Telling your story, your way - Or why extensions are here to stay

There has been quite a bit of discussion about the idea that XBRL filings should be comparable, and if they are not, that somehow is a surrogate indicator of lower quality XBRL. Yet this flies in the face of one of the key promises of XBRL - "Tell your story, your way".

Companies are different, and after years of attempting to create one-size fits all reporting. The SEC tried, and IFRS continues to think they have a one-size fits most (except SMEs). It remains clear that it is what is different about companies that enables them to be successful.

Three Motivations to Create Extensions

For years the example used was that of a major computer manufacturer and service provider, which included a negative expense line for 'IP expense'. The expense was negative because the company was bringing in over a $1 billion in revenue from patent licenses. The problem was that the data aggregators consistently aggregated (well, it is in the name) would combine all of their expenses into one 'other expenses' line, thus distorting the company's position, and message. They were (are) proud of their portfolio of patents, and reflect that in their business reporting.

We also see the example of the giant Zombie banks. Looking at their XBRL we see extension rates well above 50%. They are telling their story, their way - by intentionally making it difficult for simple Zombie to Zombie comparisons to be run. Difficult in fact, for anyone to perform automated analysis, including regulators.

There are also companies that have limited resources to spend on their external reporting, and XBRL has added to their burden. Sometimes creating a new extension is simply faster and easier than digging through 16,000+ elements, reading detailed definitions, and wondering why their exact concept is missing. Equally, as the US GAAP taxonomy evolves year on year, how many companies are reviewing their extensions, confirming that an extension created in a prior year is still required.

Three examples, three motivations, one outcome: more extensions.

1. Transparency if wonderful. We are different, and we want the investing community to know that we are different. We have unique line items and footnoted facts because we want to demonstrate why we are the better investment.

2. We'll happily pay for opacity. We are different, and exploitation of our differences enables us to be successful. Enabling easy comparisons between us and our 'peers' actually will reduce our ability to exploit our unique advantages - whatever they are. Transparency helps regulators and competitors, not us.

3. We are too busy and with no benefit from investing limited resources in XBRL, we'll get this done a quickly and cheaply as possible. If we can produce XBRL that passes the SEC's validation checks, then that is good enough for us.

One example uses XBRL to improve the quality of available information and increase transparency. The other harnesses the power of XBRL to protect their opacity. "Our 'black box' is what keeps us profitable, reduces competitors ability to match us, and keeps the regulators in the dark (without appearing to want to keep regulators in the dark)". The third simply does not have the resources to waste on XBRL, there's real work that needs doing.

They are not going away

There is simply too large a need for extensions, and too many different motivations. There are also over a million extensions already created. These are not going away. Some, possibly most, are either duplicates or are so similar as the make if difficult to differentiate. Yet these are not going away. If anything, expect the total number of extensions to continue to rise.

After all, even if the SEC, the FASB, the IASB, or any group, attempts to analyse extensions to identify a reduced set of new taxonomy elements, the three motivations outlined above will act as a 'headwind' to companies migrating off their extensions. 

So while we should see fewer 'errors', we will not see significant drops in extensions that are there specifically to influence comparability or reduce the 'auto consumption' of financial and business information. Controlling the message is what business reporting is all about, not providing transparent reporting. 

Only once they have driven down the number of errors will the SEC have the energy or resources to drive down the number of extensions - and for each one, the SEC will need to demonstrate that the filer did not, in the filers' view, have an adequate justification for the extensions created and used. 

Laughing at the High Priests

The Wall Street Journal article on November 13th (Companies Grow Weary of XBRL) contains a lovely line:

"When Cyprus asked a panel of corporate controllers at the conference whether they were getting any value out of XBRL, the hotel ballroom full of corporate finance professionals erupted into laughter." 

In context, Nick Cyprus is the controller and chief accounting officer at General Motors, and this was at the FEI (Financial Executives International) conference in New York this week.

I do not know if the High Priests of the Cult of XBRL were in the room. They usually are. These were just the right venues to peddle the tired old promises that XBRL would achieve everything from faster, better internal communication, more efficient external reporting, faster closes, and a host of other benefits - most of which could be achieved simply by actually effectively implementing the already existing ERP systems. But it is long past time High Priests heard the message - no more bullshit about how XBRL will save my business! As I have said in previous posts, the only winners from XBRL so far (in the US filing implementation) are the SEC (so we are told again and again), the consultants, and Indian outsource providers.

There were options for the SEC, options that would have cost far less and that would have had a negligible impact on American public companies. These options were not taken.

When I chaired the XBRL US Steering Committee in 2005/2006, I had a meeting at the SEC discussing what it would cost to build the XBRL US GAAP taxonomy. My response, based on the detailed planning document provided to me by the XBRL US Taxonomy Working Group, said $4.5 million.

I gave that number, thinking "too high, we're dead".

The response I got was "Dan, we're the government. We really cannot solve $4 million problems. If you'd said $400 million, we might be able to do something." All tongue in cheek, of course.

Yet, how prophetic.

Because now the SEC does have a $400 million problem that they can solve. Let's hope they have heard what they need to hear from business.

As for the High Priests of the Cult of XBRL - I'm afraid they will never hear the laughter - even when it is no longer behind their backs.

The Future of XBRL

I've been watching the rise of "big data" and have seen analytic tools that are simply mind-blowing. Tools that do not care about the format or content or meta-structure of data, yet can perform analysis across massive datasets, with speed and ease. It has made me think hard about the future of XBRL. 

XBRL has come a long way, from its humble roots to a self-fantasised future of business reporting. Unfortunately, XBRL has, through its life, performed a sort of inverted Moore's Law - doubling in complexity as it doubles in self-proclaimed benefit.

In 2000 someone said that XBRL would be fully implemented 'within a couple of years'. Sadly though, an idea that is a fast approaching it's 15th birthday is now looking like the old dame of an idea - still lingering at the dinner parties, still hoping that the limelight will finally shine on her, still dreaming of the red carpet.

The good news for the old dame is that she has a great future, just as do all those wonderful old black and white films that she was in when she was young, alluring, sexy and oh so much 'the future'.

Her future now is as the example of perfection, to be studied and emulated, even though the 'real world' has long passed her by.

XBRL's place in the future is in the universities, as a tool that can be used to teach students about the fundamentals of business and financial reporting. In an age when we are becoming disconnected from the inner components of the world around us, it is important to have educational tools that require the student to dig deeper than the superficial concepts, and into the nitty gritty of actually constructing financial statements, and the analysis of those financial statements.

The beauty of XBRL for accounting education is that is molds both accounting standards and 'almost' programming. The deconstruction of individual 'facts' and the need to effectively and fully define the 'fact'. XBRL documents are logic puzzles as much as anything else, and the process of construction (and use) of these logic puzzles provides a playful way of learning and exploring financial and business reporting.

But just like the dame's days as the beautiful young star of every screen are well past, so are XBRL's days of being the future of business reporting and analysis.

Maybe it is time for the dame to be a little more graceful, recognize that there are new stars, new methods, and new media. Maybe its time for the old dame to put her skills to use helping ready a new generation of stars.

The alternative is to continue to flash the same old jewelry, the same low cut dress, while continuing to expect the call. The call that will not come.

Syria and Waco

This is a personal editorial comment:

Have you been following the news? Did you know that the government in Damascus is butchering the residents of Waco (oops, Homs).

A few days ago I was told "Its terrible. We must do something about it. We should arm the opposition."

I disagreed. strongly. I disagree not only because intervention will only exacerbate the situation and, if the rebels are successful, lead to a civil war and the destruction of Syria as a functioning state. We already have enough chaos in the middle east, with an unfinished revolution in Egypt, an ongoing mess in Iraq, Libya doing all it can to avoid becoming Somalia on the Med.

So the Syrians a butchering each other again. This really is not new (or news). Syria is a complex country dominated by a 'tribe' (called the Alawites) that make up around 10% of the population. The remainder of the tribal groups have come to accept that, as no single other group could control the country, it is better to accept dominance by one group in exchange for peace and prosperity (of a sort) for the majority.

In the early 1980s, there was a rebellion in Homs against the government in Damascus. That rebellion was brutally suppressed.

In 1993, the United States government suppressed the Branch Davidians in Waco, Texas. 75 people were killed, 25 of them children.

What is interesting is that in both cases, the local opposition to the government was not armed by foreign governments. And in both cases, the 'rebellion' was suppressed and 'peace' was re-established.

What right would any other country have to arm the residents of Mount Carmel outside Waco? None.

What right do we have to arm the rebels in Syria? None.

Was Waco the same as Homs? Of course not. Was Oklahoma City two years later justified? Absolutely not. But it is interesting to understand that Timothy McVeigh considered himself a patriot, fighting against an oppressive government. Am I happy that Russia, Syria, China, Libya, the United Kingdom, France, or any other country did not arm McVeigh and his co-"patriots".

At the same time, what would have been our reaction if the Branch Davidians, or the McVieghs, had been armed by France, or the UK, or Libya or Syria? I would venture to suggest that it would have been seen as an act of war, and a grotesque intervention in the internal affairs of the United States.




Can any of us tell the difference between a Syrian George Washington and a Syrian Tomothy McViegh? I know that I cannot tell the difference. Therefore for me to arm either should be seen as a crime against the government and people of Syria.

We can, and should, say in no uncertain terms that we are repulsed by the actions of the Syrian government against its own people. That where rebellion is suppressed, it should be done only within the framework of Syrian law. Unless or course, the Syrian government has a right to tell other countries what their laws should be.

The Syrian government has the right to suppress the McVieghs, and we have no authority or right to arm them, lest we open the door to others justifying arming "patriots" in Detroit, or Birmingham, or Brussels, or Toulouse (or Waco, Texas).