While the Securities and Exchange Commission’s effort to automate public company financial reporting is well underway, with about 9,000 public companies already filing using eXtensible Business Reporting Language (XBRL) since 2009, the SEC and other regulators had hoped by now that the XML language data itself would be used internally by corporations as an everyday analytical tool—which is not yet the case.
Some corporations’ internal financial analysts are still reluctant to use XBRL when conducting their own research in-house and when checking data submitted by other companies to the SEC. “I really just think it’s a regulatory platform right now. This is something we need to comply with. This isn’t something we find useful. This isn’t something I’ve heard my analysts say is useful,” said Nick Cyprus, vice president, controller and chief accounting officer at General Motors at a Financial Executives International conference last week.
In particular, the SEC wanted the tool to be used for data research, not just for inputting financial data. But some corporate executives say XBRL is not widely used for other purposes besides filing.
Others say their own research tools are more sophisticated and can capture a whole lot more than what can be captured by XBRL. “The regulators thought that most companies would eventually use this data tagging internally. But we see absolutely no use for it. It’s just redundant to what we already have,” adds Stephen J. Cosgrove, vice president, corporate controller, and chief accounting officer at Johnson & Johnson at the FEI conference.
Similarly, Kenneth Kelly, senior vice president and controller at McCormick & Company, said the SEC and regulators thought companies’ would eventually start to include XBRL tagging for their own internal documents and also that they would perform research based on the automatic filing data. But, he notes, that companies have more sophisticated research needs and don’t actually benefit from it. “It was a nice theory.”
Industry participants blame some corporations’ disdain for more XBRL use on companies having too challenging a time in complying with the financial reporting end initially. Some executives say that converting to XBRL financial reporting has been very labor intensive and cumbersome. The formatting initially involves “tagging” or defining each item in the financial statement. In order to convert a corporation’s financial statement information for XBRL formatting, a company has to either upgrade its systems to be able to produce the financial statements or look to outsource the function to an XBRL service provider.
Michael Kaplan, partner and co-head of the global capital markets group at international law firm Davis Polk, says most companies do not tend to outsource all of the financial reporting function with an XBRL service provider, choosing to do some portion typically in-house.
Even if they do outsource some parts of their XBRL compliance, corporation have had a tough time adhering to the reporting requirement. “Everyone has to do it,” however, notes Kaplan, even though some corporations may complain about how time consuming it may be. Alternatively, if a company does not comply with XBRL reporting, he cautions that the filing would be deficient. “It doesn’t count as a good filing,” he adds.
Corporations also tend to have much less use for the reporting language than do the investors in those firms. “It’s really meant for the investing community on Wall Street,” says Kaplan. The SEC initiated the automated financial reporting requirement to help investors (as well as the SEC) to more easily compare financial information across corporations.
The SEC mandated XBRL to be implemented in 2011 by almost all public companies, though the largest firms had to comply with XBRL reporting requirements by fiscal period ending in June 2009.