Risk & Compliance

XBRL: The Ugliest Acronym

The head of the commmission's new interactive-data disclosure team is asking financial managers to let fly with criticism of the financial reportin...
Alan RappeportJanuary 28, 2008

Critics of the Securities and Exchange Commission’s “interactive data” agenda have been more vocal lately, as the possibility of an XBRL mandate begins to look more like a reality. But rather than shying away, the SEC has embraced critiques of its plan for extensible business-reporting language.

The commission hopes to use such feedback to forge ahead with a program that eases the critics’ concerns. “Now is the time for financial managers to start telling us about the costs and benefits,” David Blaszkowsky, director of the SEC’s office of interactive disclosure, told CFO.com on Monday. “We need deeper participation from financial managers.”

Earlier this month, Jay Starkman, who runs an accounting firm in Atlanta, was so unimpressed with XBRL that he called the SEC’s pet project a “consulting product” in search of a market.

Brink Dickerson, a securities attorney with with Troutman Sanders, said XBRL was “more than a minor annoyance” to some companies. And some members of the SEC’s Advisory Committee on Improvements to Financial Reporting expressed concern that auditor fees for XBRL could rise to the level seen during the first few years of complying with Section 404 of the Sarbanes-Oxley Act.

Despite such concerns, XBRL continues to gain momentum. Proponents hope the new computer language will make financial data easier to sort and analyze. Last year the commission completed the development of data tags — the strings of computer code assigned to every line item in a financial statement prepared using XBRL — for the entire system of U.S. generally accepted accounting principles. Since then, it’s been contemplating whether XBRL should be mandated.

Blaszkowsky said that the SEC plans to make a recommendation this spring about whether to make it mandatory for companies to file financials in XBRL format. Although he would not give an exact timetable, he said that he expects some kind of resolution by the end of the year.

Since joining the SEC last October, Blaszkowsky, a former McKinsey consultant, has tried to assuage the anxiety some have expressed about a potential new regulation that many corporations fear would be costly and cumbersome. “I realize the SEC doesn’t usually bear gifts,” says Blaszkowsky. “There’s no ugly side to this. The worst part about it is the name.”

Blaszkowsky said that any mandates would not likely be rolled out all at once, but in phases. He also echoed SEC Chairman Christopher Cox’s statement last year that additional audits would not be necessary to ensure that financial data were tagged correctly. Although Blaszkowsky conceded that converting financial information into XBRL format would have costs, he estimated that such conversions could take companies anywhere between 20 and 200 hours to complete.

Still, any form of regulation is likely to come with resistance. Blaszkowsky, who was steeped in free-market principles as a student of economics at the University of Chicago, contends that rules that promote accessible and free-flowing information are ultimately good for markets, investors and, therefore, companies.

Nevertheless, Blaszkowsky acknowledged that XBRL will not be a cure-all. “Not everything can or should be quantified,” he says. “It’s important to read financial statements — context matters.”