United States: Is XBRL Already Obsolete?

Last Updated: August 16 2018
Article by Cydney Posner

You've got to just love the irony: the SEC's amendments mandating the use of Inline XBRL aren't even effective yet, and experts at an accounting conference have declared XBRL "nearly useless as an investment tool," and "all but unnecessary." 

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In July, the SEC adopted new rules mandating the use of Inline XBRL (eXtensible Business Reporting Language) for the submission of financial statement information. Currently, companies are required to provide the financial statements and schedules accompanying their Exchange Act reports and Securities Act registration statements in "structured" format using XBRL. Information is "structured" (or made machine-readable) by labeling (or "tagging") the information using XBRL so that it can be processed by software for comparison and analysis. Inline XBRL allows data tagging to be embedded directly in the text of an HTML document and is both human- and machine-readable for purposes of validation, aggregation and analysis. The SEC expects Inline XBRL will help issuers by reducing preparation time and effort, eliminating the duplication involved in creating a separate exhibit, giving the preparer "full control" over the presentation, reducing inconsistencies and improving quality as a result of the integrated process and, over time, reducing the cost of compliance. For viewers of the data, Inline XBRL is expected to enhance usability through greater accessibility and transparency, as well as improved capabilities, allowing users to make broad comparisons and discern patterns among filers. (See this PubCo post and this Cooley Alert.)

As reported in this article from Bloomberg BNA, speakers at the American Accounting Association conference held this week, including a FASB member and accounting technology experts, appear to have been downright hostile to XBRL (eXtensible Business Reporting Language).  The FASB member was reported to have told the audience that, because some companies "don't finalize their XBRL tagging until nearly 60 days after they have filed their financial statements," the information arrives "too late for investors to use to for making decisions. So much other valuable analytical information has already become available, he said."  Instead, he commented, more often, "analysts and investors are relying on earnings releases to make their decisions." Moreover, the development by companies of their own unique XBRL tags "has undermined a major purpose of XBRL—the ability to compare financial performance of companies involved in similar enterprises."  He observed that "as many as five different tags can be created for the same piece of information. XBRL's lack of standardization makes comparing the same type of performance information impossible..." As a result, he reportedly concluded, XBRL has been rendered "nearly useless as an investment tool." For XBRL "to succeed in expanding data that provides an accurate picture of how a company actually performs," he said, "standardized methods to apply it to financial reporting must be devised."

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The problems identified at the conference are not new ones. As discussed in this 2013 article in Compliance Week"If You Build It, They May Not Come,"  a report from Columbia Business School suggested that the time-consuming and costly effort to implement XBRL "might have been a colossal waste of time." According to the report, the investors and analysts that were supposed to benefit from XBRL "don't seem to be using it.  According to the report's authors,... analysts and investors remain skeptical about XBRL and have many concerns about its utility. The main complaint, according to the study, is that the data is still unreliable and fraught with errors."  Another major problem identified in the report is that companies were still using too many company-specific tags, known as "extensions," rather than existing tags. The author speculates that "part of the problem lies with filers. They tend to think that the whole project is an exercise in tedium, and therefore they aren't vested enough in the process to truly make it work. 'Most filers we surveyed doubt whether any investors are using their XBRL data and believe they are bearing an unnecessary incremental cost with any benefits going to data aggregators who resell the data and can reduce their own data collection costs,' the [report] authors write. They found that companies aren't using their own XBRL interactive data for internal decision making or for benchmarking with peers. Until that changes, filers might not have enough skin in the game to really make XBRL work." (See this PubCo post.)

What's more, tech experts speaking at the same conference said that emerging technologies, such as "Blockchain and the ability to store, organize, and retrieve financial data from cloud computing sites" currently "threaten to supersede XBRL" and are making XBRL "all but unnecessary."

In the Inline XBRL adopting release, the SEC indicates that, because data tags  will be embedded, "Inline XBRL filers will have less of an incentive to create custom XBRL tags solely to mimic the appearance of an HTML filing," and, as a result, "Inline XBRL could increase the ability of investors, other market participants, and other data users to compare information across filers for those filers that currently engage in such tagging practice." Whether this and other benefits associated with Inline XBRL will be enough to make the technology more palatable to these critics remains to be seen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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