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Jan 19, 2009

Educating the market

IROs and investors dismissive of XBRL while experts predict the impact of interactive data.

Derek Bok, a former president of Harvard University, once said in reference to substantial fee increases at the university, ‘If you think education is expensive, try ignorance!’

Now XBRL evangelists are preaching the same message, as the SEC joins a host of financial regulators in deciding to mandate interactive filing.

Despite the noise raised by many about the importance and inevitability of XBRL, however, the response from most companies and investors has been a shrug of the shoulders. Many are waiting to see the benefits first hand before they get stuck in. In a national survey of US CFOs and senior controllers by Grant Thornton in the fall, more than half the respondents say they are familiar with XBRL, but only 2 percent say they use it when reporting financial statements. Of those who do not use XBRL, 92 percent say they have no plans to do so.

Who goes first?
Amusingly, companies often argue that there is no point getting stuck into XBRL before investors show interest, while investors say there is no point addressing it until companies do.

Jeff Diermeier, president and CEO of CFA Institute, the global association of investment professionals, says this is to be expected with the introduction of new technology. ‘Investors are waiting until a large number of companies are using XBRL before they sit down and take a good look at it,’ he states.

On the corporate side, NIRI has taken a low-key role in the XBRL discussion. This echoes the sentiment of many of its members, who have not been terribly excited by XBRL to date, according to Linda Kelleher, an executive vice president at the organization. ‘We’ve been in the background over its development thus far,’ she says. ‘How to put it to use will be of more interest to our members.’

Both NIRI and CFA Institute view themselves as educators of their respective members, but agree this process will be driven by the SEC’s move to mandate XBRL. They say most firms and investors will not pay much attention until forced to do so by the authorities.

The SEC plans to mandate XBRL for the 500 largest US companies in 2009 in a program that will expand to cover all firms over three years. Countries where it is already mandated include India and China.

For the US, it is no less than a question of ‘international survival’, according to Bill Lutz, chairman of the SEC’s 21st Century Disclosure Initiative, an internal project aimed at rethinking financial disclosure in the light of new technological advances. ‘Thirty countries have now mandated XBRL,’ he explains. ‘If you want to be a player, you need to play by the rules.’

XBRL has been hyped massively, especially by the SEC. But the market is reluctant to explore the benefits XBRL evangelists keep talking about. This is unsurprising: listed companies have had plenty of other things to think about during 12 months of volatile market conditions. Making XBRL mandatory should be a big step in kick-starting interest in the broader market.

For more on the issues surrounding XBRL, don’t miss next month’s XBRL unlocked supplement.

Experts discuss how XBRL will revolutionize the market

‘I am excited to see projects today that generate real benefits and point to the future of XBRL in the enterprise. The key challenge that is addressed by XBRL is improving the efficiency and accuracy of information supply chains within and between organizations. XBRL projects today, such as the one implemented by Deloitte Australia, demonstrate a 70 percent time saving in processing financial reports from disparate sources.’
Steve Levine, chief marketing officer, UBmatrix 

‘XBRL brings us higher-quality filings and feeds on the data collection side of the supply chain. We in turn can have higher levels of trust in the data, which become more rapidly available for reuse and examination. But some of the hidden aspects of XBRL are the metadata and linkages to extra sources of data – such as the labels that enable consuming applications to render the reports, dashboards and other visualizations of the data in a language of choice for the viewer.’
Diane Mueller, vice president of XBRL development, JustSystems

‘Once fully adopted and implemented, XBRL will allow for more timely and in-depth reporting of a company’s financial condition. This will further a more open exchange of information between the company and its key stakeholders. Perhaps better insight into the inner workings of businesses could have prevented – or at least reduced the impact of – some of the recent failures in the capital markets.’
Shawn Aruch, vice president of EDGAR services and information technology, Vintage Filings