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This is annual report season, the time of year that a majority of European and North American corporations issue glossy paper documents aimed at investors, customers, suppliers, existing and prospective employees as well as the public at large. (Some countries have different conventions; in Japan, for instance, most companies are on a March fiscal year.) In reviewing some of the annual reports that are available on the Web, I was struck by the absence of advanced reporting technology used on investor web pages and in online annual reports of vendors of advanced reporting technology. (One notable exception is Microsoft, which uses Silverlight on its investor web pages.) Adobe Acrobat (introduced 20 years ago) is the presentation method of choice for the annual report. It would be great if publicly traded vendors that sell tools that automate the process of assembling investor documents (such as Exact SoftwareIBMInforSAP and Trintech) would demonstrate their value beyond simple compliance. These companies’ tools support and automate the processes that are part of what some call “the last mile of finance,” referring to their use in the final steps of a stream of activities that starts with closing the books and performing statutory financial consolidations and ends with publishing and filing financial documents to satisfy regulatory or contractual obligations. (I prefer to use the term “close-to-disclose cycle” because it’s a more accurate description.) These vendors should go the extra mile and redesign their investor sites to show how XBRL-tagged financial documents can be used to communicate more effectively with shareholders.

Most people engaged in investor relations and corporate reporting don’t see the value in the U.S. Securities and Exchange (SEC) mandate to use eXtensible Business Reporting (XBRL) tags for their financial statements. The SEC’s mandate has done a great job of collecting a trove of accessible data, but few individual investors and only a minority of investment practitioners are using it because of a lack of available tools for using the data, among other reasons.

I understand why companies don’t use XBRL technology on their websites: those responsible for external reporting view tagging as a regulatory requirement that’s a nuisance, not a benefit. Those responsible for public and investor relations likely haven’t considered how they can exploit XBRL’s potential. The vendors of the tagging tools don’t care because the SEC’s mandate and other regulatory rules are their demand generators. If they needed to sell the software on its ability to improve corporate and investor communications, they probably would already be showing off such capabilities.

There are few technology barriers to implementing more interactive investor sites that enable users to work with data in a more effective manner. Instead of treating the electronic filing requirements as a compliance issue with little or no business value, public companies should be utilizing the effort they’ve already put into their statutory filings to offer financial and corporate communications with more pizzazz. Companies, especially technology vendors, can transform their mandated interactive financial disclosures into differentiated corporate communications that explain their strategy, performance, opportunities, financial position and stewardship. This amounts to the electronic equivalent of the venerable annual report printed on heavy, glossy paper, and would offer interactive data, dynamic charting and other presentation forms to promote more effective communications and better insight.

An easy way for companies to add sizzle to substance on their investor pages is to use XBRL-tagged data to create an experience that’s only available on the Internet. Businesses that buy tagging tools and software that automates and supports the close-to-disclose cycle would probably feel better about their investments if they could see some practical payoff. Those selling the software are in a great position to show the way and benefit from being the first to show off its possibilities.

Regards,

Robert Kugel – SVP Research

I was discussing the United States Securities and Exchange Commission’s (SEC) eXtensible Business Reporting Language (XBRL) mandate with a former head of investor relations at a Fortune 100 company. His take on it is much the same as that of everyone else involved with corporate reporting: it doesn’t produce much value and costs a bundle to comply. I related to him my thoughts on the lack of progress I saw in making the XBRL mandate more useful to corporations and investors alike. Making XBRL data readily available to the public – not just for SEC enforcement purposes – is consistent with the SEC’s three-fold mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. In addition to giving XBRL-tagged data greater practical value to investors, the trove of company data assembled by the SEC could be used by a wide range of people working within corporations.

Recently, in the context of our long-range planning benchmark research, a CFO asked me if I had capital spending metrics for her specific industry. To be sure, there are paid-for services that provide these sorts of metrics but (like me) CFOs seem to be preternaturally cheap. For them, another approach would be to collect relevant data from U.S. public companies in that industry from the SEC’s EDGAR database. Before XBRL, assembling the data was time-consuming, since it involves sorting through the list of companies in a specific SIC code grouping, selecting the existing relevant companies while ignoring the defunct ones, and retrieving their most recent 10-K (annual) filings. After the introduction of XBRL the process is… still time-consuming. Indeed, I checked and there’s exactly no difference in the time it takes to retrieve and analyze the data today and the time it took in the 1990s. The main difference is that back then, the filings were in text format; today they are rendered in HTML. The steps required to get the data, arrange it in a spreadsheet and analyze the results are almost exactly the same.

Contrast the difficulty of getting data from EDGAR with the relative ease of retrieving numbers from the Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS). These two government data sources make it relatively easy to download specific data sets into spreadsheets or flat file structures for further analysis. While the original idea was for the SEC to provide people with an interactive analysis tool that would enable them to make use of XBRL-tagged data, I’d settle for EDGAR providing a useful interactive data retrieval tool. In particular, I’d like one that would enable me to (for example) select an SIC code, select elements from the XBRL taxonomy, select time periods, and then download the result in some readily usable format such as a spreadsheet or as flat file data for further interactive analysis.

One reason EDGAR data remains a static, hard-to-use pile of numbers is that too many people involved in financial software companies and the SEC continue to act as if the data in EDGAR is readily consumable. It is not. To address the lack of useful tools, XBRL US began the XBRL Challenge. It’s a good first step, but much more must be done. Since the XBRL mandate was put into action, U.S. filers have collectively spent hundreds of millions of dollars complying with the requirement. Since fiscal 2008, the SEC’s budget has increased by almost $400 million, or 40 percent. A rounding error in this sum would have been sufficient to fund the development of a method of extracting XBRL tagged data and an interactive XBRL-enabled analysis tool.

Regards,

Robert Kugel – SVP Research

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