Greater transparency, lower filing costs, reduced risks and better data quality – these long-promised benefits of XBRL are finally becoming a reality. As the XBRL landscape continues its swift evolution, we discussed the latest developments with five experts – as well as with a representative of the SEC.
Vintage Question > How effective do you think the SEC has been in its implementation of XBRL? Are there specific areas you think they should improve upon?
Campbell Pryde > The SEC implementation has had its ups and downs, at times because of competing priorities that resulted in less focus on the XBRL program, which in turn may have led to issuers spending less time on their XBRL submissions.
In the early days, I think they did a good job of setting the parameters, given the knowledge they had, and that was very much because of former SEC Chairman Christopher Cox, who was a big supporter of it. When Mary Schapiro was head of the Commission, the focus was no longer on data standardization, because of Dodd-Frank and the financial crisis. But now I think we’re in an era again when the SEC is paying a lot of attention to it and we do see a lot more support for it, especially amongst the SEC commissioners. I think that’s good, and you’re seeing more outreach to the market by the SEC, such as with the iXBRL initiative.
Hudson Hollister > I’ll be blunt: Up until this year, the SEC’s adoption of XBRL has been a failure. The agency adopted the XBRL format in 2009 and then phased it in over two years, but until June of this year, the agency was requiring every public company to report all of its finances twice. The SEC requires companies to report once in XBRL and then again as a document, because it never stopped collecting the old-fashioned document version of every financial statement. That dual reporting regime has prevented companies, investors, markets, and the agency itself from realizing the benefits of structured data.
Because companies are reporting twice, they have tended to separate the process they use for preparing the documents and the process they use for preparing the data. Many companies see the data reporting requirements as an additional compliance burden, so they prepare the data separately after the document is complete. This means that errors wind up in the XBRL version that might not be in the document version. This has been compounded by the fact that, except for a single public CFO letter in 2014, the SEC has never enforced the quality of the data version. So you have companies viewing the data version as an added-on compliance burden, and also the SEC not scrutinizing the data or checking it for quality, and companies know this.
For these reasons, the quality was poor for the first five or six years of XBRL reporting. It was so poor that some data intermediaries like Morningstar chose not to use it. XBRL should help investors, markets, and companies, as well as the SEC staff. It should mean better transparency and immediately actionable information for investors. If XBRL data were of good quality, an intermediary could process it almost instantaneously. But we still don’t have that, so the benefits to investors have not been realized.
Jaret Klekota > Over the years, the SEC has released various observations to help companies with XBRL, including areas that the registrant should focus on in improving their filings. They have also released a number of XBRL FAQs, compliance and disclosure interpretations, as well as XBRL staff guidance in recent years. They even created a specific office through the Division of Economic and Risk Analysis dedicated to XBRL interactive data. We believe they should continue to release this type of guidance to assist the registrants in knowing what areas they should focus on improving. For investors, improved quality of XBRL filings will enable them to really understand and leverage the information more in the future.
Ilya Vadeiko > As I understand it, the SEC was not really using XBRL data internally in the first several years of implementation. We can tell this by the number of data errors and consistency issues that were allowed in XBRL filings. In our standard process of aggregating XBRL reports at FinDynamics, we have established a sophisticated system of monitors, data validations and automated normalizations of XBRL data. This system used to capture a lot more issues in the reports in the first few years of implementation than it does now.
The SEC’s introduction of iXBRL indicates that they understand the positive impact this could have on the quality of reported data, which could not be improved solely by the development of EDGAR Filer Manual rules and checks of technical XBRL syntax and structure. I work closely with the Financial Accounting Standards Board as a member of the Taxonomy Advisory Group and XBRL Dimension Working Group, and I can attest to how much progress has been made in improving XBRL usability over the last two years.
Another step the SEC should take is to allow the XBRL International Financial Reporting Standards taxonomy, which is used by foreign filers, and require the use of XBRL Level 1-2 tagging in the management discussion and analysis (MD&A) sections of reports, which should be of great value and interest with the use of iXBRL.
Pranav Ghai > Full disclosure – the SEC is a customer of ours. We work closely with them. But I will also say that while the adoption of XBRL has been slower than any of us would have liked, we are recently seeing a significant increase in usage by some very sophisticated firms. So I am really encouraged by what I’m seeing. I have quarterly meetings with the Commission, and the questions I’m getting are very sophisticated. They’re using the information and they’re reaching out to us more than every quarter.