Written by Bob Schneider Posted June 5, 2007

Gary Purnhagen’s recent post on the SEC and XBRL prompted me to listen to the webcast of the Interactive Data Roundtable the agency held in March. It includes speeches by SEC Chairman Christopher Cox and various luminaries, as well as an hour-long panel on the Voluntary Filing Program (VFP), very ably moderated by Chicago Sun-Times columnist Terry Savage.

The webcast runs over two hours and, as you would expect, some parts are better than others. Most of the speeches will hold few surprises for those who keep current on XBRL developments. But while the references to March Madness are now stale, much of the content remains extremely relevant, and along the way you’ll hear some discussion that is well worth your time.

Here are the highlights as I see them, along with their start and end times in hours/minutes (you can jump around by using the time slider at the bottom of your media player):

(1:29 1:34) Terry Savage asks Harold Zeidman, a partner at KPMG, whether the adoption of XBRL will ultimately make auditing easier. His initial response is certainly unpromising: “It depends.” But stick around for his superb exposition on XBRL’s (modest) impact on auditing in the current “papercentric” world (where tagging occurs only at the end of the accounting process), and in the “datacentric” world of 10 or 20 years from now (where data will be tagged much earlier in the information stream and XBRL will become crucial to the audit). Although Mr. Zeidman’s remarks address auditing specifically, his vision has wide application across the spectrum of information providers and users.

(0:56 1:24) The Roundtable featured an impressive group of participants in the Voluntary Filing Program from top companies like 3M and Pfizer, as well as a few XBRL experts like Mr. Zeidman. Individually, the comments of the VFP participants are not intriguing; Ms. Savage does her best to coax some war stories, but with little success. But taken together, their VFP experiences are revealing:

(a) Some used outside consultants, others didn’t;
(b) Either way, the accounting department was central to the effort;
(c) Most started off by doing the 10-Q, although Dow Chemical went back and did their 2005 10-K too;
(d) Most tagged just the P&L, balance sheet, and cash flow statements;
(e) Opinions varied about the extent of the initial time investment, but all agreed tagging got much easier on succeeding filings;
(f) Most didn’t seem to have too much trouble using existing taxonomies. A notable exception was Ford Motor Credit, which required “a number of” extensions.

(1:12-1:20) One participant on the panel, Lawrence Salva of Comcast, said that “he almost forgot to tell his audit committee that we were going to do this,” and in turn committee members subsequently wondered about their own responsibilities vis–vis the VFP. This discussion eventually led to a very interesting exchange between Ms. Savage and Chairman Cox about the role of auditors with respect to tag creation.

It’s one thing to read a news account that says the SEC won’t require external audits for the XBRL tagging process. It’s another to hear Ms. Savage give the Chairman three opportunities to clarify his position on this issue, and each time hear him say that XBRL tagging will not require attestation (although it wasn’t clear how far along the XBRL adoption road this would remain true).

One can sympathize with Chairman Cox’s desire to avoid the “crib death” he believes audits of XBRL tagging will engender. Nevertheless, I must say it is difficult to read Robert Kugel’s piece on making XBRL tags mandatory and still think there is no role for external auditors in the tagging process.

(1:24 1:28) Elmer Huh, an analyst at Lehman Brothers, made the important point that much of the “value drivers” in Item 6 of the 10-K that are useful to analysts (eg, revenue per subscriber for a cable company; square footage for retailers) are not yet being reported under the VFP.

(0:32 0:45) John White, the SEC’s Director of the Division of Corporation Finance, gave an excellent demonstration of how XBRL will change the work of preparers of SEC disclosures. Using the revenue-related parts (revenue line item in the income statement, the revenue discussion in the MD&A, and the revenue recognition policy in the footnotes) of a Microsoft 10-Q, Mr. White shows how preparers can compare text (a) within the document; (b) over time; and (c) across companies. Moreover, XBRL allows preparers to view the underlying authoritative literature.

White drums home the point that not only preparers, but investors, analysts, journalists, etc, will all have instant access to the same documents once filed. The immediacy of these releases, filled with financial information that is easy to manipulate (in the good sense), presents both opportunities and challenges to the officers who must explain company results to external audiences

Add to Del.icio.us | Digg this

This entry was posted on Tuesday, June 5th, 2007 at 9:11 pm and is filed under SEC, . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.