data for other firms to the pay records you’ve retrieved.

(2) Use the Ticker Symbol or Company field to search for specific companies one at a time. You can continue to search and add companies one by one to your results.

(3) As you’re likely aware, when you filter in any form with two or more fields, your criteria can work together as AND criteria (i.e., all conditions must be true to have a match) or OR criteria (any condition may be true to have a match). The Reader’s form uses AND criteria. For example, suppose you (1) open the Public Market Capitalization dropdown and choose $9.4 billion and up; (2) open the Revenue dropdown and choose $5.5 billion and up; (3) click Search. The Reader will retrieve only companies which have a market cap of at least $9.4 billion and, at the same time, have revenues of at least $5.5 billion.

If you want to use OR criteria instead, just search for each condition separately. In the example above, open the Public Market Capitalization dropdown, choose $9.4 billion and up, and click Search. Next, open the Revenue dropdown, choose $5.5 billion and up, and click Search. The Reader will retrieve records for all companies with market caps of at least $9.4 billion, as well as any additional companies that don’t have market caps of at least $9.4 billion but do generate revenue of at least $5.5 billion.

(4) Because the tool uses AND criteria, don’t try to search for a specific company and those in a specific industry at the same time. For example, suppose you want to check out compensation data for technology companies, and you want to make sure any particular name say, General Electric — is also included in the company records. You might be tempted to (1) enter General Electric in the Ticker Symbol or Company field (the Reader will display GE General Electric, which you can choose); (2) open the dropdown list for the Industry field and choose Technology; (3) click Search.

This search will return no records, however, because GE is classified in the database as an Electronics company, not a Technology company. In other words, because there are no values where both conditions "-" the company is General Electric and the industry is Technology — are true, no company records are retrieved for this filter.

But again, as with other OR searches, there is an easy workaround: First search for General Electric, then search for Technology companies.

(5) A cool feature on the Summary of Executive Compensation page is a filter for "executive types." You can screen for CEO’s, CFOs, and all other officers.

One concern I still have is how individual investors may use the compensation data. In my post some months ago I wrote:

"I recognize that no one is telling investors to use executive compensation to the exclusion of all other factors in making investment decisions. But comparing compensation to company and stock performance under a particular management team is a complicated and difficult task, given the trade-offs between achieving long-term company objectives and short-term stock price movements. Institutions and other sophisticated investors have the smarts to use (or ignore) compensation data as they see fit; but I fear some small investors could be lured into making simplistic judgments based on executives total compensation levels."

Broc Romanek at TheCorporateCounsel.Net echoes these sentiments: "I worry about investors and analysts looking at numbers without the benefits of footnotes, CD&A and other narrative that puts the numbers in contexts."

Frankly, though, I think the overall goal of demonstrating to investors the potential of interactive data outweighs these concerns. Longer term, XBRL implementations and tools will make deep, wide-ranging, comprehensive investment analysis that much easier to accomplish. Most investors will welcome the Reader and the information it supplies. Practical demonstrations of the uses of XBRL are a valuable means for building support for interactive data, and the Executive Pay Reader is an excellent realization of that effort.

Written by Bob Schneider Posted June 5, 2007

Gary Purnhagen’s recent post on the SEC and XBRL prompted me to listen to the webcast of the Interactive Data Roundtable the agency held in March. It includes speeches by SEC Chairman Christopher Cox and various luminaries, as well as an hour-long panel on the Voluntary Filing Program (VFP), very ably moderated by Chicago Sun-Times columnist Terry Savage.

The webcast runs over two hours and, as you would expect, some parts are better than others. Most of the speeches will hold few surprises for those who keep current on XBRL developments. But while the references to March Madness are now stale, much of the content remains extremely relevant, and along the way you’ll hear some discussion that is well worth your time.

Here are the highlights as I see them, along with their start and end times in hours/minutes (you can jump around by using the time slider at the bottom of your media player):

(1:29 1:34) Terry Savage asks Harold Zeidman, a partner at KPMG, whether the adoption of XBRL will ultimately make auditing easier. His initial response is certainly unpromising: “It depends.” But stick around for his superb exposition on XBRL’s (modest) impact on auditing in the current “papercentric” world (where tagging occurs only at the end of the accounting process), and in the “datacentric” world of 10 or 20 years from now (where data will be tagged much earlier in the information stream and XBRL will become crucial to the audit). Although Mr. Zeidman’s remarks address auditing specifically, his vision has wide application across the spectrum of information providers and users.

(0:56 1:24) The Roundtable featured an impressive group of participants in the Voluntary Filing Program from top companies like 3M and Pfizer, as well as a few XBRL experts like Mr. Zeidman. Individually, the comments of the VFP participants are not intriguing; Ms. Savage does her best to coax some war stories, but with little success. But taken together, their VFP experiences are revealing:

(a) Some used outside consultants, others didn’t;
(b) Either way, the accounting department was central to the effort;
(c) Most started off by doing the 10-Q, although Dow Chemical went back and did their 2005 10-K too;
(d) Most tagged just the P&L, balance sheet, and cash flow statements;
(e) Opinions varied about the extent of the initial time investment, but all agreed tagging got much easier on succeeding filings;
(f) Most didn’t seem to have too much trouble using existing taxonomies. A notable exception was Ford Motor Credit, which required “a number of” extensions.

(1:12-1:20) One participant on the panel, Lawrence Salva of Comcast, said that “he almost forgot to tell his audit committee that we were going to do this,” and in turn committee members subsequently wondered about their own responsibilities vis–vis the VFP. This discussion eventually led to a very interesting exchange between Ms. Savage and Chairman Cox about the role of auditors with respect to tag creation.

It’s one thing to read a news account that says the SEC won’t require external audits for the XBRL tagging process. It’s another to hear Ms. Savage give the Chairman three opportunities to clarify his position on this issue, and each time hear him say that XBRL tagging will not require attestation (although it wasn’t clear how far along the XBRL adoption road this would remain true).

One can sympathize with Chairman Cox’s desire to avoid the “crib death” he believes audits of XBRL tagging will engender. Nevertheless, I must say it is difficult to read Robert Kugel’s piece on making XBRL tags mandatory and still think there is no role for external auditors in the tagging process.

(1:24 1:28) Elmer Huh, an analyst at Lehman Brothers, made the important point that much of the “value drivers” in Item 6 of the 10-K that are useful to analysts (eg, revenue per subscriber for a cable company; square footage for retailers) are not yet being reported under the VFP.

(0:32 0:45) John White, the SEC’s Director of the Division of Corporation Finance, gave an excellent demonstration of how XBRL will change the work of preparers of SEC disclosures. Using the revenue-related parts (revenue line item in the income statement, the revenue discussion in the MD&A, and the revenue recognition policy in the footnotes) of a Microsoft 10-Q, Mr. White shows how preparers can compare text (a) within the document; (b) over time; and (c) across companies. Moreover, XBRL allows preparers to view the underlying authoritative literature.

White drums home the point that not only preparers, but investors, analysts, journalists, etc, will all have instant access to the same documents once filed. The immediacy of these releases, filled with financial information that is easy to manipulate (in the good sense), presents both opportunities and challenges to the officers who must explain company results to external audiences

Written by Gary Purnhagen    Posted on May 29, 2007

Gary Purnhagen is vice president of strategic planning at Merrill Corporation, a leading provider of outsourcing solutions for business communication and information management requirements. Merrill has been a leader in helping companies comply with the SEC’s Voluntary Filing Program.

In October 2006 I wrote a post on this blog on how the SEC was spearheading XBRL adoption here in the United States.  In that piece, I praised the agency for their brilliant promotion of XBRL.  (I love the word brilliant. I don’t have that many chances to use it other than in the first person, but I have been consistently using it to describe the SEC’s promotion of XBRL.)

I was recently asked to revisit this topic, which I have been following closely. Let me begin with a quick update. Back in October there were 29 companies that had submitted 74 XBRL exhibits; as of May 25, 38 companies have submitted over 150 filings of XBRL exhibits.  Not a huge increase, but keep in mind that during the first quarter of the calendar year companies are focused on reporting their annual reports and proxy materials, and for the most part had put their plans for XBRL on the back burner.

But not the SEC. They have been steadily moving forward in promoting XBRL. In my October post I mentioned the agency was focused on overcoming the three main obstacles to adoption: meager awareness, insufficient taxonomy development, and the lack of usefulness of XBRL to investors at that time.

Let’s look at how the SEC has addressed these issues:

Since October the SEC has held two additional roundtables on XBRL, bringing forward high-profile executives such as Indra Nooyi (CEO of PepsiCo) and John Brennan (Group Chairman and CEO of Vanguard) to give keynote speeches.  The SEC’s Chairman Christopher Cox has used these meetings to announce new initiatives in the agency’s promotion of XBRL.

On the SEC’s insistence, XBRL-US has been incorporated and has brought in an executive management team of very impressive professionals. The SEC has funded XBRL-US to complete the development of the taxonomies, which is scheduled for the third quarter of this year. Keep in mind that taxonomy development will be an ongoing effort, but by later this year XBRL-US will deliver a revised and more comprehensive set of taxonomies.

I believe that will be very significant because at a previous SEC roundtable, when directly asked the question when would XBRL be mandated, Chairman Cox said (I’m paraphrasing)  Well, other countries have mandated it, as we have heard it’s not all that difficult for companies to provide, but we can’t mandate it until the taxonomies are more fully developed.” If you are wondering when the SEC will announce a mandate for XBRL, I’ve circled the fourth quarter of this year.

The third obstacle to adoption was that, back in October, there was no apparent value in the XBRL data being submitted, and the SEC’s initiative to make an analyzing/viewing tool available by April of this year was just being articulated.  The SEC beat that date by releasing a beta version of their Interactive Financial Report Viewer (IFRV) in December and has since updated it. Back in October, Chairman Cox stated  But now imagine you’re checking out the SEC of the future say, six or eight months from now. And what you discover is that all of the information you seek is intuitively organized by company, or by fund…And now you can request exactly the information you want from any number of companies’ reports, by entering a single request.

Well, the current version of IFRV realizes that vision. It’s slick, it allows for very fast access of different financial information, it allows downloading into Excel, you can select periods and information to be compared in graphical presentations, and it even allows basic comparisons between two companies. And that’s only the beginning.

But no one really knows about it it’s like the best kept secret!  I haven’t seen any press on it.  Maybe that’s because the SEC hasn’t said too much about it, since it has information for only 37 participating companies.  It’s interesting but not very compelling.  So what’s the SEC to do?

I’ll venture to state the hottest business topic in the past six months has been executive compensation.  So what does Chairman Cox announce at the last XBRL Roundtable?  That the SEC is tagging in XBRL the executive compensation data that was submitted in the recent proxy season by several hundred of the largest companies and will make it available on their website by June of this year.

Now the editor of this blog Bob Schneider feels that this might be a wrong move by the SEC in that it skews the weight an investor should attribute to executive compensation and that the SEC might feel a backlash from executives if CEOs believe the agency is simply using XBRL to browbeat them.

That might occur, but I see it differently.  I see it as a brilliant publicity move for XBRL.  Serving up executive comp in XBRL will send journalists to the SEC’s site, where they will find this cool tool and write about it.  This will in turn send readers to it, who will then begin calling companies, asking where the rest of their financial information is in this new format, especially if their competitors have been providing their financials in XBRL. Come June a lot more people will see the value of XBRL and will be demanding it from companies.

Like I said, there’s a word for the SEC’s promotion of XBRL: Brilliant!

Written by Bob Schneider     Posted March 30, 2007

Under the leadership of Chairman Christopher Cox, the SEC has become a strong advocate and agent of interactive data (the Commission’s preferred term for XBRL) .Thus the SEC website has become a key resource for monitoring developments at the agency for adoption of XBRL for financial reporting. The site contains the important (and enjoyable) speeches of Mr. Cox and his Chief Technology Officer, Corey Booth; webcasts and transcripts of XBRL-related SEC roundtables; and relevant proposed rules and press releases. Moreover, it contains interactive data submitted under the Commission’s Voluntary Filing Program (VFP) and stored in its EDGAR database, as well as a tool for viewing these filings online.

Given the wide scope of SEC activities, it’s not surprising that a lot of this material isn’t easy to locate at the site. Spotlight On: Interactive Data and XBRL Initiatives is a gateway page of sorts. It contains recent press releases, archives of interactive data roundtables, a few of Chairman Cox’s speeches, and access to the XBRL RSS Feed File. But some key items are difficult to find on the page, and other important XBRL content is not included at all. I therefore hope you’ll bookmark this post and use its links to quickly locate what you need at the site. As always, if readers can suggest a better way (other than Googling), please add your comments below.

XBRL Filings Viewing an XBRL filing formerly required downloading several files into an XBRL reader, a process that was (and remains) confusing for the average user. Fortunately, the addition of the Interactive Financial Report Viewer now makes it possible for visitors to look at XBRL filings online.

The Viewer is mostly self-explanatory, but two items are worth mentioning. First, you can click Company Comparison Report (as shown in the image below, it’s tucked away at the bottom of the left-side menu) and follow the instructions to compare financial statements from two companies side by side.

Second, more sophisticated users (like programmers) may want to download the actual XBRL files. Start by clicking the filing you want, like Comcast Corp’s Annual Report (2006-12-31) in the above image. With the report now open, click the SEC XBRL Filing link (click the image below; it’s the last command on the lower-right menu).

XBRL filings are also available from the XBRL Data Submitted in the XBRL Voluntary Program on EDGAR page. For any individual filing, click the html (as opposed to the txt) link to display the XBRL files.

Speeches Not only are the speeches of Chairman Cox informative and useful, they are well-written and amusing. The Speeches and Public Statements section of the Spotlight page contains a few of his XBRL presentations. But others are absent, including his speech at the Philadelphia conference. Moreover, the links to speeches on the Spotlight page are often for audio, and you may want the text instead.

The presentations of SEC Commissioners, including the Chairman, as well as staff can be accessed from the Commission Speeches and Public Statements page. Speeches are archived by years; within years, speeches are further broken down by quarter and by commissioners versus staff.

Comments on Proposed Rules The SEC allows comments to be submitted on proposed new rules during prescribed periods. The SEC Releases section of the Spotlight page contains links to some of these rules and comments, including the comments that were made on the VFP.

However, you’ll sometimes need to visit the SEC Proposed Rules page, especially if the rules are still open to comment or the period for comments has just closed. The Proposed Rules page is obviously also a good place to find the full text of the rules themselves, should they prove elusive on the Spotlight page. The organization of the page is similar to that for archived speeches. For example, if you scan down the page, you can click 33-8781 to see the rule that extends the VFP to include mutual fund risk/return summary information. To view the comments, click the are available link at right. The page also has convenient submit comments links after each rule, should you want to comment yourself.

Written by Bob Schneider    Posted November 2, 2006

On October 20, SEC Chairman Christopher Cox made the keynote address to the 39th Annual Securities Regulation Seminar. During the speech, Mr. Cox demonstrated several XBRL applications (including Hitachi’s Xinba Reader and Analyzer) in a live presentation — a display of courage that will impress anyone who has used any electronic equipment in front of large audiences.

But what we found particularly noteworthy about the speech was that Chairman Cox elected to discuss interactive data at all. In front of such an audience, with its collection of top-notch securities professionals, Mr. Cox could have spoken on any number of subjects much closer to their hearts and minds than a data standard many CFOs still haven’t heard of. Given the October 20th date, he might have even been forgiven for selecting a topic conducive to the partisan interests of a former Republican Congressman. (He did note the low U.S. unemployment rate of 4.6%, but he also made unkind mention of Jack Abramoff.)

And yet Mr. Cox chose to focus on interactive data. Here are a few of the key points he made:

• Both professional security analysts and small investors are frustrated by the enormous amount of financial information dumped on them that is difficult to manipulate and decipher.
• Interactive data provides a solution, because it will allow users of whatever background to request exactly the information they want from any number of company reports
• The SEC has committed over $50 million to give these capabilities to every investor “in the very near future.” (Mr. Cox made clear that meant months, not years.)

Chairman Cox’s commitment to interactive data is truly stunning. His business card could just as well read Chief Interactive Data Evangelist. Here’s a part of his speech that reflects the enthusiasm he brings to the job:

“What we’re envisioning at the SEC is a new way of delivering the numbers in financial statements here in America, and around the world that is so fast and so flexible, it will slash untold hours of waste, cost, and inefficiency from our economy, and make our capital markets vastly more efficient. Just as importantly, it will level the playing field for tens of millions of average investors.”

We encourage you to read the entire speech. All of us in the interactive data community owe Chairman Cox a huge debt for his leadership in promoting XBRL as a universal financial and business data standard.

Written by Gary Purnhagen    Posted October 25th, 2006

Gary Purnhagen is vice president of strategic planning at Merrill Corporation, a leading provider of outsourcing solutions for business communication and information management requirements. Merrill has been a leader in helping companies comply with the SEC’s Voluntary Filing Program.

I tip my hat to the SEC for their brilliant promotion of the adoption of XBRL. They were, after all, the logical champion of this enabling technology. As the government regulator of corporate disclosure, which includes financial information, they could get the attention of corporations; as a consumer of financial information, they needed a better way; and as a disseminator of financial information, they wanted to improve the quality of the data being disseminated. I say the SEC, but in reality it’s the SEC’s Chairman Christopher Cox who has been the champion of XBRL. He gets it! He understands that XBRL can help the SEC with their requirements to review and disseminate corporate disclosure and can make the capital markets operate more efficiently. And he has used his position to promote XBRL.

Let’s look at where we currently are. As of October 10, 2006, 29 companies have submitted 74 sets of XBRL exhibits in participating in the SEC’s Voluntary Filing Program. Some only once, some up to seven times. Not a huge number, but when you look at those participants, many of them Fortune 500 companies, it’s a number not to be ignored.

Three reasons there aren’t more participants are:

1. Lack of awareness on the part of company executives.
2. The taxonomies for the Management Discussion and Analysis section and footnotes to the financials are not yet completed.
3. There currently isn’t much that small or large investors can do with XBRL, so it isn’t useful or valuable.

The SEC is addressing all three issues:

1. The SEC’s roundtables, especially the last one on Oct. 3 and the upcoming one that will spotlight the current participants experience, is helping to keep attention on this subject.
2. They are funding the completion of the taxonomies required for SEC filings; this will make the available XBRL financials more complete and useful.
3. The SEC is planning to make available on their EDGAR web site a viewing/analyzing tool for XBRL data. This will allow investors to begin searching and comparing corporate information far more easily than is currently possible. This will allow investors to begin to understand the value of XBRL and demand more of it from companies not yet making it available. Once the institutional investors begin taking advantage of XBRL-tagged financials in their modeling software for investment decisions, the stampede will have begun.

The SEC’s mandating of XBRL for 2008 (my estimate) will just be a sweep-up of companies who haven’t begun making their financials available with XBRL tags. Hence, the SEC will have helped expose all public companies to XBRL, and will make the existing corporate information on EDGAR far more valuable. And this will only be the beginning as to the impact XBRL will have on the entire business reporting supply chain.