I remember my very first XBRL meeting

I remember my very first XBRL meeting. It was 2003, and there were 25 - 40 people in the room. I distinctly remember all the benefits that XBRL was (is) going to bring. I remember a wonderful slide that had two time bars, one above the other - the "before XBRL" and "after XBRL" bars. Each bar was broken into segments, with the time required by each party identified - the Company (reporting), the Auditor, the Bank, the Analyst and the Regulator.

The bottom bar showed all segments shrinking, except - a very important 'except' - the Company segment. It looked something like this (reconstructed from faulty memory).

Who benefits from XBRL - 2003

XBRL will increase transparency, and will deliver massive benefits to regulators and investors. As it becomes more widely entrenched and systems are built that will exploit the power of tagged information for credit risk, the banking community will take up XBRL and use it widely. This will benefit businesses by improving access to credit at rates commensurate with their financial health and potential. As systems integrate XBRL into the 'front end', operational efficiencies will be achieved by companies. This they will happily pay for.

Unfortunately we also know that Detailed Tagging is going to impose significant cost on businesses, at little or no tangible benefit to the companies that are required to pay for their reports to be detail tagged.

An issue I've had from my very first XBRL meeting has been a Big-4/Consultant agenda of "let them spend (on our consultants), while we tell the world how good this will be for them". That has been the message from all the Big-4. At that time I was at Grant Thornton, a great firm. And a firm that was focused on the "middle market", not on the biggest companies.

I had come to that meeting almost directly from a meeting with a nice little company ($50 million turnover) and watched how they managed every penny, looking at specific metrics, and providing the reporting that they needed to. They felt (and I quietly agreed) that the Audit required of them was a pure overhead, because they could not see the benefit to them - other than access to credit. So their audit was at the lowest price they could manage, and there were no frills. In fact, there were few frills in their offices, including the President's and the CFO's offices. Oh, and the CFO had three staff, total.

I then went to the XBRL meeting, and listened to (name redacted) talk about how everyone downstream was going to get benefit - the banks, the regulators, the auditors, the investors... Everyone else was either reducing their risk, increasing their own effectiveness, or improving their return on investment. Everyone except the president of that $50million metal stamping business. And when I asked what would be the benefit to him, (name redacted) scowled and repeated the benefits to the banks, etc. I repeated my question, and that was the moment that (name redacted) and I became "friends".

I am still, 8 years later, waiting for anyone to tell me how the president of that small metal stamping business is going to actually see, in bottom line terms, the benefits from the money that they are required to spend on XBRL. Certainly there will be benefits, but not from creating XBRL for external consumption.

In fact, adding insult to injury, the same basic chart of can still be found here - XBRL - What are the Benefits. There is no date on the page. Maybe, just maybe, this is out of date and there is a new chart with benefits to the producer of the XBRL (the one who is paying).

The (minimal) tagging requirement from the SEC seems reasonable to me - to enable the SEC to regulate the markets and reduce risk. Detailed tagging, simply put, provides benefit to a few downstream while imposing the costs on the producer of the information.

So I'll be blunt - the Big-4 and the large companies that advocate Detailed Tagging are out of touch with the smaller filers. Businesses that are coming out of recession, and are happy to have survived, and are now looking to grow again. And they survived by watching every penny, taking the difficult decisions, sometimes very painful decisions. They don't waste money. If they are going to choose to spend it, they want to know what they're getting for that money. Not what someone else will get for their money, but what return they will get for their money.

I could use the word "investment" - but really, we're talking about money. Limited money.

So is anyone surprised that the $2500/year XBRL vendors are bringing in the clients? They shouldn't be surprised. The sad thing is that many of the purchasers at $2500/year are in for a nasty surprise when the discover the real level of effort on their part, and the very real danger of missing SEC deadlines for lack of resources.

XBRL is complex, and expensive - either in external costs, internal costs, or a combination. Total costs will fall, but there is probably going to be some real pain along the way.

For more information on XBRL offerings, visit us at www.raas-XBRL.com or pick up a copy of our 2011 XBRL Buyers Guide.

Guest Post: Using XBRL for Solvency II reporting

XBRL is a global standard, and while Random Comments tends to focus on the US and the SEC Mandate, it is important to look well beyond, and see the range of other applications and projects that will leverage the power of XBRL. When we survey the landscape of business reporting, Insurance is clearly an area of significant information exchange that would benefit from the unique strengths of XBRL for business reporting and information interchange.

Gideon Benari is the editor of Solvency II Wire [www.solvencyiiwire.com], a website dedicated to news and insights on Solvency II, the European insurance directive which is due to come into effect on 1 January 2013. He recently wrote an article posted on the XBRLBlog. Here he provides us a summary (with link to the full article). 

Using XBRL for Solvency II reporting

Solvency II, the new regulation for the European insurance industry, will use XBRL as its reporting standard. Solvency II is a risk-based regulation that will affect capital adequacy requirements, governance and reporting standards across Europe.

The eXtensible Business Reporting Language format, essentially a sophisticated form of text mark up, facilitates the transfer of data between financial organisations in a standardised way. This will allow regulators to make like-for-like comparisons of data from insurers across Europe.

One reason XBRL is suited for Solvency II reporting is that the taxonomies can be extended to local level. According to a study published in the Journal of Financial Regulation and Compliance (2010)* examining the use of XBRL for Solvency II, “Once a taxonomy has been created at the European level, extensions can be added to cover the particular features of national regulatory frameworks, thus ensuring the homogeneity of the system of information while giving it the flexibility that the framework requires.”

Solvency II is due to be implemented in January 2013. Currently the European Insurance and Occupational Pensions Authority (EIOPA) is working out the finer details of the regulation.

Commenting on EIOPA’s decision to use XBRL, Anthony Fragnito, CPA, CEO of XBRL International, said, "The EIOPA mandate for XBRL in the pension and insurance sector is a critical step toward the transparency and process improvement benefits of XBRL to insurance and risk management, and expands the XBRL footprint across the financial services and capital markets sectors."

The full version of the article “XBsRoLvency II: Say it with XBRL” can be found on the XBRL Magazine Blog. Further details on Solvency II and XBRL can be found at Solvency II Wire.

References

*    Enrique Bonsón, Virginia Cortijo, Tomas Escobar, Francisco Flores, Sergio Monreal, (2010) “Solvency II and XBRL: new rules and technologies in insurance supervision”, Journal of Financial Regulation and Compliance, Vol. 18 Iss: 2, pp.144 – 157.

The SEC should defer "detail tagging" for smaller filers

Late last week raas-XBRL wrote to the SEC, recommending that they defer the "detail tagging" requirement for smaller filers. We believe the burden on smaller filers has not been offset by an adequate communication of the benefits that such additional effort will deliver.

We've talked about the burden of "detail tagging" XBRL on small filers. We've estimated that the second year requirement for filers could add up to $1.5 billion in additional reporting costs in the 2012/2013 filing year. We've also asked - where's the ROI on detail tagging?

Detail tagging while not particularly complex, is a significantly higher level of effort than the basic tagging required for all filers in their first year of providing XBRL to the SEC. Estimates that we have seen range from 6 times to 10 times the first year effort.

Strains are beginning to appear in total resources available for XBRL production.  The phasing of the rule is in part contributing to this resource constraint.

For example, the increased workload to support the 1000+ filers who are entering their second year of XBRL (and therefore straining their internal resources and the financial printer / filing agent resources) is happening just at the moment when the remaining 8000+ filers are fighting for the same resources to produce their first XBRL for the SEC. We are hearing that some financial printers / filing agents are "closing their books" to new business. We've now heard about two that have closed their books, and have heard rumors of at least one other.

We expect this year to be resource constrained. Next year will be even worse. And that will impact prices. Not to mention quality.

As we said in our letter to the SEC:

It sounds like a joke, but it is not – we’ve seen a real case of a major US financial printer/filing agent’s Indian operations advertising for XBRL taggers – any university degree accepted, including veterinarian. Does this mean that Indian veterinarians may be tagging the financial statements of SEC registrants? And this is in the year when the SEC’s estimated 8700 third-year filers will be providing “block tagged” XBRL. Who will be performing the tagging when the workload for those 8700 filers is six to ten times the work to produce “detail tagged” XBRL? Do we care? Only if it impacts the quality of the tagged information, and we believe it will negatively impact that quality.

We also are still waiting for the SEC and the Wizards of XBRL to release real ROI calculations. And that means both sides of the equation, the costs and the benefits, not just the benefits. "Ignore the man behind the curtain" is not the right answer. The right answer is that the net benefit to a filing company will be $xxx,xxx over five years, and the net benefit to the SEC will be $yyy,yyy,yyy over five years. The net benefit to the investor would be a good thing to be able to quantify also.

Until that ROI can be quantified, we call upon the SEC to defer the additional onerous burden of "detail tagging".

SEC's askOID - 2 Thumbs Up

When the SEC established the Office of Interactive Data (their way of creating a completely misleading name for XBRL) they also put together a team of people to answer questions about XBRL issues. In the time since, the askOID@sec.gov e-mail address has received (I had hoped to put a range in here, but they told me they do not provide that information - but I'd guess hundreds, maybe thousands) of  e-mails from a wide range of individuals and companies from around the world.

I have, on more than one occasion, when baffled or simply wanting to ensure I have exactly the right answer, sent e-mails to askOID@sec.gov. The responsiveness has always impressed me. In addition to a very rapid response, the information has always been precise. Sometime too much so for me, and if I have had follow-up questions, in almost all cases either the answer arrived (again, quickly) or the offer was made to call we and walk me through the question and answer.

Sometimes the answer has simply been a pointer to a paragraph in the rule, other times to other material on the SEC's website. On the occasions when we spoke, it was invariably to clarify my poorly constructed question(s), and always resulted in the clarification that I needed.

With an additional 8000+ filers coming on stream this summer, I expect the e-mail stream is already heating up. Hopefully they will be able to maintain the same level of support that they have to date.

The SEC has also recently established an online form for questions, located at: http://www.sec.gov/cgi-bin/contact_risk_fin/. The online form does provide a structured environment for entering questions, which should help OID process the requests for information. They also provide a phone number and new e-mail address for technical questions. "For technical support or questions on the Interactive Data Chapter 6 of the EDGAR Filer Manual, please call (202) 551-8900 option 3 during normal operation hours (9 AM to 5:30 PM EST) or email webtech@SEC.gov."

Of course, there remains at least one "oxygen thief" at the SEC and dare I say it, within their Interactive Data program, but the folks that answer the askOID@sec.gov are certainly not in that category.

So two thumbs up to the SEC Office of Interactive Data and the people receiving and responding to the askOID@sec.gov e-mails.