Introduction

XBRL International (XII) is a standards organization currently funded by a membership model, with revenue coming from the jurisdictions and conferences. This was a fine model when the XBRL standard was young and large accounting firms and the AICPA saw the benefits from being generous with their support.  Conferences were seen as a moneymaker for XBRL International, and funding was adequate to support  a startup standard. XII goals were clearly definable, and “easy” to achieve, which also limited costs.

Since then the model has grown old and revenue growth has been constrained, and with each passing conference, there are quiet conversations about “how do we change the model, because this one isn’t working”. (Some recommendations at the end, but first the background).

Whyis this not working? Because these sources of revenue are not going to grow in step with what the organization needs in order to move to the next level.  Let’s look quickly at the revenue side. Of course, any figures have to be estimates for anything later than 2008. The latest available IRS Form 990 that all US not-for-profit organizations must file (and is public) is from 2008. (If you are interested in the XBRL US Inc form 990 – for example if you are a member of XUS and are interested in what they are earning and spending) then you’ll have to settle for the 2007 version. You can find both by entering “XBRL” as the Organization Name on this page: http://foundationcenter.org/findfunders/990finder/

Jurisdictions (yesterday’s model):

There are approximately 20 – 22 XII jurisdictions, depending on the time of day (19 are visible on the www.xbrl.org website, excluding the provisional jurisdictions and direct member organization), and of course Romania (Welcome). Each jurisdiction pays an annual membership fee of US$25,000 (or 25% of membership fees collected in-country for any amount over $100,000. It has been clear for some time that there is little incentive for a jurisdiction to bring in more than $100,000 in membership fees, and most jurisdictions earn far less than that. Jurisdiction revenue in 2008 (according to the Form 990) was US$586,077. It will take a miracle for that number of grow significantly.

Of course the jurisdictions will find ways to ensure that their membership fee revenue, the only revenue subject to the XII rules, never exceeds the $100,000 level. If it does, they find other ways to classify the revenue so that it is not considered membership fees. Of course, in many cases, $100,000 would be a fantasy, and some jurisdictions in the past have not been able to pay that.  In one case, a jurisdiction went for more than two years without paying dues, but was not dropped due to concerns this it might appear that XII might be losing jurisdictions. Eventually the jurisdiction withdrew.

Conferences (yesterday’s revenue):

International conferences provide the other primary source of income for XII. As you know, the 20th XBRL International Conference will take place in Rome in 6 weeks time. XII splits the profits of international conferences with the host jurisdiction, delivering back 25% of profit, while keeping the other 75% of profit. Some conferences are fantastic money-spinners, others are complete duds.

Sponsorship revenue is not going to increase. This is the 20th conference.  How unique will a vendor’s message be, or how compelling the opportunity? In the current economy, with discretionary spending limited and conference attendance falling, why would a firm focusing on one market pay for sponsorship at a conference with limited participation from that specific market.

Some jurisdictions have held local conferences, some as early as 6 weeks before hosting major international conferences, usually at a fraction of the attendance cost, with all profits going to the local jurisdiction.  After all, conference revenue is not classified as “membership fees” and therefore does not need to be shared with XII, while XII will happily remit 25% of profits from conferences in which the local jurisdiction put in a huge amount of work.

So what to (not) do?

There are some things that XII can do, and some things that XII should definitely not do. I will give only one example of what not to do.

Do not appoint a Board of Advisers (or any other “board”) with unstated objectives. The Board of Advisers was formed with the externally stated goal of providing support and advice to the ISC. Fundraising was far down on the list of responsibilities. Behind the scenes and in ISC meetings, it was clear that the primary purpose of the Board of Advisers was to raise money for XBRL International. I am not certain members of the Board of Advisers understood that it was assumed that this was their role.

Now some things to Do:

1. Review the membership criteria. Create a category of individual members. There are enough functioning models to follow; it should not be difficult to find one. The AICPA, IIA (Institute of Internal Auditors), ISACA (Information Systems Audit and Control Association), and any number of other standards setting organizations have an individual membership.
2. Consider additional membership categories or participation options, with a view to exchanging recognition for cash.
3. Enable direct organizational membership, especially for organizations in geographies with no jurisdiction. XII says it has this, but only has five direct member associations. This can change and can be a source of revenue.
4. Consider the creation of non-geographic jurisdictions. Examples include industry based (Higher Education, Not-for-profit/NGO) to represent the needs of specific groups.
5. Revamp the conference programme and process. Rationalize conferences and have all XBRL conferences run under the leadership of XII, as least in terms of a fee for use of the brand. Hold one annual XII International Conference.
6. Certainly explore an individual certification programme, but only if there is an individual membership option – providing certification without membership is, frankly, silly and will be seen as a revenue option, little better than a mail-order university.
7. Provide more outreach like the current XSB outreach programme. Get to a wider audience, engage with stakeholders.
8. Provide recognition for participation in working groups.  The XSB is the one major working group that actually has, or appears to have, sufficient member participation. I expect if you added up the total number of ‘active’ members of all the other working groups, the list would be shorter than the number of members of the ISC.
9. Regular (monthly, bi-monthly) magazine/e-zine paying for itself through advertising revenue. For goodness sakes, it works for most other organizations – once they have a membership base adequate to support such communication.
10. I have already made suggestions on democratizing the ISC. Let us see if any of these are taken up. Most importantly though is bringing in new blood and breaking the club. XII should not try to emulate the Freemasons where only the inner circle grants others access to those of like mind. XII should be more like a cult, reaching out and doing all it can to bring others in.
11. Look at ways to capitalize the XII royalty free brand. Does this include charging for print versions of documentation, limited (pay) access, or other fee-for-use scenarios?

These are only a few ideas; there must be many more. In addition, I am sure that the ISC is thinking carefully about them all, just as they were when I was on the ISC in 2006. Then, sitting on the outside the only real change I have seen is a larger ISC, a disbanded Board of Advisers and a new Board of Directors, proposed by-law changes (sent surreptitiously to me, not something not made publicly available to members).

Frankly, it is time for some changes, or XII will continue to muddle along.

Plain sailing - but where?

1. Tell us about the current situation in Croatia regarding the adoption of XBRL and what is your opinion on the development of this process in the near future?

The situation in Croatia is not very bright at the moment. We still have no jurisdiction but we are working on it. Hope that the jurisdiction will be established in the next two to four years. Croatian admission in the EU could speed things up but we will see what the future has to offer.

2. What are the main problems that prevent the faster adoption of XBRL?

Main problems are several regulator agencies with several different reporting standards. Neither of them is based on the same system, so we have Excel, web form, XML, paper based systems and so on. Second biggest problem is lack of XBRL awareness that we are working on.

3. Successful implementation of XBRL requires synergy of multiple disciplines, but leaders must be accountants (accounting profession). Is there an awareness of the importance of XBRL among accountants in Croatia?

The awareness is very low. Aside 1 or 2 articles in accounting magazine and my XBRL columns on ORKIS.hr portal that is all.

4. Do you see influential individuals who are aware of the international trends in business reporting and who could make necessary decisions to speed up this process? What industry could be the leader in this process?

I have to mentioned here and say big Thank You to the Zagreb School Of Economics and Management for starting the lectures on XBRL topics and for choosing me as a guest lecturer on this topic. Other influential individuals are faculty professors that are familiar with the subject.

In my opinion the leader in this process in Croatia could be the IT and Telecom industry.

5. The adoption of XBRL requires huge investments and important engagement of all stakeholders. Is it possible to return money and efforts invested in short period of time?

The implementation process would be long but in my opinion ROI could be made in short period of time. The biggest benefit would be great money savings, less or no errors in processing the data, automatization, time savings and so on.

6. How do you see the impact of XBRL in general on innovative methods in financial reporting?

The impact is enormous. Once one author in one of his articles said that XBRL will change the way accountants work. He was more than right…

It is important to note that all filings submitted to the SEC pass EDGAR validations otherwise they would not have been accepted by the SEC. The Cloud is a third party’s interpretation of the SEC guidelines as are all the validation tools on the market. It is not an official validation tool of the SEC. When the Cloud was first created, there were concerns that the terminology used, specifically error, was interpreted as not being accepted by the SEC for filing. This was not the case. The Cloud’s term error includes both SEC Rule violations and SEC Warnings. For example, the Cloud lists Error LC3. This Cloud error is actually an SEC warning related to the fact that no numbers can be listed in the element name label. Yet the SEC Rule requires that the element name label exactly match the financial statement label including the numbers. The filer must meet the SEC Rule as they will not be able to submit through Edgar without following it. Yet because the filer is following the SEC Rule, they will get a SEC warning because the label includes numbers and therefore, an error LC3 in the Cloud.

The Cloud has always meant to be used as a collaborative tool to help vendors and filers interpret the SEC EDGAR Rules. If you have ever looked at these rules, you will agree that it is very difficult for a non-technical person to interpret. We have worked with the Cloud’s founder to offer guidance on how we interpret the rules and he has provided us with valuable feedback in our interpretation. This has led to conversations with the SEC and has helped everyone in interpreting the SEC Rules more accurately.

In summary,

• The Cloud Report is not an SEC endorsed tool. It is a third party interpretation of the guidelines.
• All filings run through the Cloud Report were successfully filed with the SEC. The Cloud errors do not mean SEC errors.
• The Cloud Report was meant to be used as a validation tool, not to evaluate XBRL vendors.

The Cloud should not be used as a tool to rank XBRL vendors for several reasons:

• First, all filers have passed the SEC Rules during the filing process otherwise they would not have been able to file. The errors listed on the Cloud Report are SEC warnings.
• Second, XBRL vendors cannot necessarily control what the filer decides to do with regard to the SEC warnings. For example, if Rivet is providing our full service solution to a client, we change the terse element label to reflect the element name so that there is no SEC warning produced. If our client has taken the filing process in house, we cannot control if they make this change or not. Either way is accepted by the SEC, but without updating the terse element label, a warning is produced and on the Cloud, an error is produced. Since this has no bearing on their filing, they usually pass on performing this step.
• Third, the Cloud was meant to be a collaborative tool to be used in the filing process to ensure accuracy. All XBRL vendors have Cloud errors. The Cloud is an interpretation of the SEC guidelines and is not an official SEC validation tool.

If you find that this tactic is being used by a XBRL vendor vying for your business, you may want to ask the following:

• Please show me your percentage of overall errors compared to the other XBRL vendors for all filings to date. All vendors have some Cloud errors because Cloud errors are the same as SEC warnings and are accepted by the SEC for filing.
• Drilldown into a particular filing and have the XBRL vendor show you the actual Cloud error and have them explain in detail how this error impacted the filing.

Please let me know if I can be of any assistance during your evaluation phase. I would be more than happy to work with you in evaluating your XBRL needs.

Share your thoughts: http://blog.rivetsoftware.com/2010/03/03/xbrl-cloud-report/

David, XBRL is not a new technology, but it is complex and does require significant effort to become an expert. What are your views on the whole are there enough XBRL experts question?

DB: Well, one can argue that there are not enough home-grown XBRL experts, yet. But the pool of architects and developers is growing, and that growth is accelerating in response to the fact that companies and others are now really building XBRL applications and tools.  Let’s not forget:  XBRL is simply a specialized case of XML. As such, I fully expect the very large existing community of XML experts will be the source of a rapidly growing number of people with XBRL skills. This is an exciting, dynamic area that will draw in the talent.

DB: Now, some people are more worried about experts in terms of the US GAAP mandate, that there might not be enough XBRL experts who also know accounting.  But, tagging is straight-forward enough in practice that it isn’t clear to me that financial reporting professionals have to be “expert” in XBRL generally rather than primarily in the tagging GAAP tags on GAAP line items and tables.

DB: Of course, there are third parties such as universities, standards-setters, and trade associations who can play a role play a role in improving the breadth and depth of tagging and technical skills, and hopefully they are looking at programs to develop these skills.

There is talk of a certification program. What is your view on a certification being offered by an organization that does not cater for individual membership? Would this hinder the update of such certification?

DB: I’m not sure that is an issue;  many kinds of organizational models excel at training and certification, and the market can sort that out. But I think a number of organizations understand the importance of building the pool of expertise, and I’m sure they will consider how to best solve this problem. Personally I think that some kind of certification model could be a useful thing, and certainly would make an employer’s job easier, simply finding individuals with evidence of demonstrated knowledge.

DB: With the speed of implementation of the mandate it was probably reasonable to expect a somewhat lagged pace in development of resources at the other end of the business sytem, for tools to use and transform filed XBRL content.  As the inventory of useful filings grows, at a higher level there will be more need for a wider pool of expertise in software and analytics to serve the growing number of vendors, creators and consumers of Interactive Data. Again, I emphasize the relationship between XML and XBRL which should mean that it should be relatively easy for these people to learn XBRL.
(What factors do you think have hindered the growth in the number of experts?)

DB: Well, historically in the US people have equated “XBRL” with “XBRL GAAP” simply because that was the first major and most high-profile use case. It implied that in order to learn XBRL you also needed to understand GAAP. GAAP is hard, not XBRL.  And let’s face it, there were fewer people who understood both the complexity and the need of both XBRL and GAAP.

DB: That is no longer the case, not with GAAP done and new use-cases in non-financial information coming to the fore. Accounting knowledge as a prerequisite disappears when you start looking at mutual funds, ratings, or any other types of information. We need to get the word out that GAAP is old news from an XBRL perspective.   Also, Of the several other taxonomies we’ve worked with, none are even within two orders of magnitude – not a “factor of 2”, but “2 orders of magnitude” — of the thousands of tags in the GAAP taxonomy.  I’m not sure any others we might consider will come close, either.

DB: The complexity of GAAP tagging scared people. The real issue was not XBRL for GAAP but rather the complexity of financial reporting, and the associated need to fit that complexity into the syntax behind the taxonomy, and to ensure that the standard could meet that complexity. Most other areas of business public reporting are not that complex and therefore should be simpler to model, tag, and use.  That said, I think you’ve got to recognize that GAAP XBRL tagging is working, and that “complex” is a relative thing, not an absolute.  Complexity gets tamed by experience, training and innovation, and that is already happening.

So you expect a rapid growth in the number of experts?

DB: Oh yes.  As professionals realize that XBRL is simply a step on from XML, that powerful and even novel commercial tools and platforms can be built or adapted for it, and that being a GAAP expert is not always a prerequisite, I think well see a very rapid increase in the total pool of expertise.

(*) I promised David Blaszkowsky that I would include his official disclaimer: “As a matter of policy, the Securities and Exchange Commission disclaims responsibility for the private statements of SEC employees.  The views I am expressing today are solely my own, and do not reflect the views of the Commission, the Commissioners, or of any employees other than myself.”

The Office of Interactive Disclosure (OID) carries the heavy responsibility of implementing the SEC’s Interactive Data rules for GAAP for public companies, for mutual funds and for ratings (links and names), and in the minds of many observers of XBRL’s progress around the world, holds the key to demonstrating the real value for XBRL for public financial reporting generally. That’s a significant burden. After all, more so even than the FDIC, this is the largest implementation of XBRL in which the resulting data is being made available to consumers of financial information.

One consistent theme was David’s clear focus on the users of financial information, both in the SEC and by the market. Frequently the discussion returned to “what do SEC users and consumers need, how will they use this, and what can be done to make it even easier and more useful”.

We covered a number of topics, too many for one article, so here goes with the first installment. As you can see, the chit-chat is removed so that we can focus on the content.

1. David, can you give me a bit of background – when did you join OID, where did you come from? What motivated you to join the SEC.

DB: I joined the Commission in October 2007, as Director of the then-new Office of Interactive Disclosure. My background was in the financial services and financial information industry where I had run lines of business involved in the provision of financial information, research and analytics, as well as M&A work and business strategy. Clearly there is still a need to improve the quality of information provided to users of financial information. Frankly, it isn’t much different on the government side from the business side in terms of problems and needs.  Having grown up on the provision and consumption side, the opportunity to be part of creating the improvements is a wonderful challenge.

(From his “official” bio we also learn that “David spent 11 years at McGraw-Hill, including seven years with the firm’s Standard & Poor’s division. At S&P, he served as Director of Global Market Development for Institutional Market Services, and as Senior Director in Equity Research Services, where he led S&P’s Corporate Markets and Investor Relations Services businesses.” At this point we had the normal SEC side conversation, in which David asked me to include, and in fact did read aloud the “Standard Disclaimer”, so here goes:)

DB: As a matter of policy, the Securities and Exchange Commission disclaims responsibility for the private statements of SEC employees.  The views I am expressing today are solely my own, and do not reflect the views of the Commission, the Commissioners, or of any employees other than myself.

DB: that being said, my role has really been to shepherd, in terms of the technologies and their meaning, the SEC through the rule-making process process, and to ensure that the implementation and roll-out of the Rule is as smooth and successful. This includes, on the inside, making sure SEC staff themselves have the tools to use this content in their work.  Of course, the real work is done, and the real kudos belong to my world-beater of a team, with such stars as Jeff Naumann and Walter Hamscher, that is completely dedicated to just that goal, so I’m not alone here.

2. Lets start with the “easy” question; what would you say were the greatest successes / benefits to date?

DB: I can’t really point to anything specific yet, because the filings data is still too limited, but we’re looking forward to building on what has to date been a successful roll out of the public company Rules, shall we say “on time and on spec”. Of course, we have another two and half years of implementation in front of us, but based on progress to date, I’m pleased and quietly confident.

(I’d say that’s a pretty big success so far.)

DB: And of course now we are ramping up on Mutual fund Risk and Return reporting, which will be required starting next year.

DB: Of course, probably one of the most satisfying “leading indicators” of success, although it is not down to us specifically, has been the rapid expansion of the software community and the range of new tools and analytic capabilities that are being built and delivered.

DB: Of course there will be use of this data by the markets, but a primary beneficiary of the XBRL data submissions has to be the staff of the Commission, and it has to improve our abilities to evaluate risk, among many other critical roles.  When we released our RFI last summer, we gained the opportunity to talk with vendors and to see what they had been building. We saw nearly two dozen applications, and I have to say some of them were really cool. It was especially pleasing as the RFI was specifically written with a view to asking “Here’s what we staff at the SEC as users will want to do, what are you building that might help?” Through the demonstration and discussions we had representatives from across the Commission’s staff, including Enforcement, Examinations, Corporation Finance, and our new “RiskFin” Division. It was interesting to see how each of these user groups responded to different applications based on their responsibilities, and their wants and needs. We’ve come away with a lot to think about, and these informed the RFP we posted in early January.

DB: In terms of where I see this going, well, I think it is very important to understand that we have all entered a new phase. When I first became involved back in 2007 the majority of the tools we saw were designed mostly for the creation of XBRL content, for the preparers and accountants, and some for the taxonomy developers. There was not enough focus on delivery and usefulness of the information. Of course, when there wasn’t content there wasn’t the same need.  But we’ve crossed the divide, where we now have to make good on the XBRL aspirations, promises and investments.

(So with content we see a virtuous circle, content drives tools drives content?)

DB: Yes, I’d say we’ve finally closed the circle. Content is now being provided, and the applications for consumers and users of the data such as for investors and regulators, are being built. There remain opportunities to improve both the content and the process, of course, and we’re monitoring closely our program, as well as others around the world.  Experience with XBRL data and tools will suggest more uses, more and better kinds of data and apps, and so on.  Yes, a classic virtuous circle.

DB: Next I think we’ll see tools and applications that will enable the consumption and use of XBRL as well as other datasets to do interesting and novel things.

Our conversation continued through the hour, and toward the end David suggested that I would probably bore my audience if I attempted to put everything into a single posting. So I won’t. Expect to see additional excerpts from our conversation, and quotes from David sprinkled into posting on other topics.

As a preview, some of the other topics we covered included:

• Detailed Tagging
• Where are all the XBRL experts?
• Any big plans (with a predictable response)
• Assurance
• Tagging of the MD&A
• The volume of questions and impact of the AskOID@SEC.gov e-mail and program

You can read and comment of the first installment here: http://raasconsulting.blogspot.com/2010/02/conversation-with-david-blaszkowsky.html

Is this scare-mongering by vendors, or is it a real problem?

What some vendors are saying

After all, many vendors today are selling both solutions and consulting services to help clients create SEC-ready XBRL. If creation of XBRL is as easy as the XBRL community has claimed, then there is only a limited scope for such consulting support.

One example comes from Clarity Systems who are holding a webcast titled “SEC XBRL Mandate Part II – Be Afraid, Be Very Afraid” (February 24. Register here). In the advance materials, Clarity uses two quotes estimating between 2500 and over 5000 elements being used.

Another example comes from the BusinessWire webinar last week, when they said that the average first time filing uses approximately 150 elements, and they expect the detailed tagged filing to require an additional 2000 elements. This number shocked me. I was particularly impressed by the BusinessWire webcast. It was an “introductory” webcast that made sure the participants got to see XBRL in all its angle-bracket glory, and made sure that everyone heard just how difficult and complex XBRL really is.

I’ve written before that I do not believe the numbers that have been given by the XBRL “experts”. I believe those numbers reflect a gross underestimation of the actual effort involved.

Of course, an alternative (conspiracy) theory is that the vendors are playing up just how complex and difficult this will be specifically to convince companies that they should outsource the process. While part of me believes that, part of me does not. But when you see vendors talk about the complexity of calculation linkbases, arcroles and dimensions, and telling people just how terribly complex XBRL is, I had to wonder if that wasn’t just great marketing. Scare the *stuffing* out of the filers so that they outsource.

Listening to vendors would be enough to convince anyone that this is going to be – difficult.

What the SEC is saying

But listening to the SEC and you hear a different story. I asked David Blaszkowsky, Director of the SEC Office of Interactive Data (IOD, or “XBRL” to the rest of us) if he thought that the SEC’s estimates were too optimistic. He was quite candid – the experience of the voluntary filers gave the SEC a very good idea of what to expect in terms of workload for tagging of face financial. He acknowledged that detailed tagging was a bit of an unknown, and added (*) “I can say that we already know some companies that have created detailed tagged versions of their filings. Obviously we are watching carefully and looking for best practices and successes.”

The AICPA/SEC webcast took a careful and balanced look at detailed tagging. They gave a careful explanation of detailed tagging, and showed real examples of deconstructing a footnote, identifying the information that would need to be tagged, and talking through the process of identifying appropriate elements. It all seemed so reasonable. Then I remembered that the presenters have been intimately involved with XBRL for many years. And years in XBRL are like “dog-years” to the rest of the world.

So the people presenting for the SEC, as reasonable and knowledgeable as they are, also have a half decade head start on all the filers that they trying to calm.

Predictions anyone?

There is a very good chance that detailed tagging of financial statements could be a real nightmare. I predicted that only the first wave of filers would actually be performing detailed tagging, and that the actual effort may lead to a SOX-like deferment for smaller filers. If detailed tagging does represent the level of effort that we’re hearing, the howls of pain from filers will sound a little like SOX. And this is not an economy in which significant addtional effort for reporting will be welcomed.

If it goes smoothly, this might end up as a non-issue. But that’s not a bet I’d be willing to take.

(*) I promised David Blaszkowsky that I would include his official disclaimer: “As a matter of policy, the Securities and Exchange Commission disclaims responsibility for the private statements of SEC employees.  The views I am expressing today are solely my own, and do not reflect the views of the Commission, the Commissioners, or of any employees other than myself.”

1. Why is XBRL so superior in technology to its other alternatives?

XBRL is designed for superior flexibility, yet in a standardized format. Since XBRL is based on the well-developed and accepted technology XML, it’s much more accepted by technical and business users.

Open specifications such as XBRL facilitate the ability of many different software packages to produce and exchange documents that work in a number of situations. The interoperability permits organizations to transmit information pretty easily.

2. How do you evaluate progress of XBRL adoption in the USA so far? Is everything ready for the second phase of the SEC’s mandate?

It was a slow start, but since the SEC mandate took place last summer, the “movement” of XBRL has gained great momentum. Mutual Fund Risk/Return tagging will soon follow the corporate financials, and corporate actions reporting in XBRL have generated a lot of discussion and enthusiasm. The SEC, software vendors and accounting firms have all spent a significant amount of energy and effort to actively promote XBRL and to educate organizations about the benefits of XBRL. We have seen a slow shift in corporations’ perceptions of XBRL in the last few months because they are finally seeing the benefits and a competitive advantage when they adopt XBRL for both internal and external reporting.

We don’t believe every company is ready for the 2nd phase of the SEC’s mandate to provide detailed tagged XBRL documents. Detailed tagging is a much more involved process for companies, and will require well-designed software and seasoned professionals to facilitate the tagging, validation and viewing/reviewing process.

First-wave companies have already selected their tagging vendor.  Now is the time to ask the tough questions and make sure their selected vendor has a solution in place and is not afraid to demonstrate the software, talk about the process (tagging, reviewing, rendering) and has the expertise to provide the services that corporations will need to successfully complete the detailed tagging.

The second- and third-wave companies should learn from the first 500 companies and pick a vendor wisely as soon as possible. It’s not too early to start planning, even if you are a third-wave company.

3. It seems that the biggest problem for the quick adoption of XBRL is the ignorance of it (there are some who like to say this due to its long learning curve) – do you think that all “stakeholders” (CPAs, CFOs, Financial and Accounting managers…) are aware of the existence of XBRL and that they have to “meet” with XBRL, sooner or later?

We believe stakeholders are finally caught up and have shown some interest in learning more about XBRL – not just the mandate, but also the benefits XBRL can bring. The “XBRL community” needs to do a better job of explaining XBRL in plain, understandable language. XBRL can be complicated, and it’s the job of regulatory agencies, software vendors, and even the academics to simplify the technology so that companies can focus on the benefits rather than the complexity that the technology brings.

4. When we talk about XBRL, we usually talk about external reporting. Do you know some examples of successful implementation of XBRL for internal reporting? Is internal reporting currently postponed in relation to mandating external reporting?

Yes I do.  Rivet Software started in 2003 with the vision that standards-based reporting (external and internal) is the future. At that time, XBRL was still in its infancy, and we have seen the promises that XBRL can bring. We believe in the technology, but more importantly, we understand that, in order to leverage the technology effectively, we need to create software applications that are end-user focused and not overly complicated.

We tell our customers that financial transformation is a journey. Today, most companies start with the “compliance” aspect because that’s what they have to do. However, the journey will continue on to better “control” and effective “communication” of their financial information – if the appropriate technology and intelligent implementation was selected.

We have a customer that has implemented XBRL GL-based internal reporting and is ready to file with the SEC using an integrated solution provided by Rivet.

5. Do your clients internally use XBRL for data consolidation and reporting or are any of them planning to adopt XBRL to maximize the efficiency of their internal processes as well?

We are starting to see clients integrating XBRL into their internal consolidation/reporting process. Most companies are playing catch-up on the mandate, and we believe that once the filing mandate becomes a standard business process, companies will be open to discover additional ways to adopt XBRL and to make their business processes more effective.

Software vendors need to be forward-thinking and create solutions that can take the customers to the next stage. It might not be a revenue generator today, but it will go a long way to better serve the user community if software companies work hard to create solutions that are needed tomorrow.

6. Present us with Rivet Software’s product and briefly tell us how it makes our life easier in tagging and analyzing financial statements.

We have three main products that are all based on our Crossfire Financial Reporting Platform – Compliance, Controller and CFO.  All three are designed to meet the XBRL reporting requirements of SEC corporate filers as well as providing better financial reporting for all users.  The difference between the packages, in a nutshell, is that our Compliance Package is designed to manage your filing preparation by using a simple cut-and-paste approach; our Controller Package streamlines the process by automatically integrating your data and includes improved internal controls and financial statement production and consolidation; and our CFO Package has the ability to integrate multiple data sources (from your GL/ERP/CPM) while providing more effective ways to communicate your information both internally and externally.

Rivet’s Crossfire Financial Reporting Platform includes features such as built-in tagging assistance, task-based workflow to facilitate working in teams, and basically reduced complexity to protect the end-user from XBRL – your taxonomy is completely hidden so your preparers will only see financial statement line items.   All three packages include the complete support of our Professional Services team, comprised of experienced CPAs, accounting, XBRL and finance professionals, to assist the user throughout the tagging and filing process.

7. It seems to me that your company is currently focused on USA and Canadian markets. Do you plan to expand business internationally? Have you seen an interest in that?

We do focus a lot more on the U.S. today because it’s an important market, and because we have worked very closely with the SEC in the past few years.

We created an XBRL-solution for Thomson/Reuters in 2008, and it’s currently being used to process XBRL filings from China, Japan and Korea. One of our other major clients is the Microfinance Information Exchange, Inc. (MIX).  They are a leading business information provider dedicated to strengthening the global microfinance sector. The MIX is using our solutions to tag and process thousands of XBRL documents based on the IFRS taxonomy.

Rivet will look at opportunities from other countries carefully. We believe that we have created a world-class XBRL-based reporting and analysis tool that can provide great benefits to many markets.  XBRL is a solution without borders, and Rivet is well positioned to pursue international opportunities.

8. What are the minimum requirements to fulfill XBRL-enabled software? What are a few tips on what features customers should look for in XBRL software?

Our view might be different from other software companies when it comes to XBRL. We believe in a well-crafted, comprehensive solution instead of specialized software components just to address certain areas that XBRL would touch.

Take SEC corporate filers as an example. We have created the Crossfire Reporting Platform to address the entire lifecycle of XBRL. Tagging is just a start, an integrated viewing and reviewing component that is critical for the filers to fully understand the “tags” selected for their companies, and we also show the filers how their selected tags are comparable – or not – to other SEC filers as well as other filers in their industry. We also show how the filing would be rendered to the public once it’s filed with the SEC.

Our benchmark module enables the filers to compare their filings with their competitors inside the Crossfire Reporting Platform.  It’s one thing to fulfill the SEC mandate and it’s another to be able to become more competitive while fulfilling the mandate requirements.

Companies should do their homework and ask tough questions when selecting their XBRL vendors. Select a vendor that can be your partner on this journey to financial transformation; select a vendor that can turn a compliance task into an opportunity.

9. Was the software industry adequately prepared for the introduction of XBRL? What is your comment on the lack of open source solutions?

In order to implement XBRL software, companies have devoted a lot of money and resources. It’s understandable that companies would be reluctant to put their expensive IPs into open source.  Rivet has a different view and has provided open source solutions for tagging and rendering. Anyone can go to the SEC website and download the source code for the SEC rendering engine and incorporate it into their own products.  Our hope was to promote a sense of community, so collectively we can all work together to make XBRL more accessible to end-users.

10. After a period of tagging XBRL reports, we are expecting the period of report analysis, comparison… What will be the key trends of XBRL software development in the future?

Reporting and analysis is the logical next step for XBRL software development.  With the availability of financial, mutual fund and other types of business data, customers will start looking for powerful, standards-based reporting/analysis solutions soon.  Other key areas for development might be auditing applications and budgeting/forecasting applications.

The two primary resources needed to meet the interactive data SEC filing mandate are training (people) and technology (software).  The typical options for obtaining the necessary resources to become compliant with the SEC mandate generally range from completely outsourcing the XBRL filing requirements to bringing the XBRL tagging process in house.  Your choice should be based on your company’s particular circumstances.  The following discussion will identify the pros and cons of three options; (1) outsource completely, (2) bringing XBRL compliance in house, or (3) some combination of both.

Option 1: Outsourcing

If you decide to completely outsource your SEC filing requirement you still need to understand the specifics of the SEC mandate relative to your company.  The compliance responsibility ultimately is still yours so the reliability of the interactive data service provider is crucial when choosing your XBRL service provider.  This option avoids the costs of XBRL technology training and the extra infrastructure that is required to run the software, including ongoing maintenance fees associated with both the hardware and software.  The degree of XBRL expertise necessary to meet a filing requirement once every quarter may be a core competency that can be more efficiently outsourced.

Pros: avoids XBRL-related IT and training costs

Cons: you are not in control of your filing and your internal staff does not have the knowledge to verify the accuracy of the filing (which you are still responsible for)

Option 2: In House

Buying the technology and training your internal resources to meet the interactive data SEC filing requirements provides you with complete control of the final work product.  There is benefit to knowing the details behind the numbers in the external financial reports while selecting particular taxonomy elements for the financial statement line items.  The initial costs may be higher than completely outsourcing. However, over time the ongoing expense may be lower with a successful initial implementation of XBRL technology and training.  On the other hand, if you experience personnel turnover in your external reporting group, your training costs could remain higher over time.

Pros: you are in complete control of your filing

Cons: you incur significant initial costs for IT setup and personnel training with no guarantee of success or accuracy

Option 3: Outsource / In House Combination

When you choose to outsource the technology while bringing the XBRL expertise fully or partially in house, you are generally choosing the best of both worlds. The decision to choose this option should be based on your company’s desired level of control, turnover expected in the external reporting role, and the cost versus benefit of having in house XBRL expertise as opposed to outsourcing your XBRL needs. But remember, you can outsource your XBRL tagging, but you can’t outsource compliance. It is a good idea to have someone internally that knows enough about XBRL to verify the accuracy of your filings. The software as a service (“SaaS”) business model has been in use for over 10 years and is continuing to gain traction in the marketplace as an efficient , secure and reliable technology option. By relinquishing certain controls over the systems when you choose a SAS 70 Type II SaaS model, you are freeing yourself from the burden of ensuring the security of the data.

Pros: you maintain control over your filing, your overhead is less than it would be if you chose a full outsource or in house solution, you receive training and support from a dedicated team of CPAs who are XBRL experts

Cons: perceived lack of control over the data

At Rivet Software we overcome this perceived lack of control by offering a customer empowerment business model that allows you to be as involved as you want to be in the tagging process. You can choose to have your staff fully trained by our experts from the beginning or you can opt to have our team handle your tagging for you. Our most common professional services delivery option has been to provide full service for the first year (4 quarters) block tagging filing requirements, then training the client to perform the quarterly block tagging instance filing thereafter. Then we provide full service during the second year (4 quarters) detailed tagging filing requirement, then train the client to perform the full block and detailed tagging for each ensuing quarterly instance filing thereafter. We also offer a test filing to all of our customers before they submit their filing. Our XBRL professional services team is comprised of CPAs with industry specific knowledge. Our flexible training and tagging options are complemented by our secure SAS70 Type II managed hosted facility. The SaaS technology delivery model promises easier, speedier and less expensive implementations.

The value proposition of Rivet’s combined outsource / in house solution is hard to ignore.

Share your thoughts:  http://blog.rivetsoftware.com/?p=1068

The first round of XBRL-based financial filings has already begun. The largest public companies filed their first financial statements in June of 2009. Many more will follow this June, and by June of 2011 all public companies will be required to tag their financial reports with XBRL meta-data prior to filing with the SEC.

If your finance department is tasked with achieving XBRL compliance, there are some things you can do to streamline the process and ensure a successful Year 1 or Year 2 filing.

1. Get Educated
   If you’re just bringing XBRL in-house for the first time, get professional help. There are a variety of free resources online – including the XBRL US Preparer’s Guide (although dated, it still offers a great starting point), and the XBRL US Educational Filer Series – that can get your team headed in the right direction. But you’ll need someone with credentials and past compliance experience to tell you what you need to know – and what you don’t.
2. Start Early
   For first-time filers, begin now. You should be prepared to perform an XBRL dry run by mid-April, testing your team’s capabilities and validating both your mapping and extension taxonomy. The SEC has posted a helpful list of their own observations, after reviewing the first year of filings, here.
3. Create a Cross-Functional Compliance Team
   Individuals from finance, IT, and your compliance department should be represented on a cross-functional team tasked with identifying and evaluating software vendors, documenting and streamlining the report creating and tagging process, and performing the initial mapping and identification of extensions.
4. Recycle
   For your initial XBRL planning, start with a 10-K. The goal should be to create a re-usable mapping and extension taxonomy that can be re-used from period to period and beyond. In the second year of compliance, the number of items to be tagged can increase exponentially: from an average of 300 to somewhere around 3,000 tags required. But if your initial extension taxonomy is developed correctly, the effort in year two should compare to (or possibly decrease from) the initial filing.
5. Embrace an Iterative “Map-Extend-Tag-Validate” Cycle
   The sooner you can validate your mapping and extension taxonomies, the better. Start with a small part of your financial statement (the face of your financials, for example), and work out from there. Remember to first map to the existing US GAAP taxonomy, extend only where needed, and test your assumptions by tagging a disclosure. Validate early and often. Perform this cycle iteratively, one disclosure at a time.
6. Embrace A Supply Chain Approach To Compliance
   If SOX compliance taught us one thing, it is that the most successful implementations of XBRL compliance will have benefits extending beyond the Office of Finance. By embracing a supply-chain approach to XBRL compliance, your business can begin to gain actionable decision-support information that should make you more competitive in the marketplace. Start at the end – tagging your financial statements with XBRL – then follow the sources of pain and integrate XBRL into pre-reporting processes such as the financial close. The data you mine will make your business more nimble, and the time you save will go straight to the bottom line.
7. Take the Embedded (not the Bolt-On) Approach to Compliance
   There are basically two types of XBRL software vendors: “Bolt-On” solutions which allow your finance team to tag the final financial statement after it is produced, and “Embedded” solutions. Embedded tools like Trintech’s Unity Xtensible Financial Reporting solution provide workflow and process management features that allow the formatting, mapping and review/approval workflow to be automated using business rules. So your team can “tag once” and “publish often” – eliminating the manual and repetitive re-tagging efforts required with a Bolt-On tool.
8. Assign A Point Person
   You should have a point person responsible for keeping up-to-date on XBRL compliance issues after your first filing. XBRL is an evolving and dynamic language, and the capabilities and issues involved change frequently.
9. Join A Club
   There are several well-respected organizations committed to overseeing the development of the XBRL standard and communicating its benefits to the global financial community. Trintech has representatives on two of these committees – XBRL US and XBRL International.
10. Don’t Sweat The Small Stuff
    XBRL is new. You’ll be tempted to try and bite off more than you can – or need – to chew in your first year of compliance. The SEC is allowing businesses to ease into compliance in a phased manner over two years, and there are software vendors and consultants out there to help you get the lay of the land.

The new year brings new challenges … and new opportunities. Your XBRL compliance project will offer both – and the results will be worth it.

The real gestalt of Albrecht’s post appears to be about the power of the auditing establishment over the accounting establishment. However that’s not what interests me here.  I’m more concerned with the general lack of support in the post for the notion of global accounting standards.

Perhaps it’s helpful to start by reminding ourselves that international accounting standards are not new. One of the first was called ‘double entry bookeeping’, which is probably the only international standard to have emanated from Venice. This standard took many centuries to take hold probably because lots of accounting professors around the world argued against it. Yet who now remembers that competing standard – hexagonal entry bookkeeping – proposed by the Abacus Chair of the University of Bhutan?

Today, I believe double-entry bookeeping is widely accepted and in use – even in the USA. Yet despite its significant worldwide impact, Summa de arithmetica, geometria, proportioni et proportionalita is notably absent from Amazon’s bestseller list (so what hope is there for the XBRL-GL taxonomy?) I also know from personal experience that not everyone agrees with double entry bookkeeping, even in Italy. I well remember a call I received in 1989 from an accountant at the Vatican asking me how to make a single-sided entry in the accounting software I used to sell. Apparently they had something they wanted to keep off-balance sheet.

But back to the post. As Paul Wilkinson’s well-argued comments on Albrecht’s post essentially point out, accounting and auditing are just data management tasks – no more, no less. What is important is that these data management tasks can generate information that is accurate and reliable and can be consumed and leveraged by non-accounting professors. Information that can be compared like-for-like whatever ‘mumbo jumbo’ accounting standard like IFRS or GAAP generated the data. Investors don’t care about IFRS or GAAP they care about whether a company’s earnings per share means what they think it means or this company’s revenues can be reliably compared to that one’s.

That’s why an internationally-accepted financial information-management ‘meta-standard’ – like XBRL for example – is so important. XBRL helps to ensure that the data generated by IFRS, GAAP and whatever else a national jurisdiction dreams up, can be mapped to something that most people agree on. By all means allow accounting professors around the world to dream up double entry bookkeeping and triple bottom lines, and even movie plots, but let’s make sure that these academic innovations can be mapped into standardized concepts that are capable of generating information that information consumers, whoever and wherever they may be, can understand and make use of to help them in their decision-making processes.

So how does the movie end? We expect to see the pipe-smoking accounting professors watching with satisfaction as the evil regulators and Armani-suited auditors are led off to prison. Then as the dramatic strings of a John Barry soundtrack ratchet up the emotion, the band of brothers (plus the token bespectacled ‘sister’) board their station wagons and return to a leafy campus for a well-deserved victory sherry. Instead we find said professors sitting in an ‘Introduction to XBRL’ class, diligently tagging away at the financial statements of Halliburton and dreading their post-class detention when they will have to write a thousand times: ‘It’s the information that matters’ (as an XBRL-tagged footnote of course).

Share your thoughts:  http://blog.rivetsoftware.com/?p=1049