No Good Deed Goes Unpunished

Companies reluctant to adopt XBRL in SEC pilot program.
Ventana QuickTake™

The U.S. Securities and Exchange Commission has been underwhelmed by participation in its trial of the eXtensible Business Reporting Language (XBRL). Based on the almost universally accepted XML, XBRL is intended to make it easier for analysts and investors in public companies to collect and analyze financial statements. The tags identify relevant properties of a number, such as "net revenues," "third fiscal quarter," "2006" and so on. Rather than having to re-enter numbers into spreadsheets in the proper order, format and classification, users of XBRL would be able to import the data into any XBRL-aware application. The XBRL tags attached to each number would sort out where they belonged automatically, whether or not the user of the data employed the same reporting method as the creator. The agency had hoped 25 companies would participate in its data tagging initiative, but as of early February, only six had signed up. After discussions with companies requesting an extension of the sign-up deadline, the SEC extended it to March 10, 2006.

Ventana Research believes widespread availability of XBRL data would be a boon to securities analysts, investors and corporate users of financial statements. It can facilitate analysis and benchmarking by companies to determine how well they are performing against a wider set of peers than is now practical. We think there are two reasons why the SEC is having a hard time gaining participation. First, public companies are only now able to reduce somewhat Sarbanes-Oxley-related activities, and many still have backlogs of pressing initiatives they delayed to comply with that law. Second, some companies think full adoption of XBRL could lead to more restrictive accounting standards in the form of a standard chart of accounts applicable to all companies. Imagining this level of regulatory control is not farfetched, in our judgment, as in recent years the Financial Accounting Standards Board has sought to impose greater uniformity in accounting treatment, even in the face of objections that these requirements distort the presentation of economic realities. For the time being, those wanting XBRL-tagged data of public companies' financial statements can get an increasing amount of it from Edgar Online, which is doing its own tagging and charging a fee for a subscription to this data.

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© 2006 Ventana Research