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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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October 12, 2008 12:01 AM ET
Bloomberg
IN TAGS WE TRUST Mike Ohata of KPMG Advisory says XBRL "is not necessarily meant to prevent people from doing fraud."
But so far, many investor relations officers seem to view XBRL as a rote compliance task. That sort of thinking could come back to haunt them. Analysts and major institutions are already preparing to use XBRL-tagged financial statements—and eventually, tagged earnings and news releases, say sources. Lack of attention to XBRL initiatives could lead to problems later, particularly if criticisms about error rates and excessive customization are to be believed. “I haven’t really thought about it, because it’s not like people have a choice.… It’s part of doing business,” said Leonard Griehs, vice president of investor relations at Campbell Soup. Campbell is in the process of tagging its filings and is exploring whether to use a vendor. According to the current timetable proposed by the SEC, the company would file its first XBRL-tagged 10-Q in February, at the end of its third quarter. “Based on what we are hearing and the low number of voluntary XBRL filers, it is not as high on the [investor relations officer] priority list as it will need to be in the near future,” said Maureen Wolff-Reid, president of IR consulting firm Sharon Merrill Associates. “Investors will be reaching conclusions more quickly, and the IROs will be spending more of their time providing the context around the numbers to give investors perspective.” Proponents of XBRL say the technology will greatly benefit investors, opening the door to advanced analysis of which companies hold auction-rate securities; quantifying their exposure to illiquid, level three assets; and focusing on underlying assumptions and valuation allowances. Despite those pluses, XBRL does have some investor relations drawbacks. For one, corporate managers could choose tags that paint the most favorable picture to investors. “The technology is not necessarily meant to prevent people from doing fraud,” said Mike Ohata, a managing director at KPMG Advisory. Mr. Ohata, who chairs XBRL International, a non-profit consortium that has drafted the taxonomies, and who worked with Microsoft’s XBRL initiative through 2007, said most companies will likely seek validation from outside auditors. In most cases, the outside firm will be asked to determine if the company tagged accounting concepts accurately. “They want to make sure they get the mapping right,” he said. “That concern will drive many companies to seek attestation.” But unlike Sarbanes-Oxley, the SEC’s proposed XBRL rule does not require attestation. The commission omitted the requirement, thus reducing the legal liability associated with XBRL filings, to entice companies to adopt the technology. Some view the compromise as undermining the technology, or worse, opening the door to abuse. Without auditor attestation, there will always be a question mark for investors on XBRL-tagged data, said Bruce Pounder, president of consulting firm Leveraged Logic and chairman of the small business committee at the Institute of Management Accountants. “Can people trust it? Big question there,” he said. “I think they’ll be able to trust it as much as anything they get of a non-audited nature from a public company.” Indeed, the lack of attestation could undercut the whole idea of reliable, comparable corporate data. And it flat out spooks some investor groups. “I fear the proposal will lead to a junk-in, junk-out form of XBRL that would not be in the best interests of investors or the capital markets,” Jeff Mahoney, general counsel at the Council for Institutional Investors, wrote in an e-mail to Financial Week. “Some of the testing of the accuracy of the application of XBRL tags has shown massive errors.” He’s not exaggerating. A March study by two accounting professors found that two-thirds of the 304 XBRL filings in the SEC’s pilot program through 2007 contained information that was inconsistent with regular filings, mostly as a result of improperly applied extension taxonomies. For example, a filing from General Electric “contained a fatal error” in the extension created for accounts payable, the study found. Even worse, the error rate apparently increased as the pilot program progressed, with the study finding errors in nearly 60% of filings in 2005 and in 67% of 2007 filings. Study co-author Won Gyun No of Iowa State University said he is evaluating the updated taxonomies for 2008 error rates, but he has noticed some improvement. David Blaszkowsky, director of the SEC’s office of interactive disclosures, said in an interview that since de facto standard-setter XBRL US issued a preparer’s guide for XBRL tagging earlier this year, error rates have improved. “We’ve cleared that up,” he said. “It’s looking good.” Ninety-one companies currently participate in the agency’s voluntary filer program. Another potential headache for investor relations officers is the number of extensions—customized tags—that may be required. Take the biotech industry, for example. Companies in that sector will probably need to create tags to address clinical pipelines, FDA approvals and patents, among other concepts. Those sorts of extensions would be prevalent in footnotes, experts say, which most companies wouldn’t be required to tag until 2011. The options for customization are too great for some, though. In a letter to the SEC, General Mills controller Richard Lund wrote that there are too many choices for balance sheet and income statement tags—but not enough for cash flow statements or stockholder equity. He also noted that tags for management discussion and analysis would need work before companies begin tagging their footnotes. Still, Glenn Doggett, a policy analyst at the CFA Institute, said XBRL ultimately will be a boon to investors and help investor relations executives manage their companies’ messages. He added, however, that the SEC should ensure that companies don’t use extensions unnecessarily to obscure comparability. According to Mr. Blaszkowsky, the SEC prefers companies to avoid creating extensions unless they can’t use any of the available tags. He noted that the agency is already reviewing XBRL filings, but was unclear as to what kind of review of extensions it might conduct. “I’m not sure how supervision might evolve,” he said. Mr. Pounder agrees that extensions need to be curtailed as much as possible. “Extensibility is good as long as everybody does it the same way.”
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