Representatives of securities regulators from around the world gathered Tuesday with Christopher Cox, chairman of the Securities and Exchange Commission, to compare notes on the progress of interactive data-tagging in their countries.
Most were effusive in their praise of the new technology, also known as XBRL, for extensible business reporting language. But countries are in different stages of developing their interactive data programs, and are taking varying approaches.
The XBRL data-tagging technology makes it easier for investors and analysts to easily search and compare companies’ financial statements, and thus shows promise for dramatically improving corporate transparency. Some companies, however, worry about the potential costs involved with making the switch.
“Change is here,” said Khushro Bulsara General Manager of India’s Bombay Stock Exchange. “It’s a wonderful tool.”
Like the U.S., India is making it mandatory for the country’s largest firms to file financial statements in the interactive data format. Bulsara said that it was important to create a critical mass of “big players” using interactive data before making smaller companies adopt. The first batch of filings will happen by the end of this year ,and then other companies will be phased in.
In the approach taken by the Netherlands, smaller firms are being asked to file in XBRL first, although the practice is not mandatory. Harm-Jan van Burg, senior policy maker of the Dutch Ministry of Finance, said that the free market must drive demand for XBRL, and claimed that Dutch companies could annually save $1.55 billion (€1 billion) if they all reported their financial statements with interactive data.
Japan’s Toshinori Kobayashi, director of enforcement for corporate disclosure, reported that there have been no major complaints with its XBRL project so far, noting that 5,000 companies and 3,000 mutual funds are required to report in the interactive format. Some smaller firms are “uneasy” about the prospect of filing in XBRL because they don’t think they have the technical ability to use it. Their taxonomy — the actual tags — does not yet accommodate footnotes to financial statements. Most companies said that their first XBRL filing took about twice as long to complete compared to a traditional filing.
Israel has taken a very hands-on approach, both developing a taxonomy that is based on International Financial Reporting Standards and creating tools for companies to convert their filings into that format. Their tags also include Hebrew translations for all IFRS terms. Israeli companies are obligated to file their reports with XBRL.
In China, all of the companies on the Shenzhen Stock Exchange and 863 companies on the Shanghai Stock Exchange are filing in XBRL according to Li Wei, deputy director-general of the China Securities Regulatory Commission’s information center. The system is somewhat complicated by one exchange’s use of Pinyin, or Chinese written in Roman letters, while the other uses Chinese characters. Shi Xiaocheng, deputy director of the Shanghai Stock Exchange’s information center, said that there has been a learning curve but that the filing system is easy for companies.
Other things are imperfect, too, in the world of interactive data. James Turner, vice chair of Canada’s Ontario Securities Commission, said that he has seen some resistance to XBRL, and that there is concern among small companies about the costs of the software. Another issue is that Canada, for which the current program is voluntary, has announced that it will be switching to IFRS in 2011. And companies do not want to have to file in XBRL with Canadian accounting principles, and then have to switch again.
“I’m feeling a little bit like the wayward son who’s not getting along with the family here,” Turner said.
Cox acknowledged that changing a country’s accounting standards is a major undertaking but said that switching to XBRL, once the software and data tags are in place, should be pretty simple.
“It’s like a freight train after that,” Cox said.
For its part, the SEC continues to get feedback on last month’s XBRL proposal. In May the commission approved a plan that initially would require companies with market capitalization of more than $5 billion — about 500 firms total — to make disclosures in XBRL format beginning in the fiscal periods ending in late 2008. They would become public in that format in early 2009. The following year, all other companies that file their statements using U.S. generally accepted accounting principles would have to follow suit. In the third year of the proposal, international companies that file with the SEC using IFRS would also be required to file in XBRL format.
“Interactive data will let the sun shine in as never before,” Cox said when the proposal was approved.