17 December 2009

The Logic of the Logical Cave Wall (iXBRL)


XBRL (eXtensible Business Reporting Language) started life as a dream of freeing information from the tyranny of the logical cave wall, also known as the printed page or computer screen. Now we discover that the information is going to be read by humans after all, so lets make a logical cave wall version of XBRL.

Um, isn't this where we started from, and if so, why not just stick with something simple like, oh, XML, CSV, PDF, Word, or even a web-based form? Because iXBRL will merge the benefits of the logical cave wall while also freeing the information.

A dash through history

Once upon a time there was a cave wall. Someone drew a picture on that wall. The picture said “There are deer here, cows there, other people (competitors) over there”. So business reporting began.

Then humans discovered mud (well, at least for "writing"), and suddenly we could make business reports on mud tablets, dry them in the sun or fire them, and store them in our library. Much of what we have learned about Ur, Ebla and other ancient cities has come from their mud libraries, which were preserved when the libraries were burned, either accidentally or as the result of conflict and invasion. In the case of Ebla, more than 15,000 cuneiform tablets were preserved when the library was burned. These tablets include some of the earliest references to biblical figures and places, provides us with names of cities yet to be discovered, and histories and relationships long lost. Just read this, it’s fascinating.

Okay, I admit I cannot read it either, but if you look very closely, you can probably see the "angle brackets".

But lets move quickly forward in time - past papyrus, velum, then paper, and finally, to the computer screen and the high volume printer. Suddenly we have the opportunity to decouple each word, each concept, from the cave wall, or the mud tablet, or even the printed page.

Fantastic, if words and concepts are no longer tied to the page (or logical cave wall) then we can have the computer create the words - we'll start calling it 'data' here - and pass that data to other computers to read and use on our behalf.

But XBRL is just data

Enter XBRL, and the crowd goes wild!

For too long have we manually entered or computationally created data, printed that data, and then re-keyed or recreated that data in another system, putting human error right in the middle of our carefully conceived plans.

With XBRL, we can truly make the human interface redundant. We can create the data in any system we want to, provide that data to "the world" or any subset of “the world” we want to, and have the receiver automatically consume that data into their computer, producing content for decision making - wait for it - printed reports for humans to read. Printed in this context of course meaning anything from a cave wall to a computer screen to an actual printed piece of paper.

And here is the most important point, XBRL is data. It is data decoupled from the tyranny of the cave wall, freed from human error, and severed from the need for the human eye to provide the final quality control or audit check of the data.

But no one can read data

Okay, so we've made the great move. We are now data-centric. The cave wall is done, history, finished - efficiency is in front of us all the way.

So, just to remind you, you are sitting in front of your logical cave wall right now, reading what I've painted on that wall.

So now read this:

Okay, I admit it, I can’t really read this either.

Good isn't it. All that data. All that meaning, from computer to computer. We've cut out the person. No errors, fast, but with one small problem; people cannot read data. 

And in the end, if it does not pass the eyeballs test (actually, the brain behind the eyeballs, but lets not be picky), how can we give assurance that all that data is really what we thought it should be. Because assurance, whether by the creator of the data or by an external party, is based on human eyeballs looking at the information and interpreting that information through analysis and comparison with what the reading eyeballs think the information should be.

Lets make "readable" data

The answer - "readable" data, also known as "Inline XBRL" or iXBRL.

The idea is to create a standard that allows XBRL data to be imbedded into an HTML stream such that the HTML page can be displayed with the XBRL data. The XBRL data can then be extracted by the receiving computer(s) and the HTML stripped, leaving the XBRL ready to be stripped of the XBRL and imported into the receiving system. 

Well, I guess it makes sense

Being able to actually see (understandably) what is in an XBRL instance document is important. We use to assume that the software vendors would fill the gap with tools for easy viewing, and in particular that Microsoft would actually build XBRL into its product suite. Maybe they have and will.

But the software vendors simply have not stepped up to the plate adequately to enable ubiquitous and simple viewing of XBRL.

So consumers of XBRL, in particular HMRC (HM Revenue and Customs) in the UK have decided that Human Readable XBRL (iXBRL) is what must be provided, not XBRL. In order to enable this, the "Inline XBRL" specification has recently been approved.

The Cave Wall "wins"

Which brings us right back to the cave call, or the cuneiform tablet. Humans needs to see, with their eyes, the information that is being provided. XBRL is the answer for computer created for computer consumed information, provided there remains the ability to paint a picture on the cave wall.
iXBRL provides XBRL's logical cave wall.

But does that then undermine vendors efforts to actually create XBRL viewer software. I don't think so. Vendors will build applications to meet business needs, and the ability create a logical cave wall version of the information contained in XBRL instance document will not go away.

In addition, iXBRL does at least provide a recognition that the logical cave wall remains a critical part of the business reporting environment. Will iXBRL help expand the range of use-cases for XBRL? Quite possibly, by providing the logical cave wall integrating separable, non-human consumption of the data.

13 December 2009

Santa Enterprises, Corporate Social Responsiblity (CSR) Report Review

Santa Enterprises, CSR Report Review

Have you ever had that horrible moment when you've hit the "send" button on an e-mail, and you realize that you've just sent something to the wrong person? Not only to the wrong person, but something that really should never see the light of day. Last week we received such an e-mail, completely by mistake. Of course, the bottom of the e-mail had the usual "if you are not the intended recipient" stuff, but in light of the attachment, we thought we would share it with you anyway.

It appears to be a pre-first draft of the "Santa Enterprises Corporate Social Responsibility assurance report". We won't mention the name of the advisers/auditors, but suffice to say this came to us from a reputable firm. They know who they are, so we'll leave it at that.

I’ve gone through and removed the names of the actual individuals and replace the actual names with “(name removed)” for confidentiality. Also, the reviewers text was highlighted, so I've left their highlighting.

So here, reproduced in full for your seasonal enjoyment, is the pre-first draft of the CRS assurance report for Santa Enterprises:

Report Introduction

-- Note to (name removed) --

Insert the usual "stuff" here. I think we have some other reports that we can steal from. Usual stuff - importance of CSR reporting, sustainability, etc. No one will notice that it looks like every other report.

-- Note to (other name removed) specifically --

(Name removed), this time at least remember to change the name of the client. The "Baby Seal-Skin Cigar Case Company" might also be located in the far north, but I'd rather we didn't have that kind of mistake again. I really do not want to be called on the carpet (or snow) again.

Organization overview

Santa Enterprises is a multi-national, family run business, with one of the greatest brands and customer bases in the world. Santa Enterprises is proud of its long tradition of same-day delivery to all customers around the world, although this requirement for same-day deliver, one day of the year, does impose a certain level of stress leading up to that day. On the other hand, the company is (internally anyway) famous for its "after Christmas" party.

Santa Enterprises has one of the world’s most extensive supply chains, with suppliers around the world delivering the widest possible range of products for distribution. In the past this has opened the company to criticism of suppliers' business practices, but an assertive PR program has, in the vast majority of cased, shielded the company from any direct negative PR. Allocation of blame on suppliers has been a key method of ensuring the purity of the brand (**Partner's comment: You might want to reword that.**)

The centralization of distribution and management of final quality assurance and preparation by the Elf workforce is also a hallmark of the company. In fact, the intergenerational support of the Elf workforce is a significant contributor to the ongoing value of the brand. This workforce loyalty also enables Santa Enterprises to keep its labor costs low, while at the same time continuing to provide a great work environment for that specific workforce.

Equally, the seasonal nature of the business has ensured that the company has been able to use the "non-Busy Season" in the early part of the year to review processes, introduce new products, and to experiment with alternative go to market strategies. We note that in the antipodes (Australia and New Zealand in particular) the "Christmas in June" program has met with some limited success.

Work performed

(Provider name removed) has been engaged by Santa Enterprises to review and provide an independent report on the company's CSR report. Our report covers the years (removed) to (removed), and focuses specifically on Santa Enterprises.

As in previous years we evaluated Santa Enterprises’ progress against targets based on the following:

  • Documented evidence relating to the period stated above, verifying the extent to which actions undertaken by Santa Enterprises led to the achievement of targets. This evidence included internal and external communications, management reports and analysis of data from key performance indicators
  • A series of one-to-one meetings and telephone conversations with individuals responsible for creation of Santa Enterprises’ corporate responsibility report.
  • We have also considered the structure and content of your GRI G3 Index.

Certain areas were, as in the past, specifically excluded from our review and assurance. These include:

  • External suppliers. Santa Enterprises makes extensive use of external partners in the supply chain for the creation and deliver of specific products and services. As these are not under the control of Santa Enterprises management, they are again excluded from this report.
  • Estimated Carbon Footprint. While Santa Enterprises is fundamentally a distribution company, the carbon footprint has been excluded. Santa Enterprises expects to include this in reporting as soon as there is a mandatory reporting of carbon emissions. Santa Enterprises does not participate in the Carbon Disclosure Project. (**Partner comment: You might want to delete this text. Check with client. **)

Standards applied

As in previous reviews, we applied both the AA1000AS (revised) standard, and the ISEA3000 standard for the review of non-financial information, and all work was perform in accordance with the spcific Agreed Upon Procedures document agreed by both parties. We note that Santa Enterprises has elected to retain the report for internal use only.

Our Opinion

-- Note to (name removed) --

Insert the usual "stuff" here. I think we have some other reports that we can steal from. Usual stuff - "fair and accurate", negative assurance (to cover our backs - we didn't get paid enough to do a really detailed review, besides, He won't let us near the Elves, so negative is the only assurance we can give, not to mention the dreadful state of their records...).  And let’s face it, we can’t very well say “listen, your main brand is an obese guy in red pajamas, who is to cookies what the Marlboro Man is to smoking.”

Key findings and Observations

Carbon intensive

Santa Enterprises, through its centralization of all product distribution from the North Pole, and the requirement to gather all product at that one location, is running an excessively carbon intensive business, in respect of transportation related carbon.

Centralized distribution

The current process of central distribution, as noted in previous reports, does add overhead in the need first to gather all products in one location, then to perform a single massive distribution event. Distributed distribution centers might reduce costs, reduce waste, and certainly reduce carbon emissions.

"The List"

This is another fine perennial item in our reports. We continue to stress that “Naught and Nice” list could cause some serious problems. We remain concerned because:

  • Naughty and Nice would appear to have too many alternative interpretations
  • This sounds just a little too similar to a Ricahrd Nixon “Enemies List”.

We also remain skeptical as the effectiveness of the risk assessment processed used to determine placement on either Naughty or the Nice list. Documentation of the criteria for inclusion on either list may be helpful.


One consistent complaint from stakeholder interviewees is that the amount of packaging seems excessive, and that there appears to be no recycling program in place. We heard from a number of stakeholders that they would welcome being able to provide the packaging for pickup the following day. All those boxes and wrapping paper. One helpful stakeholder even suggested a name – “Boxing Day”. We’re not sure how well this would work, but we recommend Santa Enterprises explore a recycling and waste reduction program.

Sustainable sourcing

Sustainable sourcing or resources used remains an area of potential improvement. Certainly progress has been made, and we would suggest that Santa Enterprises might be able to further improve the brand through publicity of such sourcing.

Employee relations

The centralization of some production at the North Pole does create something of a captive workforce, and undermines the ability, should they so desire, for Elf collective bargaining. While not suggesting a relocation, it may be appropriate to leverage the existing supply chain, providing secondment of Elves to the factories in China (and other countries) and secondment of workers and management in such factories to the North Pole. Such secondment should also have the side benefit of improved sharing of management practices and efficiencies in operational practice.

Danger of "Elf Labor" accusations

Unfortunately we were unable to speak with any of the Elves, or to actually see and review the ER (Elf Resources) records. When we combine this is the general height of Elves, there is the risk that Santa Enterprises could be leaving itself open to accusations of "Child-Elf Labor" practices. We recommend that subsequent reviewers be provided with access to ER records for verification.

Stakeholder engagement

All reviewers were in agreement as to the very extensive and impressive stakeholder engagement processes in place. The "Letters to Santa" program and the "Mall Santas" are both highly effective at engaging the very wide stakeholder communities.

  • "Letters to Santa": This clearly is one of the greatest and longest running examples of stakeholder engagement, in terms of both feedback on prior year performance, and on clear expectation setting on the part of the stakeholder community. We would caution, however, that the actual range of stakeholders participating in the program is somewhat narrow. Perhaps the program could be widened to include others in the wider Santa Enterprises stakeholder community such as parents, suppliers, Elves, local regulators and community leaders - the Archbishop of Canterbury comes to mind).
  • "Mall Santas": Again, one of the great stakeholder engagement programs. We note also that this program has been growing internationally, with Mall Santas being seen in Canada, the United Kingdom, parts of Europe, and moving into Asia.  The feedback provided by this program is invaluable to Santa Enterprises, as demonstrated by the year on year continued popularity of the program. Greater care might be taken in some cases in selection of actual event moderators.


Finally, our recommendations to the management of Santa Enterprises remains the same as in previous years - there are a number of individual actions that could be taken, but generally we would say: "Don't Change a Thing. Your Stakeholders Love you, and the service is great".

So with that let me end this post, and wish everyone a wonderful holiday season. Certainly there will be more articles between now and the year end, covering the usual range of topics, so keep coming back.


09 December 2009

The EPA makes its move, SEC next? Implications?

The EPA makes its move, SEC next? Implications?

First things First - I'm ignoring Copenhagen; It's a talk fest with the real work either already done, or still to come.

The news from the EPA really couldn't be better, and the timing is just right. The EPA issues their finding that CO2 is dangerous. This allows the EPA (Environmental Protection Agency) in the United States to create regulations for allowable CO2 emissions, if necessary bypassing congress. The Clear Air Act was specifically designed to allow the EPA to regulate in situations where the politics of the issue would otherwise stop progress.

So what are the implications for the accounting firms? There definitely will be winners and losers.

First, the EPA:

First, here are some links - a Wall Street Journal article, and to two from the EPA.

WSJ Article

This is also especially important as it signals that the official policy of the United States government, post Bush years, is that Climate Change is real, and that it will have a significant negative impact on people.

In the WSJ article there is the following paragraph:

The EPA's finding "could result in a top-down command-and-control regime that will choke off growth by adding new mandates to virtually every major construction and renovation project," U.S. Chamber of Commerce President Thomas Donohue said earlier in a statement. "The devil will be in the details, and we look forward to working with the government to ensure we don't stifle our economic recovery," he said, noting that the group supports federal legislation.

I suspect that this quote could apply to almost anything that the EPA or any arm of government might do to help protect the widest range of people. In fact, I expect the very same opening quote could have been used against the introduction of standards for scaffolding on building sites, air quality internal to building (Legionnaires' disease anyone?) or even to power stations and acid rain (well, they are Canadian trees after all, so why impose costs on American business to protect Canadian trees?).

Now the SEC:

The timing reinforces my prediction that we will also see mandated CSR/ESG (Corporate Social Responsibility / Environmental, Social and Governance) reporting by the SEC in the near future. 

Of course, the SEC may choose to focus specifically on a standard such as CDP (Carbon Disclosure Project) which very specifically requests companies to measure, monitor and disclose the carbon (and other greenhouse gas) emissions.

The "softer" standards such as the GRI (Global Reporting Initiative) might have to wait, as there is yet to be a finding that oppressing labor in the developing world is harmful to American citizens. So that facet of CSR/ESG reporting might have to wait, but I hope not.

But wait, there's more - The Accounting Firms:

The accounting and auditing profession could find itself right back in the "good old SOX days". There simply are not the trained or experienced resources to provide assurance over such reports, certainly not if mandated by the SEC. We could find the accounting firms building their practices rapidly.

The Winners:

The winners in the accounting profession will be the firms that:

1. Have built strong CSR practices. They will have the resources to "loan" to the audit side of the house when it comes to audit season.
2. Those firms with a "global reach" provided they also have established CSR practices or networks.
3. The smaller assurance shops, if they find a firm for alignment.

The Losers:

1. Firms that fail to see this coming, or reject CSR as an unimportant policy issue will find that they do not have the skills or experience to enter the market effectively. The well established firms could "pick off" the juiciest clients.
2. Regional or national firms that do not build their global networks of potential providers, regardless of brand or badge on the door.
3. Any firm that takes an existing standard, turns it into a questionnaire, and "forgets" to cite the copyright of the actual standard (I've actually seen that done, taking the GRI's G3 and turning it into a questionnaire with zero attribution).

06 December 2009

When will the SEC mandate CSR/ESG reporting?


Climate Change is real, and only a strange fringe continues to think that it will not have a direct impact on corporate performance. Potential impacts on corporate performance, good and bad, must be reported by US listed companies to ensure that investors can include that information in their investment decision making.

Current SEC reporting requirements already provide the framework for CSR (Corporate Social Responsibility) or ESG (Environmental, Social and Governance) reporting. These rules need to be confirmed by the SEC. Hopefully the SEC will provide interpretation that will demonstrate that avoidance of reporting of these issues is no longer an option. And where the SEC leads, other regulators will follow.

In addition to mandating CSR/ESG reporting, the SEC should also expand the scope of XBRL reporting to include the MD&A, the specific area of existing reporting that would logically include CSR/ESG information. Of course, existing taxonomies are inadequate, but that too can and should be solved.

Already Required

I focus on the SEC (Securities and Exchange Commission) in the United States not because other regulators are not requiring CSR / ESG reporting, but because most other reporting requirements fall far short of what the SEC is able to require, and does require already for all other areas of corporate reporting.

It is my contention that CSR/ESG reporting, and specifically reporting about the potential impact of Climate Change, is already mandated by the SEC for the MD&A (Management Discussion and Analysis) as specified in Reg S-K, section 303.

Doctors can, and perhaps should, prescribe SEC regulations for patients with serious insomnia. But for the sake of this discussion, here is a link to the relevant extract from the SEC's Reg S-K. You can skip it if you want, but the underlined sections matter in this case.

Known Trend? Uncertainty?

In the regulation above, there are two phrases that matter:

  • Known Trend
  • Uncertainty

Climate Change as a Known Trend:

Now we get to the heart of the matter. Scientists, the IPCC, and dare I say it, government officials and politicians around the world agree that Climate Change is happening, they disagree on the speed or impact. Does this make Climate Change a "Known Trend"? Certainly it is to the IPCC and the its authors. Equally, it clearly is a known trend to the wider scientific community studying the ice caps, retreating glaciers, and dare I say it, to the cabinet of the Maldives Islands in the Indian Ocean, who recently held a cabinet meeting under water to highlight their own concerns that their country will be swamped due to sea level rises (but maybe that was a publicity stunt from a country that lives on its tourist trade).

So to a significant and growing number of individuals, organizations, communities and governments including the United States government, Climate Change is a "Known Trend". And if it is a known trend, companies must report on the potential impact this may have.

Climate Change as an Uncertainty:

But wait, you say, what about the recent noise about the release of e-mails indicating the possibility of scientific fraud? What if the Climate Sceptics are right? What if this is all a big hoax or a mistake?

There are certainly many individuals who do not accept the idea that 1) Climate Change is happening or 2) that it is in part being caused by human activity. Good for them. It is important that there be contrary opinions and voices, to ensure that ideas are fully explored from all angles.

Not accepting the idea that Climate Change is happening do not make it so - it makes it an "uncertainty", and therefore is subject to reporting requirements, even if the company simply reports "We have reviewed the materials available, and do not accept the idea that Climate Change is happening. Therefore we do not expect it to have any impact on our liquidity or operations."

Is Climate Change the new Y2K?

Y2K was a special event, with a clearly defined period in which the potential impact would occur. Is Climate Change the new Y2K?

Yes and No.

Yes, Climate Change is the new Y2K in that there is a growing consensus of potential impacts, remediation activity, and time horizons. There are also specific actions that can be taken by companies to limit the potential impacts on their business activity due to Climate Change (not least being impact on operations of legislation or regulation).

No. Y2K was defined by a very specific event and the immediate time periods around that event, and risk assessments and planning could be completed, remediation put in place, to address risks specific to the event and time period. Climate Change has the potential to have a far wider range of impacts over an undefined range of time.


Y2K does provide a framework for mandating reporting. The SEC required companies to discuss the potential impact of Y2K, with boilerplate responses being specifically forbidden. The SEC could, in light of existing Reg S-K reporting requirements, determine Climate Change to be a "known trend or uncertainty" or sufficient magnitude to required comment in the MD&A - Boiler Plate responses again being forbidden.


The change of administration and the appointment of a new Chairman of the SEC opened a window of opportunity for communication with the SEC on matters of reporting. And organizations have been taking advantage of that opportunity.

Earlier this year, the SIF (Social Investment Forum) met with and wrote to the SEC recommending the introduction of requirements for regulated companies to report on CSR/ESG issues in their regulatory filings. A copy of the SIF letter can be found here. Read my supporting letter here.

Pressure is mounting, with organizations such as CALPERS, the GRI and others also communicating directly with the SEC advocating for CSR/ESG reporting.

So the SEC is hearing the message, and there is a returning trickle of information suggesting that the SEC is beginning to move.

When exactly will be SEC move? I do not know.


Over two years ago I predicted that a new administration would require CSR/ESG reporting by companies. I suggested that it would take place in the first or second year of the new administration, regardless of who the candidates were or who won. I stand by that prediction, even though the first year of the new administration is rapidly coming to a close.

While the number of registrants mentioning "Climate Change" or "Global Warming" has more than doubled between 2007 and 2009, the number is still well under 10% (due to double counting where both are mentioned). In 2007, approximately 380 registrants included the words "Climate Change" or "Global Warming" in their 10K filings with the SEC, and a further 80 registrants include those phrases in their 20-Fs. For calendar 2009, the numbers are 648 and 335 respectively.

So my revised prediction is:

We will see, within the next year, and very possibly with the next months, a mandate form the SEC for CSR/ESG reporting.
  • Mandated CSR/ESG reporting will be required for 10-K and 20-F filings for years ending 31 December 2010. This means 10-Ks/20-Fs filed with the SEC in early 2011.
  • While not audited, auditors will have a requirement (as they do today) to read the information provided and determine that nothing written in any way contradicts or disagrees with information provided the audited financial statements.

Specific Recommendations:

  1. The SEC should release an interpretation as soon as possible clarifying and confirming that Climate Change rises to the standard of a Known Trend or Uncertainty for MD&A reporting.
  2. The SEC should carefully consider which, if any, existing CSR/ESG standard to suggest or recommend. Each standard has its strengths and weaknesses.
  3. Currently there is no requirement for the MD&A section of SEC reports to be tagged in the XBRL format. This should be changed with a requirement for the MD&A (and the included CSR/ESG information) to be tagged and included in the XBRL versions of reports.
  4. Other securities regulators should release interpretations supporting and requiring companies under their jurisdictions to provide comparable reporting.
  5. Listed companies should actively prepare themselves for mandated CSR/ESG reporting to the SEC, probably with a mandate to report in their 2010 year end 10-Ks or 20-Fs.

    01 December 2009

    XBRL - the One True Standard?


    XBRL (eXtensible Business Reporting Language) is the One True Standard for business reporting; or is it? It is long past time for the XBRL community to be considering what are the situations where XBRL will make a qualitative difference in business reporting, and stop declaring that every reporting problem can be solved if only it was XBRL’ized.

    Two hypotheses:

    For sake of argument lets start with two potential hypotheses:

    1. XBRL is the standard for business reporting from creation of any individual concept of business information through to the reporting and consumption of that individual or aggregated piece or pieces of business information - that XBRL satisfies and is the most effective standard for all points along business reporting supply chain.
    2. XBRL is a specialized standard that can and should be used for specific applications and situations where the use of taxonomies and the complexity of XBRL will solve business reporting issues.

    Unfortunately sometimes questioning the first statement is not welcome. Yet accepting it leads to some pretty interesting ideas of what XBRL can do or where it should applied.

    The first hypotheses is difficult to support in a world where software vendors, accounting firms, individual companies and standards setters have yet to fully embrace and build the standard into their core products and services. After all, belief in the efficiency of markets would suggest that something as obviously beneficial as XBRL should have been fully embraced and implemented by markets years ago. Yet we still require the support of regulators to create demand and products.

    In every case where XBRL has been voluntary, where companies have had to make an investment or expenditure decision, participation rates have been, well, unimpressive. This does not in any way disprove the value of XBRL, but it does indicate that in its first decade, the value proposition for individual companies required to make an expenditure decision has been inadequate to propel XBRL into ubiquity.

    And companies will not "just realize the benefits and implement XBRL", which has been said to me a number of times. People and companies do not work that way. If they did, "we would all just realize [...fill in the blank...]" and we would actually have World Peace.

    Does this mean then that XBRL is not an effective standard for efficient and effective business communication? Absolutely not. From my perspective it simply demonstrates that XBRL is not a panacea, and that we need as a community to be supporting the most effective use-cases, and promoting the value proposition to investors and decision-makers associated with those use-cases.

    Taxonomies are Very Expensive:

    We must also remember that every implementation of XBRL will require a taxonomy, and taxonomies are not cheap. When I asked the XBRL US Domain Working Group in 2006 to tell the Steering Committee how much was needed to develop the US GAAP taxonomy, I was told $3 million. I asked for a justification of that, saying “I can spend $3 million, but what would it be spent on?” The Domain Working Group came back with a plan, and I took that plan to Washington. I said, “Okay, realistically we might need more like $4.5 million”.

    In the end, the numbers that I have heard for the actual cost of the US GAAP Taxonomy range between $12 and $18 million. That is 4 to 6 times the Domain Working Group’s estimate, and these were the taxonomy development experts. Even the higher number ($4.5 million) was low by 3 to 5 times.

    The costs of the NTP (Netherlands Taxonomy Project) are not public, but also probably significant exceed common assumptions. It certainly took longer than expected.

    The FDIC, one of the most successful XBRL projects to date, imposed a one-year postponement on their go-live date to ensure everything had been adequately tested.

    So every time someone suggests that “this is a great application for XBRL”, consider the cost and time, and ask them who will fund the taxonomy development.

    Some examples of XBRL for Everything:

    Over the years there have been some interesting suggested use-cases for XBRL. I think my favorite was from earlier this year, when it was suggested that XBRL tagging of information in containers could be used to help thwart Somali pirates. If you take a look at this site (http://www.marinetraffic.com/ais/), you'll see where a huge number of ships are at any moment in time. Notably missing is any information from the Arabian Sea and Indian Ocean. My guess is that ships passing through this area do not want their location known, and they certainly do not want to broadcast their cargo to pirates or land-based handlers of the pirates.

    Another is the idea, long held and promoted, that XBRL can be used to at or near the transaction level. Of course, this potential use-case is strongly defended in the XBRL community, because to fail to support this use-case would be a de-facto acknowledgement that XBRL is not the right answer to every question. When you are a hammer, everything looks like a nail. Now, I know that saying this will result either in angry responses, or pouting grumpiness from a few proponents of the concept of XBRL-GL. Get over it. XBRL as an international organization has paid lip-service to XBRL-GL for a decade, yet not a single ERP vendor of any market size has indicated any intention to implement (if any have, the XBRL world certainly is keeping quiet about it). If any smaller ERP vendor has indicated such an intent, we as a community have not made enough noise about that.

    Today, to accomplish the dream of using XBRL-GL for internal (and external) audit analytics, the user must first convert the data into XBRL- GL, or import into an analytic tool that supports XBRL-GL. How much easier to simply import the data based on the file formats provided by IT or by the client.

    So the alternatives are?

    XBRL proves itself most valuable as a boundary standard, where multiple reporting entities need to provide information to a common consumer or consumers of that information.

    The FDIC provides a great example XBRL as an optimal standard for data collection. The FDIC collects quarterly "Call Reports" from approximately 8000 (and falling) banks in the United States. In October 2005 the FDIC went live with their XBRL enabled CDR (Central Data Repository) system. The software vendors who provide the front end software used by banks to create "Call Reports" were required to build the FDIC's taxonomy into their applications, and to use the XBRL to pre-validate the information provided by the banks.

    The FDIC was able to use this improved process to dramatically reduce the numbers of errors, and to increase the numbers of banks per FDIC analyst. The FDIC has gained significant efficiency benefits from their XBRL implementation. In this case, XBRL is being used very specifically to enable a many-to-one boundary reporting process and content improvement.

    The FDIC provides access to the collected information in three formats, each of which contains the same data.  Downstream consumers of the information may take XBRL, SDF (Structured Data Format - basically a CSV/flat file) or human readable PDF files from the FDIC.

    IRA (Institutional Risk Analytics) is a user of FDIC data. IRA performs analysis of banks and runs its own "stress tests", and provides a score for each bank, along with comprehensive analysis driven by their models. IRAs banking data is used by a number of significant entities to analyse bank performance, and by a very large number of individuals who purchase IRAs reports on their individual banks.

    Here's the rub - IRA does not use the FDIC's XBRL feed. I talked with Dennis Santiago, CEO of IRA, about his data choices. He sad to me "Dan, why would I make a choice to spend more programmer time and company money on a complex standard when I can get the data as a flat file and directly import and use that data. It does not make economic sense for me to use the XBRL. I know that data in the flat file will be as clean as the XBRL; it comes from the same source."

    "We tried taking the XBRL, but we just had to spend too much effort stripping it back to flat files so that we could run computations and analysis against the data. We were already, and still are taking flat files from other data providers. Taking the flat files from a trusted entity dramatically speeds up our processing, reduces our storage, and has zero negative impact on the quality of our product. If anything, attempting to remain current with an ever evolving taxonomy imposes simply too high a price on our business."


    XBRL is a standard, it is not a hammer. We need to stop looking at every situation as a nail.

    • There are plenty of valid examples of reporting situations for which XBRL is the perfect answer. And while some might not be terribly happy about it, the iXBRL requirement from HMRC is probably one of those examples. XII and the jurisdictions should be looking for such projects and programs.
    • The SEC should consider following the FDIC's example, and provide multiple formats to consumers of the XBRL data is provided by filers. Is there a more "trusted" or "trustable" entity then the SEC for data? In which case, a "flat file" from the SEC in a defined format should work wonders for a large number of users of that information, and like IRA, they may be able to make quicker, more efficient use of that data available from the SEC.
    • XII should, through its working groups, develop a model for the effective estimation of the true costs and time required to develop a taxonomy that can then be used as input for projects considering an XBRL solution.