There are a few commentators that feel that XBRL contains “too many tags”. I think they are wrong… XBRL models a complex human system (accounting) with lots of small components (disclosure rules).
So, a number of these “too many tags” kind of comments are creeping into articles being printed about XBRL. Interesting. Fundamentally flawed, but interesting. In particular, I mean this part:
Industry commentators have said that too many taxonomies have been created within XBRL, making it too complicated, time-consuming and costly for companies to use in its current guise. From Kevin Reid in Accountancy Age.
The unnamed commentators are usually one of a few usual suspects who have just come at this technology from the wrong angle.
Do this: download a financial statement from a leading company, listed on the stock-exchange of your choice. Count the number of different accounting disclosures.
Just at random, I’ve downloaded the annual report from BP, admittedly a company with a reputation for quality and quantity in their investor relations. The Excel file available from here contains just the financials, required accounting policies and certain non-GAAP statistics about the company’s exploration activities.
Sixty-eight pages of performance information. At a quick glance, there are at least 20 different concepts on each page, 1400 different concepts.
Companies don’t go to the expense of publishing this many performance concepts unless they have to (it’s a requirement of the accounting standards they work with) or they want to (they believe that their investor relations message will be enhanced or made clearer). Accounting authorities don’t include reporting concepts in their accounting standards that are unnecessary or useless. So those (at least) 1400 concepts published by BP make up a package of information that either the company itself, or the accounting authorities, consider will be analyzed by market participants.
The point about XBRL is that each of those 1400 concepts either already has been, or can be, encapsulated in a taxonomy. Making comparison between companies a task that can be largely automated, or, just as importantly, making comparisons of a single company across time, something that can be dealt with by computers, instead of people. Freeing up people to think about what those comparisons mean, instead of manipulating spreadsheets and summary databases, (or worse) retyping 1400 concepts before being able to make those comparisons at all. Those comparisons are only possible through the use of taxonomies. They define what each disclosure means, link them to related disclosures, determine how they are calculated, impose validation rules around them and add references to relevant authoritative literature.
The number of taxonomies that exist reflects the diversity of economic life. The US has a different accounting framework to that used in Europe. Oil and Gas companies need to disclose different performance measures to those that matter in Aerospace. BP has different investor relations objectives to Shell. So you just can’t get away from the fact that XBRL has lots of taxonomies, and each of those taxonomies contains lots of tags. But are there too many? Nope. Just the number in use in corporate life in the naughties. Is it too hard for companies to use? Nope. While you wouldn’t want to approach it from first principles (that specification is a nasty read), implementation right now means using tools that others have already built. Most companies just want to be able to publish performance data in a format that is an unambiguous interpretation of their financial or business performance. For them, the task amounts to:
- finding the right taxonomies,
- matching the right tags to their performance measures; and
- publishing the right values inside those tags, together with a few other bits of key information, like which company, date and currency that disclosure relates to.
There are a whole bunch of tools (granted not as many as some of us would like), and some talented people, that can help them do that.
The task of XBRL has never been to change the way that accounting works… and that is the only way you would reduce the number of tags. Technology usually models human systems. In fact it tends to fail when it tries to change them. And the accounting system, while venerable, is both highly regulated and critical to the global economy. XBRL is just a better way of communicating performance.