Three Common Reasons For NOT Using XBRL: What CFOs Should Really Know

Three Common Reasons for NOT Using XBRL: What CFOs Should 'Really' Know

Written by Mike Willis  

CFOs face a long list of issues all marked top priority. The temptation to cross off “adopt XBRL for reporting” is strong. Here are three common reasons why XBRL often gets pushed off the list of CFO priorities, and why CFOs should know more before they do so.      

1. You want to tell your own story, and XBRL won’t allow that.    

CFOs want to control the company’s message. They want to present the facts as they should be viewed by investors. Some believe XBRL provides a one-size-fits-all presentation where the company’s unique story messages get lost.  It is important to company management that unique company messages be communicated to the market in an efficient manner.  

What CFOs should know is that although most firms do not tag their reports, intermediaries do tag all company reports without input or guidance from CFOs.  Company-reported information is tagged in accordance with each intermediary’s proprietary standard reporting template, rather than concepts agreed to and defined by the CFO.  

Market intermediaries normalize, distort, omit, or simply change company reported information for distribution and resale to analysts, ratings agencies, auditors, regulators, and others.  The result is a distortion of company information delivered days after it is reported.  The data provided by intermediaries is incorrect as often as 30% of the time and incomplete 100% of the time.

CFOs can readily assess the level of intermediary alteration by attempting to reconcile their reported information with that obtained directly from intermediaries or at the publicly available finance pages at Google.com, Yahoo.com, or MSN.com.  Talk with analysts who purchase intermediary data about the accuracy, granularity, completeness, and timeliness of company information purchased from intermediaries and you’ll hear their complaints.  Compare the volume of information provided by intermediaries with that contained within company reports, and you’ll see how much is left out.

If CFOs really want to tell their own story, they should tag their reports themselves.  Companies can thus be assured that their company-specific, unique information is being used and interpreted as intended.

2. You do not want to use a standard reporting template, which is what XBRL is.

Forcing unique or company-specific concepts into a standard reporting template restricts communication and inappropriately normalizes, aggregates, or otherwise homogenizes information, thereby diminishing its intended meaning and value.

What CFOs should know is that they unwittingly let their company’s information be forced into the intermediary standard reporting templates. CFOs have no input, access, or visibility to the tagging of their reports by these third parties.

XBRL US GAAP Taxonomies look like a standard reporting template, since they contain a robust listing of mandatory and commonly used reporting concepts.   However, appearances are deceiving. XBRL taxonomies are ‘extensible,’ i.e., they can be extended or customized to meet unique company reporting needs.

US GAAP Taxonomies are also designed to express required and commonly used reporting concepts. They are not designed to express every single reporting aspect occurring in every company report. Extensible taxonomies are a beginning point that companies can repeatedly leverage and extend to express their unique reporting concepts (e.g. unique revenue or expense items, unique company segments, etc.) at the lowest cost possible.  

The extensibility of XBRL taxonomies provides CFOs with the flexibility to articulate unique and highly distinguishable company information.  As a standardized language, XBRL enables communication of individual company concepts well beyond the scope of standard intermediary reporting templates.  

If CFOs do not want to use a standard reporting template, they should consider extending the XBRL GAAP Taxonomies to express their unique company-specific reporting concepts.   By leveraging the commonly used reporting concepts articulated in the taxonomies, CFOs can focus on differentiating their story by creating unique company-specific concepts, or extensions.

3. You want to reduce your reporting costs, and XBRL raises them.

The tagging of company financial reports takes time and increases costs.  When tags are applied after the fact to completed company reports, incremental time, costs, and processes are incurred.  CFOs should not, and do not have to, sustain incremental reporting costs to increase the accuracy, completeness, and timeliness of reported information for access and reuse by investors.  

What CFOs should know is that XBRL enables significant reporting process cost and time reductions. John Stantial, Director of Financial Reporting at United Technologies Corporation (”UTC”), outlines in “ROI on XBRL” how to realize a 20%-plus reduction in reporting process time and costs.  John has been tagging UTC company reports in XBRL for two years and understands the additional costs incurred by carrying out this tagging after the fact.  As a result, he is moving tagging further back in the reporting processes to eliminate extra costs, enhance reporting processes, and reduce overall time and expenses. 

Cost savings can be realized by moving standardization further back in reporting processes and not incrementally tagging completed company reports. Savings result from enhanced report production and review processes. XBRL Taxonomies can be imported into reporting applications and directly mapped to company reporting concepts.  Further, rather than circulating multiple draft versions of company documents among reviewers, the review is conducted directly within the original reporting application (e.g. Hyperion Financial Management, Cartesis, etc.) and the final version of company information is exported in the XBRL format.  

If CFOs want to reduce their reporting costs, they should embrace standardization earlier in their reporting processes and not defer tagging of completed company reports as an incremental effort.

Summary

The current business reporting supply chain is highly manual, consistently inefficient, and painfully costly for companies and investors.  CFOs are well served to actively participate in development, use, and extension of XBRL taxonomies for reporting in order to:

1. More effectively tell their own story;
2. Ensure that unique reporting concepts are clearly articulated; and
3. Reduce reporting costs.

CFOs can further minimize the risk of reporting in XBRL by participating in the Securities and Exchange Commission’s Voluntary Filing Program (VFP).  Information about the VFP and the SEC’s other interactive data initiatives can be found at the XBRL Spotlight page.

UPDATE (added August 2, 2007 )

A recent decision by the SEC to allow companies to broadcast their quarterly results via RSS feeds will work to further reduce distribution and analysis time and costs. A recent article at the Register includes the following remark:

“Embracing “new technologies” this week was Sun Microsystems, which - after months of lobbying SEC chairman Christopher Cox - got the OK to broadcast its quarterly results via RSS feed and through its website, in addition to the usual routes of filings and calls with Wall St investors.”

This further standardization of the supply chain distribution platform adds to the cost effectiveness of the prospective reporting and analysis processes.
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Posted on July 31, 2007 by Mike Willis, a Partner with PricewaterhouseCoopers and the Founding Chairman of XBRL International.

The foregoing is reprinted with permission. It originally appeared as an entry in Data Interactive (the Hitachi XBRL blog) and was posted on July 31, 2007.