WHEN you work with eXtensible Business Reporting Language (XBRL) on a daily basis like I do, it’s easy to forget – and sometimes a little disconcerting — that most people don’t share your enthusiasm for the standard and its potential.
In fact, it’s probably fair to say that the vast majority of people either (a) don’t even know that XBRL exists or (b) do know a little bit about it, but frankly aren’t interested. IR professionals almost certainly fall into category (b). Given the US Securities and Exchange Commission’s (SEC) highly publicized mandate for financial statement disclosure, it would be hard for them to claim they know nothing about it, but that doesn’t mean it’s something they care about.
While there may have been shortcomings in the XBRL community’s outreach and education around the technology, XBRL mostly seems to have fallen foul of the massive marketing hype that preceded and followed its US-led mandate. It’s also relevant that XBRL adoption has generally been driven by regulators, including HMRC and Companies House iXBRL projects in the UK, and government-wide Standard Business Reporting projects in Australia and the Netherlands.
Understandably, most people view XBRL through a compliance lens. You do it because the government says so. Voluntary use and adoption of the standard has remained negligible and critical mass adoption is still a way off. An interviewee quoted in a recent academic study succinctly captured the current antipathy, or even hostility, towards the standard when he said, “If [XBRL] was really that great, it wouldn’t have to be mandated.”
What went wrong?
Given that it was branded the ‘XBRL Revolution’, it’s not unreasonable to ask what went wrong. First and foremost, we must scrutinize the business case that supports XBRL and the value proposition that the standard offers. A basic cost-benefit analysis of who bears the implementation cost of XBRL and who reaps the benefits often leaves people scratching their heads. Daniel Roberts draws an interesting analogy in his article “Is XBRL like Blood?” where he concludes that “[a]s long as the provider of the benefit does not receive the benefit, there will be push-back.”
Looking objectively at the past few years, XBRL has evolved very much in line with what Gartner calls ‘The Hype Cycle’. Back in 1999, Charlie Hoffman, a CPA with the firm Knight Vale and Gregory in Tacoma, Washington, came up with an innovative idea for using XML in financial reporting. Championed by forward-thinking individuals, the idea gained traction and momentum, and turned into something of a movement. XBRL then hit the ‘peak of inflated expectations,’and that’s when things began to go pear-shaped.
The advantages of XBRL were oversold and the perception was that they were immediately available, leading to heightened public anticipation that largely fell flat when concrete applications and examples of XBRL in action failed to materialize in the expected timeframe. The hype was not completely spurious; much of it was founded (at least in theory) but it was certainly misleading in terms of the time-frame and other pre-requisites required to realize all the much-touted promises.
To reach its full potential, XBRL first needs people to understand the vision behind it, which is a true paradigm shift in how we think about data modeling and usage, not just a vague attempt at streamlining an existing reporting process. Next software engineers need to build the tools that take care of all the technical aspects needed to deliver on this without business users having to worry about what goes on ‘under the hood.’ One of the main reasons XBRL has not gained traction is because the software and technology is either nascent or unavailable, and far too technical for business people to apprehend.
XBRL is arguably at worst still lingering in the “trough of disillusionment,” or at best on its way up the hill to the ‘”slope of enlightenment.” It’s understandable that many professionals such as John Palizza feel disgruntled, and maybe even a little cheated, by XBRL. His comment that “[XBRL] seems like another example of something that sounds good in theory, but the practical advantages just don’t seem to live up to the hype” reflects a wider feeling in the business world.
Take a second look
However, it’s worthwhile taking a second look at XBRL. Forget the hype, the hyperbole and the ensuing negative perceptions. Take a step back and try to see XBRL as a step in a process, not so much a ‘revolution’ as a stage in business reporting evolution: a shift in mindset from reporting to communicating, a transition from static to interactive, from document-centric to data-centric, and from ‘push’ to ‘pull ’ in terms of what data availability and access can mean.
Much is left to be done, and it’s fair to say that XBRL and digital reporting will likely evolve in ways that haven’t been anticipated today, much in the same way as the Web and its technologies have progressed in the last 15 years. Would most us have imagined in 1996 that the Internet would be as deeply embedded in our lives as it is today? While the term “interactive data” has been bandied around for a while now, we are only starting to see the tentative beginnings of a new paradigm in corporate reporting.
The IR function serves mainly to communicate with a company’s stakeholders, but IR professionals are stakeholders in their own right in XBRL’s shifting paradigm and should engage actively to influence positively. Like it or not, XBRL is around for the foreseeable future, and it would be regrettable if IR professionals discount it as being a mere compliance nuisance.
The XBRL standard holds unrealized potential that should be tapped as investors increasingly call for improved transparency and better disclosure of financial — and especially non-financial — information.
XBRL and digital reporting are capable of doing far more than we have seen evidence of so far. It may be a decade or more before we can talk in hindsight about a ‘revolution,’ but XBRL and the changing reporting landscape it is part of are worthy of strategic reflection from an IR perspective.
It’s a mistake to write off XBRL just yet. Like all tools, the results XBRL can deliver largely depend on how it is used.