XBRL: yes or no?

For several years already, the idea of XBRL worried me. I was not quite sure what it was until I was reading an article about the history of accounting standards. The accounting development was based on providing greater standardization - so that people could compare different companies between each other.

Does not it sound similar to XBRL - apply tags and everybody understands what's going on?

Anyway, now all the accounting is in footnotes, and I can understand that because intangible value, for example, cannot be well represented through the means of GAAP.

Now to XBRL..... if we have all perfect standardized tags, we lose company's value because I do not think we can explain all companies with standard tools. Add footnotes to XBRL (SEC was talking about allowing text fields in there) and we lose the value behind the idea of XBRL - having easy-to-understand standardized descriptions of companies.

Anyway, this calls for more thinking (there is a reason it is not a required procedure yet)!


Anonymous said...

You ponder why isn't it a rule yet;
I suggest you read http://www.sec.gov/rules/proposed/2008/33-8924.pdf .

You ask how XBRL might help all of the information hidden in the Notes;
the SEC proposed rule calls for information hidden in the Notes to be tagged explicitly in the second year of each company's filings, so that a business fact embedded in the Notes is just as transparent as a fact on the face of the financials.

You ponder how it is possible to explain a company's unique nature with standard tools - the "X" part of XBRL allows for the extensibility of the standardized tools - customizable standards.

Rather than being "worried" about XBRL, why not express the business requirements you think are important, and ask the XBRL community if it has thought of and prepared for it?

Anonymous said...

So, what's new here? Tagging information in the Notes seems to be the same as typing it in the Notes...

Alexander V Laskin said...

Well, no, I do not want to say that there is no difference between XBRL and just text.

What I am saying is the approach of "customizable standards" can be a very challenging beast to manage simply because it includes two opposites: customization and standardization.

If you standardize too much, you cannot describe all the peculiarities of the way the company makes money; but if you customize too much you might end up with too much clutter. Notes are already transparent today (they are just printed in small fonts) - isn't XBRL's promise to take that information out of footnotes and into the main document?

Anonymous said...

The point of XBRL, as I understand it, is not to capture every idiosyncrasy of each individual company - but to enable rapid mining of data to make comparisons across companies, industries or time periods. The comparisons likely won't be perfect. An investor will still need the human expertise and energy to analyze and make judgments. In this respect, the use of XBRL may be analogous to stock screening software: You can screen for a list of low P/E or high ROE companies, but a prudent investor will dig into what made up the net income figures used in those ratios, because some one-off may have inflated or deflated last year's earnings. Analysis still requires reading the financials, understanding industries and probably talking with management.

XBRL will allow the investor to construct his or her own metric - say, a cash flow measure adjusted to include or exclude certain items, or a measure tracking acceleration or deceleration in inventories and accounts receivable, or ... fill in the blanks.

The SEC's corporation finance chief, John White, offered a glimpse of this vision for XBRL's use by investors in his speech to the National Investor Relations Institute conference in June. I put together some notes on a page in my blog, located at http://ircafe.wordpress.com/notes-ir-20-and-the-sec/. I'm not part of the XBRL establishment, but as an IR practitioner I see the benefit of giving investors a new automated tool to quickly select stocks that may meet their portfolio needs.

Alexander V Laskin said...

Yes, I agree 100% with this last comment.

At NIRI conference, however, I heard some IROs asking SEC if they can add notes, graphs, images, other text fields to XBRL - as if they wanted to make it THE ONLY WAY of communicating with their shareholders. In my mind, doing so can reduce the value of XBRL and investor relations, in general.

And then there was also an interesting discussion about what jobs XBRL can make obsolete - IROs or financial analysts...