I see that Dominic Jones is at it again… providing Christmas Cheer to the Investment Relations community. His take on XBRL? It’s unstoppable and will put Investor Relations Officers with a financial background out of a job. I wouldn’t be too sure.
In fact, I think it might have the opposite effect. Why? Let me try and calm a few nerves.
Interactive data makes it easier for analysts and investors to do their work and to do it more thoroughly, but it doesn’t change accounting. Wherever GAAP (or IFRS if you are this side of the pond) provides you flexibility, that flexibility still exists. XBRL doesn’t force you into template reporting.
Companies will still disclose their financials within the accounting rules in force. In other words, the game associated with disclosure will continue: companies that want to be compared to their peers will do their best to make comparison easy. Companies that don’t, will do their best not to. All within the rules you understand.
Of course, some things will change. Companies will largely operate rationally and use the technology in a way that maximises their capacity to communicate with investors and analysts. Specifically that will mean that companies will do two things.
Firstly, In addition to face financials, companies will disclose in XBRL format at least those notes that are "analyst friendly". They might be mandatory of course. The notes to the accounts that everyone knows that analysts want to use in their models: Leasing notes, pension notes, off-balance sheet instruments such as securitized assets or captive finance operations. This is the stuff that analysts use to adjust the published financials in order to make the accounts more comparable with other companies. They are going to do it anyway, let’s make it easy for them. Not providing this type of information in XBRL will simply make it harder to analyse the accounts – making it more attractive to analyse someone else’s.
I imagine that financially savvy IROs will spend a lot of time (a) making sure that these types of XBRL disclosures are being done right and (b) trying to ensure that they are being interpreted correctly.
Secondly, IROs will help their finance teams ensure that the key performance measures contained in the company’s investment messaging are reflected in the accounts. Wherever possible by way of extension taxonomies. If you can link the President’s message about growth in China with compelling performance data that proves the point, you are going to want to. In XBRL. Analysts will happily suck up that information and include it in their models. IROs are going to be involved in helping structure the way certain disclosures are captured in company-specific extension taxonomies. It’s a direct link to investors. Use it.
Remember: XBRL provides more relevant, accurate information in a machine readable format. Better numbers. More data means deeper, more sophisticated models that take into account aspects of company operations that today are often ignored. Expect the sell and buy-sides to have more questions, not less.
Oh, and of course, there will be a pretty lengthy transition period as the investment world gets XBRL-savvy. Two to three Christmases yet before anyone should even begin to contemplate new careers. By that time they might find that they are busier than ever.
Dominic is dead right on part of his message. Should IROs learn to be better communicators and get web savvy, perhaps doing away with their boilerplate web sites? For sure. More on the latter point early in the New Year.
By the way. Not sure what an extension taxonomy is? Visit the great new XBRL-US site to learn.