derek abdinor

A few minutes ago the announcement was made that Pravin Gordhan, current Commissioner for SARS, has been handed the position of Finance Minister. Current minister, Trevor Manuel, moves on to run a new economic planning commission.

Pravin Gordhan

Gordhan has spoken at XBRL events in South Africa, and believes the standard will be an accepted mode of business reporting. He has approved XBRL activity at SARS, and may lead with accepting corporate tax returns.

Extensible Business Reporting has undoubtably got the kinetic energy to become a political football. XBRL seems to have been nurtured by outgoing US SEC chairman Cox, but owing to the fiascos that happened on his watch, it made sense that new chairman Shapiro would distance herself from it, saying it was not a priority.

What this will mean for XBRL adoption in South Africa is going to be a  question as big in these parts as the endless waiting for last year’s SEC mandate.

Two codes of corporate governance have ruled informed public companies in the last 15 years in South Africa – the King codes.

The third code was launched in Johannesburg last week for public review – you can view it here.

Some interesting points:

• shareholders ought to approve remuneration, and an annual remuneration report needs to be published
• the audit committee to be appointed by shareholders
• a Chief Risk Officer to be mooted
• Sustainability reporting should be an ongoing process
• the majority of the board should be non-executive; the majority of that being independent.

I must observe with unjaundiced eye that South African companies, notably the blue-chips, do adhere to the King recommendations. As it is a widely used benchmark, it is expected to come across in the company’s annual report. No self-respecting company secretary could pretend not to know about King and the recommendations.

It seems some of the proposals in the draft review are to be found between what is happening in the developed world and the new South African Companies Act, also fermenting in legal and regulatory circles.

We are all analysts. We have all the information at our disposal and we will marry that to our experiences and opinions. We don’t have faith in the established financial, political, consumer and even sporting analys systems because they’ve proven fallible. Which is ok, but not when you’re taking a fee.

We’re in a world where:

1. There is general public mistrust of Big Bailed Business – in a world where information is a click away, citizens can see how companies are faring and paying themselves
2. Social media is a broadly accepted media channel. Pastor bloggers, mommy networks, Republican tweeters have skyrocketed in growth, and online has become flooded with “Hire me! I’m a social media and SEO Expert!”.
3. We have a stake in the tools that we use. Open Source software allows for tinkering, adapting and contribution. Users feel they can make their own software better, and therefore they can pass criticism on it.
4. Political analysis is quite detailed, but, like sports analysis, if you slap a 24-7 news channel on anything you can change your tune under the glare of the klieg lamps. Spotlights create more 360 degrees of shadow.

XBRLSpy: XBRL: An attempt to empower amateur analysts?
Dianne takes the view that the XBRL ruling in the US may mean many things, but it was not created to empower amateur analysts. That may be a by-product, but the millions of dollars pumped into XBRL had more upstream application.

Monkchips: Software ecosystems and convergence
James is an industry analyst for IT issues and Environmental issues – therefore you get a multisided take on both. Redmonk use the web natively, and are therefore specialists across a broad spectrum (no sic).

IR Web Report: Time to open up your earnings calls to bloggers
Dominic points out that Barack Obama called on a blogger for questions in his briefing. Research has also shown that blogs have become influential, and in many case, are as good a source for stock picking as the traditional sources. Companies should open up their calls to influential bloggers.

Re:The Auditors: Who Guards the Guardians?
Francine covers the big four accounting firms, and doesn’t let them get away with anything. Extremely influential. 

Alacra: A list of analysts
This list is of analysts in many sectors – some are formal analysts from firms (Gartner, Forrester, Redmonk) and others more informal.  

Remember desktop publishing? We don’t call ourselves Publishers. 

Blogging? Some call themselves Bloggers, but it implies “thinker and commentator” rather than a person who simply posts. Very like a poet.

This meme came about a week after finding some serendipitous links, usually via Twitter. I’m calling it to become big – especially as it is foreseen that people are going to get very pissed off this year.

Ok, the heading is misleading and would constitute baiting if I cared enough.

Found via Dianne Mueller and sure to become an internet meme. Explaining an accounting process need not be dry when you see these cartoons (click on the image). Sure to give the Plain English versions a run for their money.

From JICPA, the Japanese Institute of Certified Public Accountants.

On a related topic, the discussion is around Twitter replacing RSS as a news feed of choice for online media types. I dramatically cut my RSS reading time and use Twitter because the idea is germinated on Twitter before it becomes a post – So Dianne tweeted about this, and then did her post.

Apart from the fact that ou can pull RSS into Twitter,  expecting users to congregate around a news reader to passively consume media is actually, despite RSS and other add-ons, a very Web 1.0 concept. We ought to know better.

The King II Code of Corporate Governance, which  recommends good practices for listed entities in South Africa, has always been in favour of companies having non-executive representation on the boards as well as the committees of listed companies. The reasoning behind these recommendation went as follows:

• non-executives are relatively impartial
• they bring different expertise and strategic input, being seperate from the operational running of the company
• they should be in the majority on the remuneration and audit committees in order to represent shareholder interests 

PWC brought out the Non-Executive Directors Best Practices and Fees Report which was of far more pertinence in 2009 than in any other time.  Amid bailouts in developed countries and exorbitant remuneration, non-executives are either being looked to highlight problems or to shape up their own accountability.  That aside, in this country a professional non-executive director is a full-time career.

As an afterthought, why do boards get ‘remunerated’ and ‘compensated’ for their time, whilst workers get ‘wages’ or a ‘salary’?

Last week the SEC formally published the XBRL mandate. While they released it in mid-December 2008, this was total ratification. Sound weird? Think of it just as  Barack Obama re-taking the oath of office after some minor fluffs

Of more interest to me is the ruling for non-US companies listed on the US markets. They file to the SEC in US GAAP, although many of them undoubtably are reporting in their countries in IFRS. The US will have to start reporting in IFRS in a few years, and therefore are open to foreing filers filing in IFRS XBRL down the line.

There seems to be confusion around this matter, so to highlight selected parts of the formal rule:
 

1. we believe that the updated IFRS list of tags will be sufficiently advanced to require that foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB provide their financial statements in interactive data format under the phase-in schedule we are adopting 
2. We also encourage foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB to provide financial information in interactive data format once EDGAR will accept such filings. (the footnote [94] to that says: Pursuant to the EDGAR Filer Manual, we will notify filers of the ability to file in IFRS on our Web site.)
3. Foreign Private Issuers with Financial Statements Prepared in Accordance with IFRS as Issued By the IASB will have to submit reports on Form 20-F or Form 40-F for fiscal periods ending on or after June 15, 2011

To summarise, from conversations with the SEC, they’re looking at possibly accepting IFRS (the official IASB version) in the third year (2011). Filing in IFRS to EDGAR is likely to happen before that, but as we know, EDGAR will probably not last long after June 2012.

The maritime Automatic Identification System (AIS) means that every seagoing vessel over 300 tons is required to transmit certain data every few seconds, including:

• Navigation status, e.g. ‘at anchor’ or ‘underway’
• Ground speed, from 0 to 102 knots in steps of 0.1 knots
• Rate of turn, 0 to 720 degrees per minute
• Position (GPS latitude and longitude)
• Heading and Course over Ground
• Time stamp

Then every six minutes “static” information is transmitted:

• MMSI number, Callsign, Ship’s name, Type of ship, Width, length and draught, Destination and ETA

Bear with me: the data gets written to a database and pulled out, probably as xml because the structure of the data is similar to the element/attribute/schema nature of xml. As we know, that’s all you need to start displaying that data in exciting ways. The result is a web-viewable mashup of all these vessels around the globe.

Like GPS, the information is largely open and available to the general public. Like financial information of funds, government and public companies should be? 

There have been concerns raised about XBRL having most of the specifications being tied down, but no software implementors to bring the solutions to market. While the tagging software is quite mature, there is a dearth of meaningful and fast analytical or comparison applications.

I still maintain that once the graduates of Web 2.0 find little appetite in the market for social media gadgets, they’ll turn their attention to Enterprise 2.0 applications. These excellent marine shipping examples put the implementation aspect of XBRL to shame.

ShipAis.com
MarineTraffic.com

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?