Thursday, December 17, 2009

XBRL – Part Three, or, Son of the Return of XBRL

Back in January and February of this year, I wrote a couple of pieces about how I didn’t really get what all the whoopla surrounding XBRL was about. Those pieces generated a fair amount of comments and I even wound up talking to the folks at the SEC about XBRL. Not to put too fine a point on it, at the time I stated that I just couldn’t understand how XBRL was going to revolutionize the use of data by investors.

While I was doing research the other day on the SEC’s EDGAR database of filings, I noticed that reports are now beginning to be tagged as having “Interactive Data”. So I thought that I owed it to myself to go back and see how this XBRL stuff works in practice. Maybe the scales would fall from my eyes and I would see the error of my ways. Maybe I would be able to see how the data flowed seamlessly, enabling us to quickly reach investment decisions that were lost to us before. And maybe pigs would fly.

What I found when I went to the interactive data was that you could click on a heading such as Income Statement, and the P&L would come right up. I found the data had two properties: first, the headings were tagged. So for example, if you click on Revenues, you find that it’s US GAAP, the data type is monetary, the balance type is a credit and the period is the duration of the quarter. In other words, what you learn in Accounting 101. Secondly, you can grab the data and paste it into another document fairly easily. Also of note was the fact that the financials and notes are available as an Excel download, although everything I downloaded had a file name of “Financial_Report.xls”, so if you don’t rename the file right away, it becomes one of many with the same name.

After I had played with the data for a while, I sat back and thought about the cost /benefit analysis for what we’ve gone through with XBRL. On the benefit side we’ve gained a bit of functionality. I, for one, will welcome the ability to grab data off a downloaded spreadsheet rather than re-keying it when I want to do some analysis. But I don’t see a lot beyond that. The tagging of the data seems to merely tell me what I knew before. Further, professional investors have had the data in comparable and downloadable form for years. Systems such as Bloomberg and Telemet Orion (and I assume Reuters, although I have no experience with that system) already perform this function and a lot of other analytics as well. So my conclusion is that only relatively small investors are being helped. Against this we have to weigh the thousands of dollars spent and numerous man-hours invested by every company converting to XBRL.

To me this seems like another example of something that sounds good in theory, but the practical advantages just don’t seem to live up to the hype. In other words, it’s a governmental agency imposing a standard where the costs outweigh the benefits. The irony of it all is that the ultimate cost for all of this will be born by investors, because the cost of adopting to the new systems is a corporate expense, which lowers earnings, which will result in lower share prices.


Nexxar said...

Hi John, I totally agree with your current inventory-taking for the state of XBRL.

Though I think we will have to give XBRL more time to develop. If users start to access data via automated processing machines loading in data on the exact places without re-keying data, this could be of real help!

Its like the first fax machine: you will need a critical amount of fax connection to start using the system.

And offering Excel for download cannot be a reason to use XBRL on a long run. Thats something we do within our HTML corporate reports as standard for all our clients since 2004!

Bob said...

It's only natural (and useful) to make assessments of XBRL as implementation progresses. Still, making any evaluation of XBRL for SEC reporting at this juncture -- with relatively few companies doing so, no tagging of narrative elements, etc. -- is a little like looking at the won/loss records of the Phillies and the Royals after the first 30 games of the season: The Phillies start weak and come on strong; the Royals, the reverse.

The nice thing about baseball, of course, is that, in the end, we know definitively who won the World Series (given a blown umpire call or two). With the introduction of a data standard, even those who come to see its benefits can legitimately ask whether the effort was worth it.

Sometimes those benefits won't be readily apparent, however. For example, regarding the data aggregators, many are already incorporating XBRL data into their products, reducing cost and the problems that data normalization presents. As XBRL continues to be implemented, its benefits, both seen and unseen, will continue to grow.

Bob Schneider
Editor, Data Interactive (the Hitachi XBRL blog)

Paul said...

I agree with Bob. Because XBRL can automate the business reporting supply chain, of which SEC reporting is only one relatively small and inexpensive part, it may be tough to see significant parts of the benefit. This is one of many articles about the problem of measuring ROI on technology improvements in the short-run: Unlike other new technologies, though, XBRL is an open standard, which should accelerate adoption and therefore move the benefits forward in time. And if markets get faster, better, and cheaper information about other things people can do with their money and labor sooner, that would also increase ROI. Larger markets are more efficient markets, and since XBRL is a global standard for any business information, the outlook for benefits from wider implementation is extraordinary.

Kevin Berens said...

John, I would encourage you to watch a Rivet Crossfire demo. We will even turn controls over to you and let you create some reports. By the end of the demo, I think you just might see some flying pigs.

At Rivet, our customers are already seeing benefit. I agree with Bob, that it is a small sampling, but even with this small sampling you can already compare the last 2 filings for 14 different pharmaceutical companies and with the right product, you can do this in matter of seconds. You can compare data for 474 companies already and within 9 months this will grow to nearly 2,000 companies. When companies start detailed tagging, the amount of data for each customer is going to be astounding. Many companies are focused on the hardship of tagging hundreds of additional elements, the focus should be the benefit of seeing all of that tagged data for all of these companies.

When we demo the XBRL tagging process to our customers, we also demo the benefit they derive from the analysis of data available in the XBRL standard. Once I get to the analysis part of the demo and show prospective clients the data for all of their peers, customers understand the benefit within seconds. Customers ask me to create a report showing specific companies and usually there is a long pause as customers start to analyze the data during the demo. It is such an easy process that customers create their own reports during the demo. So when we focus on cost benefit analysis, for a very small investment, customers can get all of their data tagged and their involvement is about 15 to 20 hours reviewing these tags. After that they have a product where they can compare their KPI’s to their peer groups within seconds, whereas this process used to take hours. So overall, I see a very small cash outlay offset by the ease of gathering peer data. Overall, I think it is a huge win for all of us.

Juhi said...

Companies that are using XBRL and see its potential are eager for the platform to emerge past its growing pains. They are calculating the cost of submitting their financial data in two completely separate formats to accommodate dual reporting regimes. Some are frustrated by naysayers, like the Financial Executives International’s Committee on Corporate Reporting, who are telling the SEC to curtail or halt XBRL adoption. CCR sent an unsolicited comment letter to the SEC asking that companies be allowed additional time to complete the filing, and that they be permitted to do less detailed tagging.