22 November 2010

The Crunch Is Coming!

Last week I was talking to the CFO of a small public company - I'll call him "Bob" (not his real name, but you probably guessed that). He said they use specialist software to produce their SEC filings, which they file themselves. He likes the software and process, and he likes the price. But recently he's had a call from the account manager, who was thrilled to tell him that they were ready to meet all his XBRL filing needs - at almost 8 to 10 times their current costs. Bob almost choked. He told me, "Dan, who do they think we are?"

So is XBRL really that complex? (Yes)  Do companies really need help doing this? (Yes) 

So where are the experts? I have asked that question before. Actually, I've been asking that question for years. But that's not the point I want to make today.

The SEC (in its final rule in 2009 - page 117) estimated that there are 8,700 third tier filers. That's 8,700 Bobs out there?

It is now crunch time. In 2011 the 8,700 third wave of filers (Bob-1, Bob-2 ... Bob-8699, Bob-8700) will need to produce XBRL for the SEC. These are not the giants that can throw people at this interesting problem, and maybe with appropraite investment discover ways to use XBRL to improve operational efficiency. These are companies with limited budgets, small finance departments (sometimes only two people) already struggling to ensure that they meet their SEC filing obligations.

In early 2008 I wrote an article recommending 4 steps for companies to get ready for XBRL.

In early 2009 I wrote the following:

"Like any new standard there will be difficulties with implementation, assurance, ease of use, availability of software and tools, and most important a lack of real expertise. Companies that wait for a mandate will find themselves in a SOX type situation - too many companies chasing too few resources. "Experts" will magically appear, and costs could spike, so plan early."

That remains as true today as it was three years ago. A chunch is coming. Companies will either lock-in the resources that they will need early, they will need to "grow their own" (something many simply cannot afford to do), or they will need to complete for scarce skilled resources. And yes, there will be a lot of charlatans out there.

A lot of companies are going to get burned by the price they are going to have to pay.

Limited Seating: At the XBRL table, and at the Cave de la Tour. Comment below or e-mail me to learn more (about limited XBRL seating or Cave de la Tour).


  1. Are small companies less likely or more likely to have questionable reporting? Does the market need proportionately less protection from smaller companies? Is it a good excuse that small companies have fewer controls and less integrated systems in play and so XBRL will cost them proportionately more? Is it time to consider more standardized reporting for smaller businesses so this could be more template-driven, like the HMRC mandate?

  2. Dan.. Good summary of what the 8,700 are facing. BTW, version 16 of the EDGAR Filing Manual was just published (in draft) by the SEC. I recall that the first filings in June of 2009 needed to comply with version 9.

    Neal Hannon
    Senior XBRL Analyst, Gilbane, a division of Outsell, Inc.