XBRL Quality Assurance – A Potentially Too Honest Take

November 3rd, 2015

 

“XBRL is an unfunded mandate, and I don’t like paying for it in the first place.  Furthermore, nobody is even using this data, so why would I approve additional expense to have our XBRL reviewed by an independent and expert third party?”

While this is a direct quote from a CFO I spoke with recently, I thought it pretty well sums up the sentiment I hear from a lot of people I speak with about XBRL in general and about our Quality Assurance Services in particular.

I’m in sales, so of course when I get this type of objection, I look to re-direct the focus of the conversation and find a new way to present the value of the service I’m offering.  Often times, this kind of sales-spin is not too difficult because the facts of the case point to a clear conclusion, and it’s just a matter of illuminating the facts and presenting them in such a way as to make it easier for the prospective client to arrive at the same conclusion.

However, as is the case with the quote above, sometimes the “facts of the matter” are not inherently helpful to your case.  Sometimes, one or more of the facts actually align to make it more difficult for your prospective client to see the value.  In my years of selling, I’ve witnessed myriad sales people try to “dance” around undesirable facts.  The steps to this dance are graceless, and the music is discordant.

I refuse to do that dance, which brings me (at long last) to the point of this post:  The CFO quoted above is correct in some very important respects.  My job is not to avoid these ‘difficult facts,’ but rather to shine a light on them and make my case nonetheless.

My argument:

  • Hiring an independent, 3rd party to expertly review your XBRL is a sound investment.

The difficult facts that must be admitted:

  • Very few people outside of the SEC are currently looking at your XBRL files.
  • A review of the quality of your XBRL is, quite simply, not something you need to do at this point.

It is true that that outside of the SEC, very few people of immediate consequence to your company are looking at or utilizing XBRL data.  However, all the analysts I’ve spoken to or heard at conferences admit they would love to use this data, because XBRL would hugely improve and hasten their access to important information that drives investment decisions.  The only reason they don’t currently use it, they say, is because there is not enough data out there of reliable quality.  Much of the XBRL data being created by firms that outsource the work overseas—or that is created in-house by companies using some of the leading document control software—is not of consistent quality and does not provide a sufficiently accurate depiction of the filer’s financials to be trusted.

To this point, I say that there is both a present and future benefit to ensuring your XBRL is quality and useable for analysts.  Presently, the major analyst and investment houses are not currently using your XBRL code, but many people both in the investment community and the academic community are, and it is of significant importance that your XBRL present an accurate depiction of your financial disclosures.  And in the future, when the major analysts do start using this data (and they most certainly will), having a history of accurate and useable XBRL filings for them to call upon will put your company’s disclosures in a position of strength compared to the rest of the market.

Finally, it is also true that the SEC is not yet enforcing XBRL data quality to any significant degree, and there is scant motivation in terms of strict compliance.  However, the SEC has invested years of resources to the establishment of this new reporting requirement, and they will be increasing their enforcement of quality and expanding on steps they’ve already taken.  They already use XBRL as the main tool of their RoboCop fraud detection tool and to expand their enforcement reach.  The SEC has only increased its commitment to the XBRL reporting requirement, and they have also massively increased its use of the data.  So being out ahead of the SEC current requirements is valuable in its own right.

I liken a thorough review of your XBRL by 3rd party experts to buying auto insurance that also improves the performance of your car.  Ensuring your XBRL is of the highest quality will keep the SEC out of your hair now and in the future, and it will also make your data more available to and useable for analysts who will be using this data to drive important investment decisions.

Please feel free to contact me anytime.

Stewart Walker – SVP, Director of Sales

(415) 643-6017