Lora Bentley spoke with Jeremy Roche, CEO, CODA. Roche helped establish the European Software Association in 2005 and spent three years as its chairman, promoting software best practice and cooperation across the business community. The association is a trade organization representing the European software industry. It aims to become the industry's principal interface with European Union institutions, the media and the general public.
Bentley: Why do you believe XBRL is an empty standard?
Roche: Ironically, one of the reasons for the delay to XBRL's acceptance is the lack of one global accounting standard. Many business users are still struggling to understand how XBRL can help them to deliver visual, cross-enterprise insight from raw data using less time and resources.
To my mind, XBRL isn't much of an improvement on the standards already in place and is in the main, an empty standard. The original design simply proposed an XML container within which business reports could be exchanged. In that sense, it is a specialization of XML, much as things like ChemML and MathML are.
The main problem is the lack of an inner structure which has left companies, governments and standards agencies, such as BASDA, with the task of establishing their own, often localized, standards. The result of this is that there is no inherent global compatibility. Because of the wide-ranging nature of business, these structures, or taxonomies, are often very complex and frequently leave systems integrators with a difficult task.
Bentley: How do you respond to the SEC's position that XBRL will allow companies to prepare their financials quickly and more accurately?
Roche: In many ways, simply posting documents in a wide number of formats is no better than having paper-based reports in front of you. The information still has to be re-keyed or transferred between applications. Neither does it address the problems associated with traditional financial reporting and the push/pull for greater corporate transparency from stakeholders.
Bentley: Would you prefer leaving the reporting process as it is, or are there changes you would make?
Roche: We think XBRL provides a big solution to a problem that doesn't really exist. Access to information for investors has already improved dramatically since the introduction of regulations such as Sarbanes Oxley but seeing the numbers provided by the organization itself does not help investors make a true and fair appraisal. XBRL will ensure there is only one set of numbers, but how accurate those numbers will be remains to be seen. Until XBRL is adopted on a global scale and all companies are subject to the same reporting standards, we are cynical over its purpose and complexity.
Bentley: Apparently another aspect that makes XBRL attractive is the value of allowing investors easier access to the information they're interested in in forms they can easily digest. Do current standardization requirements allow that? If so, how? If not, how should they be adjusted to allow it?
Roche: For those at the end of the financial information supply chain, namely regulators and analysts, XBRL promises an opportunity to simplify processes, increase time for comparative analysis and reduce costs, as originally intended for companies supplying the information. Sounds good in principle, yet we are still a long way from the reality of achieving it.
Comparing financial data across companies and borders may be a pipe dream anyway. It is impossible, for example, to take data on pensions from the US, UK, Germany and Italy and compare it, because each company will be subject to different risk profiles and rules. Different lenders do things in different ways. XBRL may provide the reporting infrastructure, but will not provide the level of detail required. For this reason, and the technical nature of the standard, gaining traction among finance professionals has been and will remain a huge barrier to adoption. Although IFRS brings the standard one step closer, local GAAP still exists in a number of countries, making comparison by investors across different jurisdictions difficult. And a common technological standard cannot be applied to non-financial narrative reporting such as the SEC's Management Discussion and Analysis.
Security is another issue, although digital signature technology goes some way in achieving the level of security necessary. Control of the systems used to prepare and present information is also vital, especially in light of the requirements of reporting regulations such as Sarbanes-Oxley.