Thursday, December 15, 2011

The XBRL World in 2012

Every year, the British news magazine The Economist publishes their annual "The World in xxxx" edition, where the 'xxxx' represents the coming year.  In this publication, they make predictions about the economic and political situations in the world in the short-term future.  Many times these predictions are decently accurate, though at times they are completely off the mark.  Nonetheless, they are entertaining to read as they combine academic reviews and strong hypotheses that allow readers to think critically about the present and the future.

Unfortunately, the "World in 2012" edition failed to make any predictions about eXtensible Business Reporting Language (XBRL).  But don't fret!  Here at CompSci, we have provided our opinions on some of the hottest topics in the industry today, and in the coming year.  Read on to see what two CompSci employees predict the new year will bring for the XBRL industry:

Convergence: There is no doubt that this is the big topic in the XBRL space in the coming years.  In short, convergence means the consolidation of US-GAAP and IFRS taxonomies.  The benefits gleaned from this consolidation would be immense, as users of financial data would be able to compare companies across the world.

Will Ewing:  This seems likely.  Representatives from both sides are diligently working to compromise on a solution that best helps everyone, so I'd say they would have an agreement within the year.  I think the benefits are too grand for them not to compromise and allow convergence to proceed.  Though there are stark differences between the two accounting systems, I believe compromise is imminent and we will see an agreement by next September.  Implementation will be a whole other story...

Mike Castro:  It's not going to happen.  The problem with convergence is that you have two big players, who are used to establishing rules that others must follow.  In terms of compromise, neither side wants to budge.  On the one hand, you have the streamlined and simplified IFRS taxonomy.  On the other, you have the deeply entrenched and exhaustive US-GAAP taxonomy.  Neither side wants to concede any of its points, and we are stuck with a stalemate.  My guess is that eventually we will have a global standard, but it certainly won't be agreed upon in 2012.

The Rise of Analytical Tools: Since 2009, companies have been required to report their financial statements in XBRL.  However, most of that data has been collecting dust (metaphorically).  Many people know the intrinsic benefits of XBRL, but few people know, or want to know, the raw XML code at its heart.  This is where analytical tools would come in to allow consumers of the data to easily read and understand it.

MC: Will we see analytical tools in 2012? Yes.  The real question is will they be effective?  My answer to this is no.  The problem with analyzing XBRL data is that it is such a new standard, so the sample size is simply not big enough.  The only thing the data could be useful for is cross-company analytics in the past few years.  With little publicly available data prior to 2009 available, it is very difficult to leverage the data for analytical purposes.

WE: I see a lot of potential for analytic tools in the coming year.  In fact, some developers have already started working on some.  XBRL US has sponsored a challenge for developers to create useful open source tools to analyze XBRL data, and competitors have risen to the challenge.  I say, expect more of the same in 2012.

DATA Act:  The Digital Accountability and Transparency Act is currently making its way (albeit slowly) through Congress.  This Act would require that the federal budget be tracked by using a common data language, with XBRL being the most likely candidate.  There is strong potential for some major advancements on this in 2012 as the United States continues to sort out our budgetary oversight.

MC:  I have a feeling this Act will be approved in 2012.  As we emerged blackened and blue from this federal budget crisis, people will demand more transparency from the government.  This means that Congressional leaders will be feeling the pressure from their constituents to pass this bill before the elections this November.

WEThere are two reasons this won't happen in 2012.  One, Congress must actually ratify it.  With 2012 being a presidential election year, the main focus will not be on this bill.  Second, it would undermine all of Congress' power.  The saying "knowledge is power" is in affect here, where Congressional leaders will not want to compromise their privileged knowledge of the Federal budget by allowing everyone access to it.  And could you imagine the taxonomy that would come along with such a mandate?  That itself would make it almost useless in my opinion.

The End of the (XBRL) World:  The Mayans may not have actually predicted the end of the world in 2012, but there is certainly a contingent in the finance world that would like to see the end of XBRL.  Many see it as nothing more than just a compliance standard that has been thrust upon companies, and don't see any of its inherent benefits.  Does this mean the SEC will just do away with the standard?

MC:  Like it or not, XBRL is here to stay.  Its importance will continue to emerge every year it is required.  My prediction is that one day, filing the financial statements in an HTML document will become obsolete and we will only use XBRL for filings!

WE:  XBRL is not going anywhere.  The SEC and FASB have spent a lot of resources developing their infrastructure around XBRL such that they will not be terminating its mandate any time soon.  With this long-term outlook, you will see the emergence of tools that facilitate the utilization of XBRL permeate the industry.  Increased transparency of financial data is a good thing and XBRL goes a long way toward promoting this goal.  This will then make the standard indispensable.

What are your predictions for XBRL in 2012?  Tweet them at @CompSciResource or #XBRL2012.