October 23, 2018

The SEC’s Tumultuous Love Affair with XBRL

Did the SEC commit to XBRL half-heartedly? Are they waiting for something better to come along? In the beginning, it was easy to argue yes. Fast forward 6 years and the SEC is still holding on to the XBRL — for better or worse. And, as flawed as it may be, XBRL/iXBRL looks like it is here to stay.

Going Concern last wrote about XBRL in 2011… claiming that XBRL is really happening. Recall that:

XBRL, the acronym for eXtensible Business Reporting Language, means that the data contained within financial reports is constructed as individual elements, rather than blocks of text. Each piece of data comes with an identifying tag and is linked to accounting definitions or rules. So, a number that makes up annual revenue has a different identity than a number that goes into payroll expense. The result? The data becomes “computer readable,” or interactive, so analysts, investors and regulators can easily compare one set of financial data to another.

I’m here to confirm, it did indeed happen. And, here’s an update on what we have to show for it after 6 years.

iXBRL is spicing things up

While plain-vanilla XBRL is still around, in June 2016 the SEC started allowing firms to file using inline XBRL (basically XBRL 2.0, which integrates tagging into a company’s required HTML filings rather than keeping it separate). According to a recent article PwC’s James Dreyer wrote for CFO.com:

iXBRL offers numerous specific benefits, for both public companies and users of public-company financial information. By putting this information into a single unified document, iXBRL can help companies streamline their reporting processes, decrease preparation costs, eliminate the risk of errors, and improve the quality of structured data.

The SEC’s voluntary pilot program to use iXBRL rather than XBRL will run until 2020. Then, the SEC is going to decree if the new filing format lives up to the hype of being better than ever.

Data tagging errors still exist

Unfortunately, “better than ever” is a relative term. The bar was low to begin with. In 2013, Chairman of the House Oversight Committee Rep. Darrell Issa said that as many as 1.4 million XBRL errors occurred. Even with the new and improved iXBRL to streamline tagging, errors and miscategorization may cause some headaches.

According to attorney Gary Emmanuel as quoted in Inside Counsel:

[XBRL is] a data format that has been plagued by problems since its introduction… since the XBRL exhibit is generated after the completion of the conversion process of a Word document into EDGAR format, this has resulted in discrepancies between the XBRL information and EDGAR file that slipped through the review process.

He did admit that there may be brighter days ahead, saying:

Inline XBRL allows the XBRL generation process to be conducted at the same time as conversion of the Word document into EDGAR format thereby streamlining the entire process. By incorporating XBRL into the main EDGAR document, rather than as a separate file, it is hoped that this will result in more accurate XBRL data, reduced XBRL generation costs, and a shorter EDGAR conversion process.”

iXBRL lacks oversight and assurance

Relying on XBRL/iXBRL tagged data is still iffy, after almost a decade. The idea of structured, machine-readable data from every company in the world is a glorious thought. Oh, the insight you could gather. So long as it’s accurate!

But, there’s no oversight to guarantee its accuracy. There are no required assurance services that focus on verifying the accuracy of XBRL tagging. It’s a free-for-all. For example, who cares if the independent audit report is clean when the tag for revenue is swapped with net income? Right now, no one.

Rob Blake, who helped with the early creation of XBRL, told CFO.com in late 2013 that the SEC needs to put “some teeth around really bad XBRL submissions” by punishing companies for inaccuracies. He thinks that’s really the only way to get CFOs to provide accurate data.

Sure, the blame always lands on the CFO. But, maybe, it’s the responsibility of the vendors who supply disclosure-management solutions to ensure that tagging is idiot proof? At the very least, Dreyer recommended that the CFO gets a SOC 1 from the iXBRL software vendor.

Or, maybe it’s everyone’s responsibility, at every level? Is education the only way to ensure errors don’t trickle into SEC filings? After all, the resources are readily available and the XBRL gurus (aka the Taxonomy Architecture Guidance Taskforce) even update their glossary regularly. A new glossary version was just released last week.

I guess we will have to wait and see if the SEC plans to force people to switch to iXBRL in 2020. I know, it’s a nail-biter. My guess is it will be pushed off until 2025 at least. Did I mention the SEC was half-hearted about XBRL?

Image: iStockPhoto/XtockImages

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Grant Thornton’s Survey Elves Are Still at Work

Thumbnail image for GT_elves.jpgOur only point is that if it wasn’t for the nice little explanation of the survey on the website, we would have assumed they had a huge room filled with survey elves working day and night.
Anyway, today GT issued its latest press release of its “national survey of U.S. CFOs and senior comptrollers”.

This installment shows that CFOs are homers when it comes to who sets their accounting rules (just so long as it isn’t the government). Seventy-one percent of those surveyed said that rules should be set by “A national independent board supervised by a national regulator” while only 24 percent want an international board. This despite the belief of some that Bob Herz is the most dangerous man in the country.
Only 3% thought a “national legislature” should set rules, which is a relief. Plus it probably gives Barney Frank a little vindication but definitely upsets Newt Gingrich.
The survey also states that the respondents are split on how to report debt on their balances sheets, either amortized cost or fair value, which may be why the FASB and IASB are talking contingency plan.
The last bit of interesting information is that CFOs are still scared shitless of eXtensible Business Reporting Language (“XBRL”) because 84% of those surveyed have no plans to start using it. If you assume most of the CFOs were in Big 4 at one time, then this isn’t so surprising.
The elves are off until spring next CFO survey will occur in the spring when another spectacular round of press releases will inform all of us what is on the minds of financial bigwigs.
Earlier: Grant Thornton Survey: Financial Statements Are Still Too Complex for the Average Shmo Investor
Also earlier: Grant Thornton Survey: 40% of CFOs Never Ever Ever Want IFRS to Replace GAAP

Non-Profits Are Feeling the Pain

WSJ has a Monday piece “Once-Robust Charity Sector Hit With Mergers, Closings” (the Recession Forces Nonprofits to Consolidate) that may be found here. It tells the story of a “homeless” woman with terminal lung cancer and a charity no longer able to afford to help her out. Sad.

When one charity’s COO says “we’ve had funding cut after funding cut, and we never know when the next shoe is going to drop,” that is a bad sign.

Hit by a drop in donations and government funding in the wake of a deep recession, nonprofits—from arts councils to food banks—are undergoing a painful restructuring, including mergers, acquisitions, collaborations, cutbacks and closings.

“Like in the animal kingdom, at some point, the weaker organizations will not be able to survive,” says Diana Aviv, chief executive of Independent Sector, a coalition of 600 nonprofits.

I saw that on the Discovery Channel and it wasn’t pretty.

Note: the Service says the value of your blood is not deductible as a charitable donation but cars are. As of 2005, cars are only deductible at FMV, not Blue Book. Damn you, fair value, foiled by the free market again!

Blame the Service for tightening its charitable donation rules at the worst possible time? Not sure on that one. While you’re reluctant to donate your $200 Toyota (ha) to charity because you could have claimed $2,000 under old rules, find some comfort in the fact that (alleged) terrorist “non profits” can not file for 2 years and somehow get away with it. You wonder why I advocate fixing the system from the ground up?

You can text $10 to Haiti but what about the “Economic Homeless” here in America? asks Young Money.

If this were a survey and you asked me “What do you think the IRS could do to encourage charitable donations?” I would answer “Tax breaks. It isn’t the Treasury’s job to distribute bailouts.” Yet they continue to behave as though it is their duty.

See the problem yet?