So far, I’ve attempted to suggest that the SEC’s new IDEA system will be the logical continuation of disclosure-based regulation, taking into account the capabilities of rather more modern technology than the "paper under glass" arrangements that today’s EDGAR system (and the majority of other disclosure systems in use around the world) utilise ie: ASCII, HTML and PDF. It’s logical, but disruptive in a slow and steady kind of way. Yesterday, we went through some trends that follow from the IDEA platform, including the inevitable pressure, market as well as regulatory based, for additional markup; the way that markup will probably find its way onto web sites; the possibilities that a SOA platform like the IDEA one provides for new applications, public and private; and the importance of XBRL extensions.
So what? Well, here are a few suggestions for preparers, as well as for consumers of various sorts.
Issuers and Preparers
It will take time for the SEC’s new approach to take hold. File all of this as "Important, but not yet Urgent".
Make tagging a robust process
If you are thinking, today, in terms of tagging the financials and hoping that no-one much will look at them in that format, think again. There will be more and more requirements to tag corporate performance information. This means that companies should be talking with their BI and performance reporting vendors, to work out how they can incorporate the process of tagging into the close and into the normal reporting processes. You’ll quickly discover that they are mostly still in the development stages, but they will appreciate your input and statement of requirements. Think about whether you want your auditors involved (at this stage it is not mandatory, but that will change), and start talking to them about what they would do and how it will help your reporting. At present there are a very small number of shops looking at the way that XBRL can become an asset to enterprise reporting. But they are clearly on the right path.
Review the way that your peers are reporting in XBRL
Companies will want to make sure that their XBRL-based disclosures conform to industry norms (if they don’t want to get complaints from analysts and investors, that is). This will be a balancing act. Every company wants to be as comparable as is necessary, and no more. Inside industry bodies, or just informally, examine the way that others are using XBRL and which tags are being used in specific circumstances. There will be various industry-specific disclosures that are probably not in the official taxonomies – suggest that they get added. There will be other situations in which it makes sense to create industry extensions – agreed sets of industry tags that might involve non-GAAP concepts,or be too specialised to be incorporated into the official GAAP framework. These kinds of horizontal extensions can be referenced by members of that industry inside their instance documents. Hopefully, XBRL-US will act as an independent broker to make this kind of collaboration work in the US. Internationally the EBR consortium, working together with a number of other similar groups around the world, are also keen to help.
Start discussing your tagging decisions with your analysts.
Honestly, if you speak to your analysts today, more than half of them are likely to look at you with a puzzled look. However, that is changing quickly, and investment firms of all sorts are either making plans to use XBRL internally, or working with (or waiting for) their market data providers to fill the channel. As soon as their own systems are up to speed (unlikely to be before the middle of 2009) they will start providing you feedback. Get on the front foot. Be specific.
Treat your extension taxonomy as a corporate asset
Your extension taxonomies tell the world the things that are different about you. IDEA and similar platforms in other countries will make that information very accessible to analysts and investors, so think it through yourselves. Having well thought out, consistent and complete extension taxonomies will become a crucial part of external reporting.
Infomediaries and Portals
IDEA is either a big new opportunity or a big new threat, depending on the way you view things. In contrast to the preparers, this is both urgent and important.
This is too obvious to dwell on really. If the data that, today, is difficult to obtain and organise is suddenly freely available, infomediaries that are in that business today need to move upstream, or ensure that they can add still-difficult-to-access data to the freely available sort. Those in the business already know that, although many, over the years, have vacillated about what to do in this field.
You need to be able to consume XBRL metadata and data and incorporate it into your systems. Generically. By which I mean: make sure that your infrastructure can handle lots of different taxonomies. We’ve seen a few that hard code dependencies to specific taxonomies or worse, specific versions of taxonomies. Think bigger. Think in terms of being able to consume XBRL messages from lots of (hopefully interoperable) services around the world, not just IDEA. That means APIs, quite possibly XML databases, and mapping and cross-mapping mechanisms. Y’all shout out if you need help now.
Give as well as receive
Services like IDEA will be the catalyst for a lot of applications that can consume XBRL. Some of them will be owned by your clients. Others your partners. Start considering delivering some of your offerings in the same format, via complimentary services.
Get your hands dirty
interactive doodah, XRB..XBRL stuff is here to stay. If your investment technology group doesn’t understand it and in some detail, then you’ll need to get them to learn. Not just them either. Your analysis teams need to understand the idea of markup, the tricks, the traps, the common errors. The ways that, if they were so inclined, a company might seek to use the technology to be less comparable. You’ll want ways to classify extension concepts that issuers publish. Relevant? Only interesting in terms of a company timeseries? Useful and needs to be mapped somewhere else? You’ll need the wherewithal to instantly transform the layout and calculation decisions contained in a company’s filing into your own, preferred view.
And (sorry) you’ll need to be patient, as corporate finance functions and their providers come to grips with what they need to do, what works and what doesn’t. But don’t fall behind. This is a curve you want to get out in front of. The SEC’s proposed rule calls for XBRL versions of accounts to be filed as exhibits concurrent with the EDGAR text versions.
The only way to learn this stuff is to do it. Technologists that want to get up to speed very quickly can do so by participating in one of the technical or best practice working groups of the consortium.
Develop a feedback loop
Analysts and Investors that are consuming XBRL documents will need to develop ways to provide feedback to companies that are publishing them. Be nice people! Everyone has a learning curve here. You’ll be very well placed to point out inconsistencies in markup and extension decisions. No doubt you’ll be listened to.
So there you go. Free advice. You all know what that’s worth.
On a serious note, although dressed up as PR and even though nothing really new was announced by the SEC, count me, at least, as one observer who thinks that the regulator has come up with a very important IDEA.