Let me disclose up front that NYSE Euronext participates in the SEC’s pilot program for using eXtensible Business Reporting Language (XBRL) to tag financial statements, as I blogged about here. XBRL tagging is designed to make it easier to search for companies’ financial information, download it, compare the data of various companies or compare the data over a period of time, and more.
Let me also remind you that the views expressed here are my own, not necessarily my employer’s.
Having stated those caveats, there is news on the XBRL front:
SEC Urged to Ease Push To ‘Tag’ Corporate Fiscal Data (WSJ.com) —
A private advisory committee to the Securities and Exchange Commission urged SEC Chairman Christopher Cox to slow down his effort to “tag” corporate financial data.
The panel voted yesterday to issue an interim report calling for changes in U.S. accounting and financial reporting, and stuck with its recommendation for a slow approach to data tagging.
It is unclear whether the recommendation will make much difference to the SEC chairman, a promoter of data tags. Data-tagging technology, which some liken to bar codes for financial information such as net income, makes it easier to find and compare corporate results.
The SEC yesterday posted the panel’s preliminary report. I’ve read only the section that deals with XBRL (the entire report is more than 100 pages). The report cites time and cost to implement tagging as the reasons for the recommended go-slow approach.
The SEC also posted a dissenting voice, that of committee member Peter Wallison. An excerpt:
I am concerned about our recommendation for a long phase-in for XBRL implementation, and our recommendation that XBRL material be furnished rather than filed with the SEC during this phase-in period. The reason for this recommendation, as you know, is the Committee’s concern about the possible cost of assurance that might be necessary if the XBRL material is required to be filed, and thus subject to the full scope of liability under the 34 Act.
I will not re-argue the question of whether assurance will be costly. As I noted at length in my Separate Statement [at the end of the preliminary report], I believe that there is no reason to expect that assurance will be costly, and many reasons to believe it will not be. Members of the Committee, however, have doubts about this question. I cannot remove these doubts. But the plain fact is that we don’t know for sure. Once we make our recommendation, it will be up to the SEC to find out.
Under these circumstances, it does not make sense, I think, for our report to limit the SEC’s options. Our recommendation will make it more difficult for them—if they determine that assurance will not be costly—to implement a filing requirement for XBRL or doing it on a faster track. They will have to explain why they are ignoring the views of our Committee.
In the last few days, the SEC has received a letter from EDGAR Online, a company that is in the business of converting audited financials to XBRL. They report that they have done this conversion for 40% of the filers in the voluntary filing program, and that it has taken an average of 10 hours for the conversion and assurance (confirmation of the conversions accuracy) by management and auditors. They also express concern that furnishing rather than filing XBRL material will adversely affect the quality and usefulness of XBRL for investors and analysts. A copy of the letter is available. This is important new evidence about the cost of both XBRL tagging and assurance that the Committee should consider.
Personally, I hope the SEC can work out a solution that will address the committee’s concerns but get the implementation on a faster track. Seems to me that the benefits can be enormous. In the January Institutional Investor magazine, the Tech Notes column was devoted to “Cox’s Crusade: SEC chief pushes a data standard — and tries to pull all U.S. companies along.” Excerpt:
To date, however, fewer than 100 out of 10,000 registered public entities have participated in the SEC’s voluntary pilot program for XBRL. The vast majority appear reluctant to invest in the software, which John Stantial, director of financial reporting at United Technologies Corp., a pilot participant, regards as a “disconnect.” Stantial likes XBRL because “data that is trapped and lacking in context, such as PDF or HTML files, can now be electronically accessed and manipulated in seconds.” He says many companies are uneducated about XBRL or have not done cost-benefit analyses. The open-standard software can cost as little as $1,000, and once users get past the learning curve, tagging and filing an 8-K earnings release requires about four person-hours, Stantial wrote in a UTC case study.
Amid today’s recognition that greater transparency can help investors better understand and trust corporations, you would think that more companies would be going XBRL. In particular, you would think that publicly traded stock markets would show some leadership to their listed issuers by adopting XBRL themselves. If you’ll permit me a competitive jab, it’s ironic that the folks with the electric billboard uptown — the oh-so-high-tech Nasdaq — have not seen fit to advance toward greater electronic transparency by using XBRL, unless I’m missing something. A check of Nasdaq’s site turns up only a 2002 news release on the subject, in which Nasdaq announced it was launching a pilot with Microsoft and PricewaterhouseCoopers to “demonstrate the power of XBRL.” Tagging data with XBRL involves a matter of hours, but five years later, still no XBRL for Nasdaq itself?
Time for companies to step up and demonstrate their commitment to transparency and investors by adopting XBRL.
