Random Commentary Welcome to our "Random Commentary" Page. Here we'll add comments (some might call it a blog, but I think we'll avoid that term for now) on just about any facet of XBRL, Sustainabilty, Risk Management, or any other similar topic. We'll keep this page "live" and simply continue to add to the page.
Feel free at any time to suggest a topic.
We have "Officially" moved the Random Commentary articles to a new "Official" Blog. Summaries will continue to be added to this page, but you can follow us and read the full articles at:
31 December 2009
XBRL ISC Meetings - members ignore at their peril
RecommendationsNormally I start with a summary, but in this case I think I’d better start with the recommendations. There are potentially major changes being proposed to the bylaws of XII (XBRL International). XII governance already is opaque and designed to protect vested interests. Are the members apathetic, or does the system work to limit their participation, or both?
- The ISC should ensure that all meetings are announced (some recent meetings were not announced, so observers could not attend), and all F2F meetings should also be held on open conference call lines. I know this has been done, and hopefully will remain the practice.
- Members of the XBRL community should attend, even as observers, the ISC meetings. This is your organization regardless of what cabals actually run it.
- There will be significant changes to the XII bylaws. Talk to your jurisdiction representatives and ask them how they will be voting on the proposed changes to the bylaws, and are there any changes that concern them.
- The Bylaws should be changed to ensure that a certain number of At-Large Member seats are directly elected by the members, not by a self-selection and perpetuation of the gene pool.
- A huge amount of progress is being made across the world in the adoption of XBRL – why do we hide our light under a bushel? I would love to see even more publicity from the ISC on successes.
Read the full article here:
http://raasconsulting.blogspot.com/
17 December 2009
The Logic of the Logical Cave Wall (iXBRL)
XBRL (eXtensible Business Reporting Language) started life as a dream of freeing information from the tyranny of the logical cave wall, also known as the printed page or computer screen. Now we discover that the information is going to be read by humans after all, so lets make a logical cave wall version of XBRL.
Um, isn't this where we started from, and if so, why not just stick with something simple like, oh, XML, CSV, PDF, Word, or even a web-based form? Because iXBRL will merge the benefits of the logical cave wall while also freeing the information.
Read the full article here:
http://raasconsulting.blogspot.com/
9 December 2009
The EPA makes its move, SEC next? Implications?
First things First - I'm ignoring Copenhagen; It's a talk fest with the real work either already done, or still to come.
The
news from the EPA really couldn't be better, and the timing is just
right. The EPA issues their finding that CO2 is dangerous. This allows
the EPA (Environmental Protection Agency) in the United States to
create regulations for allowable CO2 emissions, if necessary bypassing
congress. The Clear Air Act was specifically designed to allow the EPA
to regulate in situations where the politics of the issue would
otherwise stop progress.
So what are the implications for the accounting firms? There definitely will be winners and losers.
Read the full article here:
http://raasconsulting.blogspot.com/
6 December 2009
When will the SEC mandate CSR/ESG reporting?Climate Change is real, and only a strange fringe continues to think that it will not have a direct impact on corporate performance. Potential impacts on corporate performance, good and bad, must be reported by US listed companies to ensure that investors can include that information in their investment decision making.
Current SEC reporting requirements already provide the framework for CSR (Corporate Social Responsibility) or ESG (Environmental, Social and Governance) reporting. These rules need to be confirmed by the SEC. Hopefully the SEC will provide interpretation that will demonstrate that avoidance of reporting of these issues is no longer an option. And where the SEC leads, other regulators will follow.
In addition to mandating CSR/ESG reporting, the SEC should also expand the scope of XBRL reporting to include the MD&A, the specific area of existing reporting that would logically include CSR/ESG information. Of course, existing taxonomies are inadequate, but that too can and should be solved.
Read the full article here:
http://raasconsulting.blogspot.com/
24 November 2009
XBRL & GRI: “you might think that the hippies got control”Transparency has two meaning, depending on whether you are the consumer or producer of the information. To the consumer, transparency means complete, accurate and accessible information covering all aspects of the business. To the reporting company, transparency means making certain that all information required by regulators is provided, but in a way that gives the company’s view, and discloses any additional information that supports the view the company wishes to convey, while formatting the information in such a way as to support the company’s view or to reduce the ability of the consumer to actually find unfavorable information.
There is no better example of this than the whole area of CSR and ESG (“Corporate Social Responsibility” and “Environmental, Social and Governance”) reporting. The lack of a single international standard for such reporting leaves the door open to cherry-picking by companies of the standard that most fits their own reporting desires. This is not to say there are not a number of standards each seeking the mantle of “the standard”.
There is a need for a mandated core set of ESG reporting standards or content. The good news is that organizations such as EFFAS and DVFA are providing drafts of ESG KPIs (Key Performance Indicators), the GRI continues to tout their XBRL taxonomy, and the CDP has said that they expect to provide an XBRL taxonomy in 2011. Each piece of good news of course comes with limits.
This week we look specifically at the GRI G3 standard and implications for XBRL reporting.
The GRI G3 - Flexible Reporting is not TransparencyThe Global Reporting Initiative (GRI) is one of the most recognized standards for sustainability reporting. The flexibility of the standard has enabled companies across the globe, of all sizes, to utilize the standard for the creation and presentation of their sustainability stories. That flexibility also enables companies to create their sustainability, or ESG reports in any format or structure that they chose, and through a GRI Index, providing a mapping from their report to the GRI G3 standard.
The GRI reports that last year, 2008, there were 1061 reports produced using the GRI standard (GRI Blog). A 50% increase on the year before. This is great news for the overall numbers, but this rate of growth will need to continue or accelerate for a number of years before a meaningful number of listed and private companies are reporting in this format.
In addition, the very flexibility of the G3 reporting standard will need to change to make such reporting meaningful. 50% growth in misleading reporting is not 50% growth in transparent information for decision making or effective analysis.
At the core of the standard are the indicators, of which there are 90+, split between "Core" and "Additional". There are then the reporting levels, from A to C and "undeclared". Of course, the GRI standard requires a company to declare a reporting level of A - C, so reports that have a GRI Index but do not declare a reporting level (the "undeclared") are not valid GRI reports and should not be included in the actual count of GRI reports, as they fail to meet that basic reporting requirement.
Fundamentally an “undeclared” report is not a report produced using the GRI standard, but a report produced and them mapped to GRI as much as possible. This ensuresthe company controls the message, while adding the smokescreen of apparent GRI conformance. In 2008, reports with an “undeclared” level represent approximately 30% of the 1060 GRI reports.
A key feature of the reporting levels is the number of indicators that a company is required to report against. At the lowest level - C, the reporting company need only report against 10 of the total range of indicators, or a little over 10% of the population of indicators. In addition, the reporting company elects which indicators to report against. If only US GAAP and IFRS, not to mention tax authorities, were so generous. If only analysts would be happy with only 10% of the information that they use. Simply put, the C level report is entry-level at best, and provides little more than a feel-good to the producer of the report. It is a marketing document.
Only level A requires reporting against all indicators, and only level A+ requires an external verification (not an audit) of the report. For 2008, a total of approximately 28% of the 1061 reports were of A or A+ level. So in total, we can have confidence that slightly under 300 companies around the world, of various sizes, in various reporting jurisdictions and industries, actually provided GRI G3 compliant reports that covered all the G3 indicators.
GRI and XBRLThe GRI has been aware of, and peripherally involved with XBRL since 2006, when a "beta draft" of an XBRL taxonomy was developed for the GRI by one of the Big-4 accounting firms (based on donated time from the firm). That beta draft remains on the GRI's website as their XBRL taxonomy, but is no longer referred to as “beta”. In an April 2007 article in SocialFunds (Socialfunds article) entitled "If you tag it, it will be used: Sustainability reporting in XBRL", there is the following paragraph:
"Giving companies a way to put the sustainability information they're already gathering into the same language as their financial statement information will also offer new opportunities to communicate the total value their company is creating for investors," Mr. Gilbert told SocialFunds.com. "If only ten companies were producing sustainability information, you might think that the hippies got control, but when a thousand companies are producing this information, then if you say this information is not business relevant, you're saying all these companies are under a common delusion."
The GRI also attends XBRL conferences and speaks of the importance of tagged sustainability information for the investor community.
Unfortunately, the GRI has not dedicated any meaningful resources to the redevelopment or further development of the first draft taxonomy, which is basically a collection of text type elements. In addition, it is difficult to find any examples of GRI reports that have been tagged using the GRI taxonomy, or any taxonomy. Being fair, the GRI has, from early 2009, stated that it will initiate a project to update the taxonomy, and continues to state that this is a priority.
More Chickens, more Eggs?So again we are back to one of those great Chicken and Egg situations. Will the creation of XBRL versions of sustainability reports require a robust XBRL taxonomy for sustainability reporting, or will a robust (I actually like Liv Watson's expression - an "Industrial Strength") taxonomy for sustainability require a demonstration of a desire to provide such information through the creation of XBRL tagged sustainability reports? And where would that desire come from; presumably from the analysts covering the companies.
What if there is an even larger problem. What if the problem is that the provision of meaningfully tagged, detailed level CSR and ESG information, without a mandate, is simply seen as both too much effort and more importantly conflicting with company’s desire to carefully manage their own CSR and ESG messages?
In the case of the GRI, by its own behavior it shows its users exactly what to do – manage the message. Provide exaggerated numbers of total reports, while touting the "beta draft" as an effective taxonomy for tagging Sustainability reports. While the standard states that the reporting company must specify the reporting level (A, B or C) to be a valid GRI G3 report, the inclusion of the 30% of reports that are "undeclared" as part of the total number of reports is misleading. Transparency would be to say that 700+ valid GRI reports and 300+ reports that reference the GRI standard were produced in 2008.
Demand demandThe DVFA (The German Institute of Investment Analysts) has taken the important step of asking its members, investment analysts, what ESG information they actually want to receive.
While this might violate the much vaunted Sustainability community's concept of wider stakeholder engagement, in this case the DVFA has talked to its particular stakeholders, the investment analysts, and asked them what they want.
Now it is up to those same analysts to demonstrate that there is a demand by asking companies to provide that information for their models.
The CDP (Carbon Disclosure Project) took a completely different tack - they asked companies to provide answers to a specific set of questions. If the company answered, its answer was published (unless they said that they did not want it published, in which case it was marked as such). Companies that chose not to respond were named and shamed as "did not respond".
Is there a solution?Until there are mandates for effective CSR / ESG reporting based on strict standards, then such reporting will be created and marketed by companies and standard setters as a smokescreen. And smoke is not transparent.
A taxonomy for CSR / ESG information should be produced, with input from as many of the standards bodies as wish to participate, and covering as wide a range of reporting content as possible. There should be a plan for scheduled maintenance and updating of the taxonomy to ensure problems are identifies, additional elements are included and new or additional standards are supported.
There is an important role for the closed-set, “mandatory” reporting standards such as the CDP with its yes/no and amount type questions, and the DVFA's requests for specific data points and ratios. The GRI’s wider set of indicators will also play an important role in defining a total CSR / ESG taxonomy. Those that actually use the information should also have a direct hand in defining the information being requested.
To put it simply, until we see a robust taxonomy and companies tagging their CSR / ESG reports, well, “you might think that the hippies got control”.
15 November 2009
Where are the XBRL Experts?Summary:The current population of XBRL experts is inadequate to propel XBRL from being a niche standard into the global, ubiquitous standard for business reporting. In addition, there does not appear to be the paradigm shift required to create the population of experts that will be required. For XBRL, the expression "do what you've always done, get what you've always got" could not be truer, and will not build the community of experts that will be required for growth and success.
The population:There is no reliable estimate of the number of XBRL experts, developers, users or individuals with a solid understanding of either XBRL or the specification(s). At a best guess, I would put the numbers between 500 and, being generous, 1000. But maybe I'm wrong, maybe there are up to 1500 XBRL experts.
Adoption:There is little question that adoption of XBRL is entering a new phase, with the number of jurisdictions growing and the number of projects and mandates expanding almost by the month. The dream of ubiquity may not be as far away as the XBRL community thinks, nor as close as it hopes. XBRL is more than just a standard for the tagging of business information; it is a "new" technology that requires an expanding based of trained and knowledgeable professional.
Where are they?Type "XML" into the search box on Monster.com, and even in the Great Recession, you get over 4000 job postings. Type "XBRL", and you get 20 postings. For the standard that is going to take over the world of business reporting, there appears to be very little demand. Is this another chicken-and-egg situation? Certainly the training and information is available; all the major vendors provide training courses, XBRL International (XII) and various jurisdictions run conferences that usually include training sessions. And of course there is Charlie Hoffman's new book, XBRL for Dummies.
What is the demand?Very clearly the increasing number of mandates should be driving an increase in both the need for XBRL talent, and the number of people making personal decisions to study XBRL. In the United States the SEC mandate is up and running. This should grow demand.
In the United Kingdom, the HMRC (Her Majesty's Revenue and Customs) mandate comes into force in early 2011, so one would expect to see a ramping up of demand for expertise now, to ensure software and processes are available to business to meet that mandate. Instead we tend to see articles in which accountants and software providers complain that they will not have time or resources to meet the mandate.
In Japan, China, Korea, Singapore, Australia, France, Belgium and the Netherlands (to name just a subset) we see mandates or programs that will need experts to support.
A simple count of required public company filers in mandated jurisdictions gives us at least 20,000 companies that are or will be required to provide XBRL versions of financial statements. This number does not include the millions of non-public companies that will be required to provide XBRL based reports in various jurisdictions.
So clearly there is, or should be, a demand for at least an order of magnitude increase in the number of XBRL experts.
How to get there:Clearly new thinking is required. The existing program of running conferences with the combined objectives of raising revenue and getting the word out is not working. The conferences have historically attracted up to 500 people, of which 50% are the same names. So twice annual international conferences are attracting maybe 500 new individuals to the XBRL community. National conferences seem to run at about the same numbers or less.
A goal of having a community of experts numbering in the 15,000 range will require far more training, greater outreach, and of course demand. And, certification. Unfortunately many XBRL jurisdictions have not been supportive of individual memberships. The argument at XBRL US and XII was two-fold; that individual members cost more to administer than we could ever charge, and that allowing individual members would stop large companies from becoming members - and it was the large companies that would pay the large dues. If the option existed for individual memberships, companies would have one or two people join. In the "early days" that might have been so. Today that is holding XBRL back.
Individual membership provides people with a personal and professional stake in the standard, and will support a massive growth in the total number of XBRL professionals. The current model of limiting (in many jurisdictions, but not all) membership to companies is acting as a break on wider adoption.
This means XBRL International will probably need to outsource management of any certification program. As an individual membership organization, I am confident that the AICPA, through its long association with XBRL, will be happy to provide a bid to manage any such program.
Certainly any certification program would imply an individual membership, or would certification be limited to individuals working for member organizaitons?
Recommendations:These are just a few steps that XII & XBRL jurisdictions could take:
1. XBRL International should be running "virtual conferences" with minimal or no registration fee. These "virtual conferences" should focus on basic and intermediate training.
2. The pool of recorded webinars, seminars, and video should be radically expanded. There exists a set of video from the main stage at the 19th XBRL conference in Paris in June 2009. This is a start. XII should be uploading training video and including it on the Education and Training page.
3. XII should establish an individual membership category to expand the number of individuals who see themselves as having a personal and professional link to the XBRL standard. This could be done in the same way that the IIA (Institute of Internal Auditors) and ISACA (Information Systems Audit and Control Association) have national chapters, in which individuals have a local and international membership.
4. The XII concept of certification of XBRL professional should be studied. XII issued a survey on the value of such a certification. At the same time, a certification program with no one to certify would be a waste of time and money.
9 November 2009
Prediction: Only the first and second wave of XBRL filers will be required to perform "Detailed Tagging" of the notes to the financial statements.Some background:After the Enron and Worldcom frauds, the US government reacted swiftly by enacting the Sarbanes-Oxley (SOX) legislation. Some business hated SOX, some loved it (the accounting and internal control professions come to mind, as well as a number of software companies), many hated it but stayed quiet and simply waited to see what would happen.
SOX required, among other things: 1. Certification by CEOs and CFOs on the accuracy of financial statements (section 302).
2. Certification of the effectiveness of the systems of internal control (section 404).
3. A requirement that the SEC perform a detailed review of all filers not less than once every 3 years, and every year for companies meeting a set of criteria.
4. The PCAOB, with the mandate to review the effectiveness of audits performed by accounting firms.
5. Auditing standards making authority vested with the PCAOB.
Of the five requirements above, we know that three are fully implemented (1, 4 and 5).
Number 2 however has only been required and actualized by "Accelerated filers", or those companies with a market cap of over $75 million. The costs of implementation Section 404 was estimated by the SEC at an average of $93,000 per company. The actual costs far exceeded that, with estimates in the multiple-millions of dollars per company. The howls of protest - not by those that implemented - resulted in an ongoing deferment for smaller SEC registrants.
In June 2008 the SEC announced another one year extension for small businesses. SEC Press Release
There are now moved to permanently remove the Section 404 requirement for small filers. Melissa Klein Aguilar in ComplianceWeek writes: "The House Financial Services Committee formally approved an amendment this morning to exempt small companies from Section 404(b) of Sarbanes-Oxley." See the ComplianceWeek article.
Link to Detailed Tagging:The logical step to deferment or exception for detailed tagging is clear.
Tagging of financial statements into the XBRL format is not difficult, but it does take some time (the first time). After all, you have a number of line items (and tables), and a number of elements, and you map one to the other. Okay, it is not that simple, but fundamentally there is a clearly defined set of information that will need to be tagged, and that information is presented in such as way as to facilitate selection and tagging.
Detailed tagging of the notes to the financial statement is another issue entirely. The total effort required to accomplished detailed tagging of financial statements is not known. I have talked with a number of software provider who are also struggling with how they can streamline the detailed tagging of notes to the financial statements.
To perform the detailed tagging, each note and each paragraph within each note will need to be deconstructed. A set of sentences designed to convey a meaningful message is not the same as structured table or financial statement where each concept has its own line.
Certainly at least one company has already filed a "detailed tagged" version of their (Adobe), and they 1) have been providing XBRL to the SEC via the voluntary program since 2007 at least, and 2) have said that detailed tagging was "was extremely time-consuming."
Warning:Detailed tagging is a year-2 event. It will involved significant additional effort. The good news is that filers will have a 30 day grace period for thier first detailed tagged filing (see page 24 of the Final Rule).
So, filers will have significantly more work to accomplish, with the same time to accomplish it as they have for their first filing.
Prediction:
1. Expect comparisons between XBRL detailed tagging and SOX 404 (justified or not).
2. Expect companies in recession (or coming out of it) to have resource constraints.
3. Expect howls of protest when the actual workload is understood (or feared).
4. Expect a sympathetic SEC to defer detailed tagging for non-accelerated filers.
Implications for Assurance:The best news is that the notes to the financial statement are not currently audited. Certainly they are reviewed (or "read") to determine if there is anything in the notes that contradicts or is incompatible with the financial statements, but they are not audited. This means that the level of sampling or assurance that will need to be performed over the detailed tagged notes is minimal, and a "read" may be sufficient - when, or course, assurance actually is required.
2 November 2009
So, What about Assurance (or "Lord make me virtuous, but not yet")?
Probably the best place to start is by paraphrasing St Augustine: "Lord make me virtuous, but not yet". St Augustine was born in North Africa and lived for a time in Carthage. While his mother was a Catholic, his father was pagan, and he followed in his father's footsteps for much of his earlier life. Eventually he converted to Catholicism, and became one of the great leaders of the church.
XBRL is a business reporting language, and the first and primary application has always been the provision of financial statements by companies to users of financial and business information, be they investors, regulators, banks, etc. The provision of assurance over the financial statements, via the audit and audit report, represents the lifeblood of the accounting profession. Isn't it amazing then that the accounting industry did not raise howls of protest to the SEC's specific statement that XBRL versions of financial statement do not require assurance.
There seems to be two potential reasons for this:
1. The SEC has stopped believing in assurance, or
2. The accounting industry simply does not know how to provide assurance over XBRL.
The first is, well, silly.
XII Assurance Working Group
The Assurance Working Group is included in the list of working groups on the XII website, complete with it charter and purpose. Lets listen in for a moment. ( or you read it yourself. scroll down to the Assurance WG.). I especially like the deliverables, and the dates of the meetings that the deliverables will (future tense) be prepared. Frankly, you have to wonder why they even bother any longer...
The objective of the Assurance Working Group (AWG) is to support the IAASB in the development of relevant standards and guidance for the audit profession surrounding the use of XBRL for company reporting. In working with the IAASB, the working group will support the standards development process through the collaborative development of the deliverables outlined below for use by the IAASB, the audit profession and other relevant capital market participants. The AWG works in close collaboration with the International Auditing and Assurance Standards Board (IAASB) of IFAC.
The AWG will provide the following deliverables:
- A discussion paper for use by the IAASB at their meeting in Lima early March 2005 and/or by the Steering Committee of the IAASB at their meeting in Rome mid June 2005.
- A white paper reflecting risks and opportunities related to XBRL as well giving advice on how to move forward on this issue.
- Recommendations for the IAASB, which will make it possible for them to issue auditing standards.
Proactively inform the IAASB of relevant technical matters.
- Respond to technical matters referred to it by the IAASB.
- Recommendations for educational materials and delivery resources to enhance the awareness among the audit profession and the stakeholders regarding the assurance issues associated with the use of XBRL.
The good news: Now, in 2009, 4 years leter, the IAASB says they will look at XBRL. Progress!
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The second is a little more problematic. After all, the accounting industry has been the primary champion for XBRL for
a decade. You would think that with a 10 year head start, they would by now know how to do what is after all, their core competency. And you would think that XBRL International would have paid more attention to the issue. Frankly, XBRL International and the accounting industry have failed to cater for what is arguable one of the most important aspects of XBRL - assurance over the information provided in the XBRL format.
Of course this will now generate a number of e-mails (hopefully headed off by this comment) reminding people that the
AICPA and the CAQ (
Center for Audit Quality - of the AICPA) both recently published guidance on how accountants and auditors can provide assurance over XBRL. But in both cases, the assurance provided is based on Agreed Upon Procedures, and therefore is for internal use only - not much good for an investor. Why don't we move to AUPs for all assurance/audit. It would certainly save businesses globally a huge amount of money, and in most cases could actually be performed by internal resources. But my guess is that this would not satisfy regulators or investors.
Mind you, supporting #1 and #2 above, here is an extract from page 3 of the
CAQ's submission to the SEC's proposed rule mandating XBRL:
"We fundamentally believe that independent assurance on XBRL
documents would add value by increasing reliability and enhancing
public confidence in financial reporting, as it does today. However, we
also acknowledge that some, including the Commission and the SEC's
Advisory Committee on Improvements to Financial Reporting (CIFiR), are
concerned that the cost and time incurred to obtain such assurance
might outweigh the benefits to preparers and users."
It almost makes you wonder if the same couldn't be said about the audit
in general. Adds value, but concerned that the cost and time might
outweigh the benefits.
But, lets return to the SEC for a moment. The SEC specifically exempted XBRL from assurance, and provided a two-year window of litigation relief. And this is for information that the SEC says will benefit investors. So if there another explanation? Maybe the SEC is losing faith with the accounting industries ability to define or deliver assurance, at least over the future of information for investors?
But there is a kicker - the SEC did also say that litigation relief is only provided if companies can demonstrate a "good faith effort" to ensure their XBRL is error-free. So what is a "good faith effort". Cleverly this allows the AICPA and accounting firms both the time to test their own XBRL assurance processes in private. It was interesting to sit in on one of the post first-wave webcasts, and the hear David Blaszkowsky of the SEC's OID say that he was pleased that companies in the first wave had demonstrated a "good faith effort". I can only surmise that companies are requesting and receiving assurance in the form of the Agreed Upon Procedures framework provided by the AICPA. But alas, as the AUP if for internal use only, we cannot know that.
Unfortunately this leaves the second tier and smaller accounting firms with no opportunity to test-drive assurance over XBRL, gives the markets no assurance that the XBRL is actually being audited, at the same allowing the accounting firms to generate some of the XBRL-based fees they have been so desperate to find.
This certainly will give the big accounting firms a benefit. Imagine being a large SEC registrant currently audited by a "second tier" firm (firms like Grant Thornton, Crowe Chizek, Eisner, Moss Adams, McGladrey, BDO, Baker Tilly (Virchow Krause), etc) and having to provide XBRL to the SEC, and to demonstrate a "good faith effort". You current second-tier firm has no experience providing assurance over XBRL, but the big-4 who are selling auditing services to you do have that experience. It is the classic FUD marketing play - Fear, Uncertainty and Doubt.
"Certainly your current accountants should be able to provide assurance - that so important "good faith effort", but we not sure what actual experience they have doing that. I sure hope they don't use you as the test case. Of course, we've been doing this for a year now, and have smooth and streamlined processed to ensure the costs are managed and minimized. Would you like to see a proposal?"Finally, the true costs of XBRL implementation remain hidden.
Comments:
From: Dennis Santiago
Message:
So ultimately you're observing that the process as it is evolving creates a defacto four LLP oligarchy that places the other 2,000+ PCAOB registered public company accounting firms at a structural disadvantage vis-a-vis one of the lucrative sources of income in the auditing industry.
Sounds like someone needs to wake up at the SEC and the PCAOB. It's clearly not in the public interest to have yet another regulatory process captured by the industry being regulated, and certainly not by 4 out of 2,000+ of that business. I guess I'm still idealistic enough to believe that the outcome of major public benefit initiatives should be commoditized across the entire serving industry and not hyperconcentrated into a source for supernormal returns for a chosen few. It's important to remind the people who swore profusely that they were doing XBRL for altruistic reasons that the world hasn't forgotten those words and will hold them to that promise.
I really believe in computer architecture constructs like XBRL as helpful content capture and organizing mechanisms that can assist in improving transparency. But if all that's done here is to morph a minor variation of XML technology into a barrier to entry that undermines all the good it can bring. It will doom the process to a decade of scandal as 2,000 disenfranchised registered audit firms make their voices heard.
Solution? The SEC should mandate that XBRL assurance is not required, taking the franchise profits off the table, until at least 25% of PCAOB registered firms have achieved "good faith" capability.
Thanks for your continued efforts to keep the XBRL process on good foundations Dan.
Dennis
From: Andrew Chilcott
Message:
The question of assurance goes further than the SEC filings. If the
filer was to decide to publish the XBRL instance document on their
investor relations web site and allow an RSS Feed, how would the
recipient of that instance document be able to trust the contents.
XBRL sits on top of XML and can leverage other XML technologies like
XML Signatures. In my opinion the instance document should be digitally
signed by both the Company and the Auditor. We then get to the question
of do we trust the certificate? Who is the Certification Authority?
Shouldn't AICPA issue a root certificate that can be used to certify
any particular firm of auditors that are it's members; and the SEC a
root certificate that can be used to authenticate the companies that
are obliged to report to it.
Pretty basic stuff
From: Jerry Trites
Message:
The Assurance Wroking Group did issue its White paper on November, 2006. It can be read at http://www.xbrl.org/Announcements/Interactive-Data-Assurance-2006-11-10.pdf.
Members
of the group did a presentation at the Istanbul conference that year
and also made representations to the IAASB at about the same time.
From: Dennis Santiago
Message:
Andrew,
It
should be noted that AICPA is an industry association, it's an NGO.
They have no authority to regulate or certify. The root certificate for
public company audit firms you speak of should properly come from the
PCAOB.
Dennis
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27 October 2009
I was wrong (yup, I'm saying it before anyone else).Australia is NOT mandating SBR (in my Oct 21 comment below I suggested it would be mandated). A failure to mandate will only increase the risk that they will suffer the Netherlands Syndrome - Years of promise, and years of unarchived benefits for business and society through reduced government efficiency.
Hopefully they will quickly move from voluntary to mandatory. Trevor Pyman in his interview in the Hitachi XBRL Blog, points out some of the dangers of failing to mandate.
Good luck Trevor.
26 October 2009
XBRL's Fantastic Future - Breaking the Catch-22
The Catch-22 for Adoption:For most of the XBRL's first decade, the standard has been plagued by a catch-22 that has held back any widespread implementation, outside the regulatory space. This catch-22 can best summed up:
- For XBRL to be successful, it needs software capable of producing XBRL Instance Documents (IDs)
- For Software providers to dedicate limited resources to XBRL development, they need to hear their clients ask for XBRL
- For Clients to ask for XBRL capability, there must be a community asking for the XBRL
- For a community (Analysts, Banks, Regulators) to ask for XBRL, they need enough IDs to see the value
- For there to be enough Instance Documents, there needs to be software capable of producing XBRL
So which comes first, a pool of Instance Documents, or companies willing voluntarily to produce such documents, especially when there was (some years ago) a real dearth of XBRL ID creation software.
In 2005 XBRL US attempted to run a trial called 5-50-5, with the objective of finding five accounting firms, fifty companies, and five banks, to demonstrate the benefits that bankers would receive from the provision of instance documents. Unfortunately we were not able to find 5, 50 or 5 to participate. The primary reason remains today - at times when financial reporting departments are stretched, there remains little additional resource for experimentation. Likewise, the firms had inadequate internal resources or skilled XBRL specialist, and the banks simply had no idea what to do with any XBRL if it were provided to them. There was inadequate software for ID creation, and virtually nothing for consumption and analysis.
Where did that leave us - the Regulators. The FDIC was well underway, and looking like they were on track for success (which have been proved after 3 years of smooth running in production).
How to break out?So what other regulators were there? The most obvious was the SEC, and we focused our attention on making sure the message was getting through. Of course the SEC was taking a very close look already, but being the SEC, they would not admit anything more than "well yes, XBRL is ONE of the options we are looking at".
What I found most interesting was the push-back within the XBRL community for supporting and encouraging the SEC. When I became chair of the XBRL US Steering Committee, I received more than one phone call from past-Steering Committee members saying that we must avoid the regulators. The only possibility for success I was told, would be for businesses to see the benefits and elect to start creating XBRL themselves. To this day I still do not know who these leading companies were suppose to give the XBRL to, and when I asked that at the time, the responses moved from an analysis of business issues to an analysis of my personality. Such is life.
My argument was very simple - If a regulator requires something, then a market to support provision to the regulator will be created:
- There was software, but an inadequate range of suppliers or options, and varying quality.
- Software will be written to create IDs. Either you had software, or you would lose your clients to your competitors
- Software providers clients demand XBRL capability, thus telling software providers where to dedicate limited resources
- The regulators would form the priimary "community" asking for XBRL
- This creates the pool of XBRL documents for the wider community (Analysts, Banks) to use and experiment.
Thankfully the Steering Committee pushed for our focus on the regulators, and in particular the SEC, although we also attempted to gain the attention of the NASD and other including the AGA (Association of Government Accountants) for local and state government programs. Work in that area is bearing fruit, and I personally have high hopes for public sector adoption of XBRL. In the SEC space, specific providers also saw the opportunity to increase their markets, and they pushed strongly for the US GAAP Taxonomy to be developed to "industrial strength". Very strongly.
So where does this lead?The SEC program in the United States,and the Japanese and Chinese regulator driven programs are all creating that pool of Instance Documents that can be viewed and used to demonstrate the benefit that XBRL brings to users of tagged business information. The SEC's public domain viewer software has set a standard for visibility and ease of use of XBRL tagged business information for a viewer's (human reader) perspective.
Now I expect we will begin to see XBRL explode, to the dream of actually becoming the standard for the provision of data level tagged business information being provided by creators of information, to the users and consumers of that information.
We will begin to see banks demand financial statements in the XBRL format for their internal commercial banking applications. What will enable this? Readiliy available software for creation and consumption, mature taxonomies, and a pool of XBRL IDs that prove it can be done, efficiently and as part of the existing business reporting process.
I fully expect to see thousand - no, hundreds of thousands of companies producting XBRL versions of their financial statements for provision to the banks.
I fully expect to see the efficiency benefits from SBR (Standardised Business Reporting) to be achieved.
And I expect to see these benefits in countries are markets around the world.
In the public sector, the potential range of process and reporting quality improvements are almost endless, and they will be achieved. Government might not become any smaller, but it will become more effective and transparent in its reporting. The recent Oregon State Controller's Division project demonstrated teh ability to create, provide and render the State of Oregon CAFR - the "Comprehensive Annual Financial Report" (you can download a the full AGA report
here for the AGA's Report)
What are the biggest challenges ahead?Well, maybe that should wait for another day, but Assurance is at the top of the list, but you'd expect that from me...
21 October 2009
If Netherlands is a failure (to date), why did and will other projects succeed?(Before taking me to task, let me say that I think the changes happening in the Netherlands will lead to a successful project).
There are a number of XBRL initiatives around the world today, and many of them are, or will be major successes. In looking at the various projects, it is easy to see one factor that is determining the success or, shall we say, delay in success of projects.
In a recent (18th October) note we specifically stated that the Netherlands project is failing to deliver the promise of Euros 350/year in benefit. Needless to say, not everyone agrees with this view. Regardless, it is clear that after a number of years and a huge investment, the current lack of voluntary participation is damaging the image of XBRL in the Netherlands, as has the recent flurry of project governance changes.
To put it very simply, if the Netherlands Taxonomy Project (NTP) were a private company innovation or implementation project, it would have been killed by now. Period.
Yes, Paul Snijders made some good points about what had been accomplished, and spoke of a much larger population of filers than the <60 that I mentioned. My <60 came from an individual with specific internal knowledge, as I'm certain did Paul's numbers.
Meanwhile, the
SEC implementation progresses smoothly with around 500 companies providing XBRL versions of their financial statements. In the UK, HMRC (Her Majesty's Customs and Revenue) continues to plan for a 2010 mandatory program, and in Australia the SBR project has a clear set of dates and milestones.
So what sets these apart from the Netherlands? That one word - Mandatory. In the United States, the Voluntary Filing Program (VFP) with the SEC was, no matter how it was dressed up, a disappointment. Not until the SEC introduced the follow-on program, the Test Program with very specific incentives (and a pretty clear expectation that the Voluntary and Test programs would soon become mandatory) did participation improve. We know from discussions that the SEC did not want to give incentives, but in the end felt there was not alternative if they wanted sufficient participation.
In
China, the XBRL programs have been a great success. Then again, there was no option, financial statements were required to be provided in XBRL to the two exchanges.
In
Japan, the XBRL program is also a success, with mandated filing.
In
Australia, the SBR project has a clearly define road map with milestones. A commitment to keep to that road map, and to mandate provision of XBRL, will ensure success.
In the United States the
FDIC (Federal Deposit Insurance Corporation - a de-facto bank regulator) introduced their XBRL filing program in 2005, with over 8000 financial institutions providing XBRL versions of their quarterly reports. One of the most fascinating aspects of the FDIC project is that the bankers do not know that they are producing XBRL. In addition, the FDIC publishes the information (or a truncated version due to confidentiality) in non-XBRL formats for consumers of the information.
What is our key lesson? Voluntary innovation in financial or business reporting is taken up by only a small percentage of companies. Most companies have too much on their hands already, and when asked if they should improve existing reporting processes, streamline reporting and reduce costs, or, spend the time and money to participate in the voluntary program, they chose to focus on the former.
In addition, the development of software is always dependent on the companies' perceptions of what their customers are asking for, and what they need. This includes a balance of innovations in processes and reporting, ease of use and flexibility, and of course anticipation of competitors product and features development and delivery plans. And software developers, just like all other types of companies, have limited resources that must be applied to the highest priority requirements first. XBRL as not been at or near the top of that list for most providers. It is complex and the customers are not asking for it.
In 2003 a survey of ERP vendors was undertaken to determine their plans to implement XBRL. The official results were that something like two-thirds would have an XBRL capability in the not-to-distant future. The survey was bogus. That's all I'll say on the matter.
So, successful XBRL projects require:
1. A Mandate. A real date, on the calendar, with a big red circle around it.
2. Software companies knowing that they must deliver capability within a certain time frame or risk losing customers.
3. Companies financial reporting functions understanding that they will be required to provide XBRL, so they had best be ready.
We will see exactly the same dynamic over the next four to five years in the areas of banks requiring XBRL versions of financial statements from their non-listed clients. The banks, once they have seen and used the information delivered through mandatory filing programs, will choose to collect the information in the same format, to gain the same benefits that regulators gain. Companies will provide the XBRL because it will be mandated by their loan covenants, and the software providers will have off the shelf XBRL capability that the developed for their mandatory public filing clients.
18 October 2009
What on earth is going on in the Netherlands?It appears that the Dutch National Taxonomy Project (NTP), regardless of its success or otherwise, is going to be coming into a lot of examination, and potentially some very bad public relations. For a long time we’ve been hearing rumors that some/one consulting firm in the Netherlands appears to have special access to the project. We have also heard that participation in working group meetings is on an unpaid basis, unless you are from a particular consulting firm, in which case we have heard that invoices are sent to, and paid by the NTP.
Now it appears that the project has been supported by a consulting company owned (that is my reading of the translation from http://translate.google.com (below) of an article I was sent last week.
The suggestion is that a Dutch Senator is also an owner/co-owner(?) of the consulting company, that the consultant was paid significantly more than the Eros 137,000 that should have resulted in a public tender process.
I only hope that the project, which to date has been a massive disappointment, does not suffer excessively fro this, and that the Netherlands will eventually be able to reap the benefits promised. For those of you new to this, the NTP was projected to return a whopping Euros 350 million in benefit to the Dutch economy in process efficiencies for reporting companies.
We understand that to-date, fewer than 60 voluntary filings in the XBRL format have been provided to via the project, and project that was to have been operational in 2006. Does this mean that the Netherlands economy has forgone almost Euros 1 billion in benefit from the delays in the full implementation?
The following is the article we were sent, followed by the translation provided by http://translate.google.com. We encourage you to perform your own translation, and not rely on our online attempt. Mind you, the translation from http://translate.google.com was much more readable than the translation from http://babelfish.yahoo.com/.
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Draagt VVD-senator Anne0Wil Duthler een dubbele pet?
13/10/2009 17:00
Audax Diensten BV
Kamerlid declareert miljoenen bij Financiën
De Belastingdienst heeft in 2004 ondershands een grote automatiseringsopdracht gegund aan adviesbureau Duthler Associates, eigendom van VVD-senator Anne-Wil Duthler. Dat is opvallend, want overheidsopdrachten van boven de 137.000 euro moeten Europees aanbesteed worden. Duthler heeft tussen 2004 en 2009 8,9 miljoen euro gedeclareerd bij Financiën en zich in de Eerste Kamer actief bemoeid met een discussie over het project. Dat onthult HP/De Tijd in het nummer dat vanaf morgen in de winkel ligt.
Het project waar het om gaat is het zogenaamde Nederlandse Taxonomie Project, het NTP. Voor politici en ambtenaren op Financiën is het hét magische wapen in de strijd tegen de papieren rompslomp, omdat het de verschillende formulieren van de fiscus, UWV, CBS en andere instellingen overbodig zal maken. Het kabinet is er zo optimistisch over dat het een lastenverlichting van zeker 350 miljoen euro per jaar heeft beloofd. De belofte om de overheidsbureaucratie aan te pakken staat of valt met het slagen van dit project. Senator Anne-Wil Duthler speelt hierin een cruciale rol. Ze is directeur/eigenaar van Duthler Associates. Bij dit adviesbureau leidt André Biesheuvel, de echtgenoot van Duthler, het NTP.
Het NTP dreigt op dit moment te mislukken. Voor de buitenwereld blijft de verantwoordelijk staatssecretaris, Jan Kees de Jager van Financiën, optimistisch. Begin september bezwoer hij nog dat het kabinet de bureaucratische rompslomp voor bedrijven zoals beloofd met een kwart zal verminderen. Binnenshuis is hij minder optimistisch, zo blijkt uit een ambtelijke notitie, die in het bezit is van HP/De Tijd. Het gaat namelijk helemaal niet goed met het project. Ook de details daarover staan in het HP/De Tijd-artikel.
HP/De Tijd is een uitgave van Audax Publishing onder andere ook uitgever van: AvantGarde, Glossy, Girlz!, Stars, Royalty, Diva, Weekend, Vriendin, PRiMO en Aktueel MAN. Audax Publishing is onderdeel van het in Gilze gevestigde familiebedrijf Audax wat zich naast het uitgeven vooral richt op de distributie en verkoop van gedrukte media.
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Direct translation from http://translate.google.com
Wears VVD senator Anne0Wil Duthler a two hats?
13/10/2009 17:00
Audax Diensten BV
MP declares millions of Finance
The Tax in 2004 by private treaty a major automation contract awarded to consulting Duthler Associates, owned by VVD senator Anne-Wil Duthler. This is remarkable, because the procurement of over 137,000 euro to European tender. Duthler has between 8.9 million euros in 2004 and 2009 and reported to Finance in the Senate actively interfered in a discussion about the project. This reveals HP / De Tijd in the number tomorrow in the stores.
The project in question is called the Dutch Taxonomy Project, the NTP. For politicians and officials in finance was the magical weapon in the battle against the paperwork, because the various forms of tax, UWV, CBS and other institutions will make redundant. The government is so optimistic that a certain burden of 350 million euros per year promised. The promise of the government bureaucracy to deal hinges on the success of this project. Senator Anne-Wil Duthler plays a crucial role. She is director / owner of Duthler Associates. This leading consultancy Andre Biesheuvel, the husband of Duthler, the NTP.
The NTP currently threatens to fail. To the outside world remains the responsible State Secretary Jan Kees de Jager of Finance, optimistic. Starting in September he vowed that the government red tape for businesses as promised by one quarter will decrease. Indoors, he is less optimistic, says an official note, in the possession of HP / De Tijd. It involves not well with the project. The details thereof are in the HP / De Tijd article.
HP / De Tijd is published by Audax Publishing also publishes, among other: AvantGarde, Glossy, Girlz!, Stars, Royalty, Diva, Weekend, Friend, and PRIMO MAN Loc. Audax Publishing is part of the family business based in Gilze Audax what next publishing mainly focuses on the distribution and sale of printed media.
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A comment received from Paul Snijders;From: Paul Snijders
Message:
Dutch governement has changed the project management and control during last few months. SBR is now embedded in the structures of the respective ministries with a high level steering committee. SBR can only benefit from this.
The role of a senator lobbying for her own consulting company is a matter for the parliament or ministries to investigate and does not influence SBR.
Regards
14 October 2009
Nuclear fills the gapOn a recent LinkedIN discussion point to this article (
the-necesary-evil-of-nuclear-power), Tom Snyders (Professional comedian/Adventurer/Speaker/Photographer) said:
"I am constantly astounded that there are people who still promote nuclear power as a viable source of clean energy. Somehow the tiny detail of the dangerous, toxic, radioactive waste produced by creating nuclear energy is conveniently omitted from the conversation!!!! We still don't know how to safely transport and store this nuclear waste that will stay around forever! "
I live in France. I take the train instead of flying, for all travel that I can (there are some cases where I simply must, as it is the difference between 12 hours or 4 hours door to door, or transatlantic).
The trains are fast, and electric. On the journey from Paris to Rennes, the train passes a wind-farm that is just wonderful to see, with the sleek towers and graceful blade slowly turning, generating as they go. Ive counted over 20 of the windmills, and I love them. Yes, put one in my backyard. Just outside Saint Malo, on the Rance estuary, there is a tidal power station that was build in 1956 and still runs silently, cleanly, with the side benefit of managing the tidal extremes that made the Rance a navigational challenge.
But today France generates roughly 80% of its electricity from nuclear power. Energy in France is "cheap", it is clean, and it is not dependent on Russia for heating in the middle of winter. Last year, only 8 - 10 months ago, the Russians cut off gas suppliers to the west in their dispute with the Ukraine. People froze to death. Yes, people died.
Not in France.
In addition, in France there have been no collapses of valleys full of toxic ash from coal fired power plants, or polluted ground water from ash.
While I am not (repeat NOT) advocating the building of more nuclear power stations, there clearly is a need for power generation filling the gap between today and when we actually can build enough wind/solar/wave/tide generation capacity to take the place of the nuclear power that already exists. It will take many years and extraordinary investment to build adequate renewable to replace the existing carbon intensive power generation capacity, let alone the nuclear.
And while I am not an advocate for nuclear, I will take nuclear over coal or gas or oil any day. It is cleaner, it is safer, and it is lower carbon than any current non-renewable. The issues of management of waste are being handled, and if anything, the toxicity of small amounts of waste increase the effort being taken to safely manage that waste. It is not dumped into giant pits, or used to fill vallieys, or allowed to contaminate the ground water.
Lets build the wind, the solar, wave, tidal, hydro. Let's decommission the coal and the gas and the oil as we build the truly renewable. Then when we have enough, lets start decommissioning the nuclear. But whatever we do, lets decommission the dirtiest and most dangerous first, and that means coal not nuclear.
13 October 2009
HMRC XBRL a Stealth Tax - ResponseWe've been seeing a number of articles and comments that bash the HMRC ("Her Majesties Revenue and Customs" in the UK). The latest version of concern has been to call the XBRL requirement a "Stealth Tax" as it will pass compliance costs to businesses as an additional reporting burden.
We disagree.
The idea that the provision of XBRL to HMRC will be a "stealth tax" through passing of costs to business is not correct. I want to use harsher language, but this is a family site (figuratively speaking).
The Netherlands government embarked on their National Taxonomy Project with the specific objective of streamlining business reporting. The project was initially projected to return Euros 350 million in benefit to Dutch business through process efficiencies. Certainly, the Netherlands project has failed to deliver, but that real problem with the Netherlands project is that it remains voluntary, not mandatory.
A review of the project benefits resulted, as so often does, in a revision of the estimated benefit. In this case however, the revision has been to increase the projected benefit to Euros 1 billion annually, from the Euros 350 million.
What does this mean for the UK? Simply that the effective implementation of XBRL for HMRC reporting opens the door to process improvements by accountants, and the potential for improvements in reporting processes to other government agencies, both national and local, ultimately reducing the administrative and compliance burden on businesses. Software providers will incorporate XBRL into their processes, certainly as output options. Additional taxonomies will be developed, or existing taxonomies will be extended to cover a wider range of reporting elements for various consumers, and ultimately business will find it easier to produce the information required.
Those that speak of an increased burden are looking at the short term only.
These are the same people who would have opposed the introduction of computing to accounting, as it would have increased complexity and cost. After all, people are cheaper, and we already know how to produce large paper based volumes on A3 width journals. Computers will cost us too much, and it will take years to see any tangible benefit.
Lets look at this another way - XBRL is to business reporting what the Internet is to the paper-based Yellow Pages. Information streamlined, current, available to those that need it, and accurate. The investment today will reap process efficiencies and benefits beyond what we can see from the current project(s).
Agree/Disagree? Send us your comment.