ComplianceWeek, Tigger or Eeyore!

A rather poorly researched op-ed on XBRL by the editor of ComplianceWeek, Scott Cohen. But, still, its of note to read the current journalistic view of XBRL as reported to its readers in the investor relations and governance groups inside public companies.

It was somewhat disturbing and sad to read the editors comments on XBRL. Disturbing for two reasons. Firstly, it points to the lack of serious industry journalistic coverage of the business or market drivers for a global accounting standard that has been incubated, piloted, deployed over the past 8 years with obvious implementation successes, and secondly, it seems to suggest a rather “head in the sand” point of view that “we should let the capital markets work their magic to solve this problem.” It is sad to see the editor of a “compliance” magazine stoop to such dramatic headlines (XBRL Hell!) without doing the minimum required research to better serve its readership. “Eye candy?!” And puzzling nonetheless to see why a magazine focused on compliance issues should be so flippant about “letting the markets work their magic.” But then, it has always been far easier to be an Eeyore than a Tigger!

While the Editor focuses on the SEC program as the driving force and chides the regulators efforts to build a critical mass of early adopters, he completely misses the point in terms of why public companies need to, and will adopt a financial reporting standard that safeguards the accuracy and timeliness of public company disclosures. It is a point often missed when a technology is first hitting the market and is receiving understandable and predictable, anemic market uptake. While the majority of reporting and compliance people in any company are hired to perform a role that deals in very critical and visible information sharing in a very methodical and structured manner, and are managed by CFOs, IROs or Compliance Officers who are charged with policing the release of public information, the manner in which company information gets transported and ultimately consumed suffers systemic problems that are outside the control of these diligent and well meaning reporting groups. It would serve the Editor well to survey a handful of public companies and track the root cause of reporting problems, such as a correction in the media, such as improperly interpreted line items from their footnotes or base financial tables, such as the impact of some company restatements that stem from known poor internal information gathering.

So, while the editor should take comfort in knowing that XBRL is complex because information companies disclosures can be very complex, and XBRL is merely a reflection of a reality that isn’t going to change – highly complex, company specific, industry specific, geographical guided, regulator shaped, accounting rule based public disclosures, he should also be cognizant of the fact that solutions have emerged to make the process of adopting XBRL as easy as updating an Excel worksheet. While it may be useful to “talk XBRL” and rebut the technical issues cited in the editorial, it would serve your readers better to know that the benefits of XBRL are far larger, near term, and early adopters are now shouting louder than the noise that has filled the Eeyore’s camp.

So, let’s address the article specifically.

First, the editor claims that US adoption of XBRL filing has been desultory. Well, one could argue that the SEC reeling under the pressures first to enforce SOX by Congress, then to review and moderate SOX by the market, adopted a more pragmatic position with XBRL by launching a voluntary program. The SEC now has some 30 companies creating XBRL files and is hoping to reach the 100+ company mark in the next 6 months. While the numbers may seem small as a percentage of total company’s filing, they have grown by an order of magnitude in 12 months and continue to rise especially with the new messaging to publish accurately and instantly without burdening the reporting groups with any additional work.

While a tipping point hasn’t been reached, changing market behavior with little immediate benefit until infomediaries and analysts institutionalize XBRL usage will continue to be a challenge. However, beyond compliance to the SEC’s directive, public companies are slowly beginning to understand that they have a reporting problem that directly impacts their company. And, while the SEC has its own analysis problem – the ability to process up to 40% of a million filings a year, public companies are suffering a (possible permanent) downturn in analyst coverage, media journalists improperly retyping facts about their company and investors reading information that has been filtered and massaged by junior data entry operators with little or no quality control.

The Editor cites costs and ROI as a barrier. Misperception. It takes a company accountant 1 or 2 hours (yes, hours!) to review an Excel template as they are starting up to file in XBRL for the very first time. Subsequent filings in XBRL are completely transparent and require no additional work (yes, no additional work!). This new publishing platform – coined EarningsDirect via the Intelligent Financial Statement, developed by an innovative teaming effort by Business Wire and CoreFiling, costs a few hundred to a few thousand dollars depending on the complexity of reporting and pays for itself instantly with the first filing alleviating the inherent problems in transporting the same information to the analysts in the traditional manner.

The Editor would better serve its readers by highlighting a common and widespread external reporting problem for all public companies and understanding how this accounting standard can be used to eliminate these problem – and, to highlight that XBRL continues to be debated inside the financial reporting community to address the broader issues of taking financial information and moving it across the many silos of information consumers both inside companies and its external stakeholders.

Time will tell whether interactive data or some other bold initiative by infomediaries will incent the market to adopt electronic tagging for financial disclosure. Certainly, while the process appears easy, describing business in accounting terms including all the nuances of a specific company and making sure it is consumed consistently is unlikely to be an autopilot operation any time soon - as alluded to by Sun CEO J. Schwartz in his recent blog, although there are some interesting textual analysis and statistical mining "smarts" that may alleviate the problem as demand for electronic tagging catches hold - more later.

As a result of misguided information like this one in ComplianceWeek, IROs/CFOs are still holding on to the view "tell me when I have to do it, and I'll do it, . .otherwise (door slam!)."