Technology

No Extra Audit for XBRL, Says Cox

Most companies that took part in Monday's SEC roundtable on interactive data have had positive experiences of their own.
Alan RappeportMarch 19, 2007

The Securities and Exchange Commission will use a light hand in regulating audits of XBRL, chairman Christopher Cox said at Monday’s SEC roundtable on interactive data.

Cox has long championed XBRL (eXtensible Business Reporting Language), a computer-tagged format intended to help users of financial statements better manipulate, analyze, and compare data from company financial reports. Indeed, he has maintained that XBRL “will do for business reporting what bar coding did for product distribution.”

The SEC chairman has acknowledged, however, that an extra layer of regulation at this early stage in the XBRL program would add to companies’ compliance burden, reduce flexibility in reporting their numbers, and perhaps dissuade them from adopting XBRL at all. “The goal is not to make the system more cumbersome,” Ric Marshall, chief analyst at governance research firm The Corporate Library, told CFO.com.

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Apparently, Cox agrees. On Monday, he announced that the creation of tags — the strings of computer code assigned to every line item in a financial statement prepared using XBRL — will not require an additional audit. “We’re vastly relieved,” said Andrea Stegall, vice president of corporate governance at South Financial Group.

Companies that took part in the roundtable had other positive stories to share as well. Most have digitized their financial statements and earnings reports and found that the transition has been more intuitive and less costly than they expected. Once you get over the initial investment, “the costs are very incremental,” said Elmer Huh of Lehman Brothers’ enterprise valuation group. “The benefits outweigh the costs.”

Comcast chief accounting officer Larry Salva reported that his company spent $5,000 and about 150 hours on its first XBRL filing. Other companies have outsourced some transitional work to consulting firms. “It’s just another requirement,” said K.R. Kent, chief financial officer and vice chairman of Ford Motor Credit. “It wasn’t too onerous.”

Just as well, since the SEC seems determined to push ahead. Last September the commission announced that it would invest $54 million to transform its 20-year old EDGAR system into an interactive, XBRL-enabled database. Soon it will provide free XBRL reader software on its web site, and by this summer it will offer XBRL-tagged executive-compensation data for several hundred of the largest companies in America, Cox said.

Advocates of XBRL maintain that it can help standardize information for directors who sit on multiple boards, and that improved transparency will build trust between companies and investors. “This is intended to remove barriers so we can focus on the substance,” said the Corporate Library’s Marshall. “Anyone who is resistant to this might be worried about their substance.”

Cox — who on Monday compared XBRL technology to the personal computer revolution a quarter-century ago — has taken an “open source” approach, lauding pioneers and inviting private programmers to improve on existing software. He insisted, however, that accuracy in financial reporting comes first and foremost. “We need to be relentless in assuring that these are the right numbers,” said Cox.

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