After recently attending a South by Southwest panel “Data is Money: How Geeks are Changing Finance”, I realized there was a high level of groupthink in regards to how technology and XBRL can empower investors to make better financial decisions. From the panel, questions from the attending audience, and the twitter comments (#datamoney) posted during the session, it was clear to me that XBRL is often dismissed or misunderstood as a potential solution for current issues regarding data transparency. A few key points were raised by the panelists in this discussion in regards to this new mandate that need to be clarified and, in my opinion, discussed below.
Claim 1 – Due to the fact that all public companies will not fully comply with XBRL until 2012, this mandate will not be relevant to investors until that time.
I agree with the panelists that the XBRL data will not be fully comprehensive until 2012. While the full range of public data in XBRL will not be available for the general public until 2012, around 500 of the largest companies in the United States have already filed in XBRL – their XBRL data is already accessible on the SEC’s website or through Rivet’s CrossView to the general public (for free).
By December 2010, nearly 2000 of the largest US public companies will have filed a 10-K in XBRL with the largest 500 reporting detailed information into their notes which has never been able to be accessed programmatically. By 2012, the number of companies who will have filed in XBRL will be over 10,000. By utilizing the existing XBRL analysis tools available on the market today, investors have access to instantly compare some of the largest companies in the United States today.
Claim 2 – XBRL is too complicated for the individual investor as it is XML-based code.
Consumers of XBRL data are shielded from the code behind the numbers, much like consumers don’t need to read HTML (or XML) to view a web page. HTML has a browser to render the code, similarly the SEC has implemented an open source XBRL viewer that renders just like your average web page. (You want to see right now? Check out Google’s XBRL data. Where’s the complex code?) In addition, many companies have developed their own software that allows robust analysis of multiple companies – all without the user ever needing to view XBRL code – just the financials they are accustomed to viewing.
The end result for investors is an easier to use and navigate source of financial information. By linking references and definitions to every piece of financial data, in an easy to use, rendered format, users can access this “tagged” data as soon as it is filed, right from the horses’ mouth. The ability to access and compare this information right in excel saves investors a great deal of time and energy on how to get at the data. By limiting the role of 3rd party data aggregators, investors can spend more time on data analysis and less time on how to get at the data itself.
Claim 3 – Company line items can’t be compared due to companies using different definitions of line items (such as operating expenses)
With best practices and software tools already in place to categorize the US GAAP XBRL taxonomy definitions by industry, statement, and definition, companies can easily choose from the line items and associated definitions that best represent their specific needs. What this means for investors is that while companies may not use the exact same definition, there is usually only a few options that they choose from – making consolidation and analysis of the possible definitions simple.
Prior to XBRL, while companies may have used the same line item name, their internal definitions of say, net revenue, varied widely. Often times, consumers were not comparing apples-to-apples as XBRL now enables them to do. While companies may still maintain different definitions of Net Revenue, with XBRL investors now know companies are using different definitions and can choose to aggregate that data for analysis. Investors can already take advantage of existing XBRL data to instantly access, compare, and analyze companies’ financials side-by-side, regardless of the definition – today.
As with all new standards, XBRL will continue to evolve with user feedback. The XBRL data for the largest companies in the world and the tools to analyze the data are available to use today.
While technology alone will not fix the behaviors that contributed to our recent financial crisis, XBRL provides investors with a higher degree of data transparency along with the tools they need to make more educated investment decisions – holding public companies accountable for the financial information they provide to the public.
Tags: SXSW, Transparency
