derek abdinor

It’s here: the mandate for XBRL to become an official filing process, alongside EDGAR, for listed companies in the US. 

The SEC announced this in a long-awaited roundtable today, 17 December 2008.  The IDEA system was launched today too. This has followed on the completion of the US GAAP taxonomies. 

Immediate impact: 
Companies that are listed in the US (even foreign-owned) will have to begin a process of filing in XBRL in addition to current EDGAR requirements. It will not replace EDGAR at first, and will have to be placed on the company website (if it has one). Mutual funds will have to do same for risk-return summaries.

This is a phased approach, beginning with companies with a worldwide float of over US$ 5 billion and a december year -end. There will be limited liability, the same as in the voluntary filing program. If you satisfy these requirements, talk to your EDGAR vendor tomorrow.

The big picture
XBRL software vendors will see some consolidation in the market; I believe an influx of developers from the consumer-centric web 2.0 world  may find that XBRL combines their aspirations of mashups and service oriented achitecture, and financial analysis apps will experience a steep innovation curve.

At the same time, SAP and other ERP vendors will escalate XBRL within their products, for internal analysis and risk management presented in visual fashions.

Foreign markets will see the world’s biggest endorsing XBRL unconditionally, and rush to complete their taxonomies.

There is likely to be too much credit given to XBRL in the early , pre-and post inauguration days: it is not a panacea, but currently it looks like the best idea going. The ultimate aim, though never stated, is 24-7 disclosure: from the General Ledger to the markets

After weeks of speculation and false starts, it became clear that this would be a political decision. The lack of oversight in Wall Street and Washington is clearly an ethical and governance issue, but it has become clear that XBRL could go a long way to allow for better analysis, rapid decisions and early warning systems. It may not be the sherriff, but it’s the sherriff’s mustang.

XBRL Standard could highlight financial risks
CNET News – 15 December 2008

IBM’s data council has called for a taxonomy to allow for better reporting against risk and losses. The reporting meme du jour is that risk management was missing in action the last few years which may have assisted this current crisis stay undetected for so long.
What does it mean? A special taxonomy will allow companies to report granularly those financial items that will be of interest when assessing risk and losses. This will allow internal and external analysts search financial statements rapidly to ascertain risk and risk management.

IBM Council Predicts Data Will Become an Asset on the Balance Sheet and Data Governance a Statutory Requirement for Companies Over Next Four Years
7 July, 2008

The critical nature of data in business means it need to be moved along the C-Suite to the CFO’s basket. Data integrity, security and quality will need to be reported on in asset and risk terms, I quote:

• Data governance will become a regulatory requirement in an increasing number of countries and organizations. In some countries, organizations will have to demonstrate data governance practices to regulators as part of regular audits. This will likely affect the banking and financial services industries first, and will emerge as a growing trend worldwide.
• The value of data will be treated as an asset on the balance sheet and reported by the Chief Financial Officer while the quality of data will become a technical reporting metric and key IT performance indicator. New accounting and reporting practices will emerge for measuring and assessing the value of data to help organizations demonstrate how data quality fuels business performance.
• Calculating risk will be used more pervasively across enterprises for small and large decision-making and will be increasingly automated by information technology. Today in most organizations, risk calculation is done by a select group of individuals using complicated processes. In the future, risk calculation will be automated providing greater transparency to more easily examine past exposure, forecast direct and indirect risk, and set aside capital to self-insure and cover risk.
• The role of the Chief Information Officer (CIO) will change, making this corporate officer responsible for reporting on data quality and risk to the Board of Directors. The CIO will have the mandate to govern the use of information and report on the quality of the information provided to shareholders.
• Individual employees will be required to take more responsibility for recognizing problems and participating in the governance process to facilitate greater operational transparency and the identification of risk. They will be aided by new categories of operational software that will demonstrate common data governance problems and allow employees to self- govern; sponsor and vote on new policies; provide feedback on existing ones and participate in dynamic data governance. 

Risk Metrics Group provides risk management services and information in many countries around the world. They are also a client of my organisation, in a convulted and irrelevant way.

They recently released their policies around proxy voting: meaning how they will vote or advise voters in any given situation. Not only does it provide rational guidelines as well as promote transparency, it also serves to highlight underlying sentiment amongst professional investors.

The methodology in drawing such guidelines up includes polling the investment community, and the issues that they see as most pertinent are included in the document. Amongst others, they are:

• executive compensation practices
• board accountability and oversight
• the quality of financial reporting

The first point is becoming a part of an amplified chorus; the second is interesting in that it alludes to board members not fully aware of the financial (not business and operational) risks of their enterprises and the lack of accountability to shareholders they therefore exercise; but the third seems to be news. Poor accounting practices? Can that be resolved?