It has been four years since XBRL became a four letter word to issuers and nearly eight years since the SEC introduced the concept to issuers, yet XBRL hasn’t fulfilled the SEC’s prediction of XBRL increasing the “speed, accuracy and usability of financial disclosure.” Largely, the reason for the failed prediction is that many potential users haven’t yet discovered the “usefulness” of XBRL. Eight years, however, seems like plenty of time for the usefulness of XBRL to catch on. Given that investors and analysts aren’t using the XBRL data, isn’t it time for the SEC to waive the white flag and eliminate the XBRL filing requirement?
XBRL, of course, was the SEC’s way of racing into the 21st Century. With high hopes in 2004, then-SEC Chair William Donaldson initiated a study to see how interactive data could benefit the Commission and investors. In the final rule release, the Commission noted potential benefits such as more financial information being available to investors; less costly and more timely financial information; fewer errors; and increased comparability and interpretation of financial data. While these benefits have been largely unrealized, the expected costs incurred by issuers have been realized. Given the ability to look at the XBRL mandate now with real cost and benefit data, it seems that the Commission should re-evaluate the original mandate.
In the meantime, XBRL may be remembered by us in the same vein as Betamax and the Laserdisc – great technology that just never caught on. Of course, the only difference between failed technological products and the SEC’s XBRL mandate is that the government did not force you to purchase metal detecting sandals (I don’t remember that one either, but isn’t that the point?) Alright, maybe it isn’t entirely fair to lump XBRL into the same category as failed technologies, but it is yet another burden placed on public companies that private companies do not have (other than community banks who file their Call Reports using XBRL).
Maybe XBRL is just a product that customers (investors, analysts, issuers) have no interest in obtaining regardless of the cost. Sometimes government assistance is necessary to fix a failure in the free markets (providing highways, formation of monopolies, etc.), but other times the government’s assistance merely causes costs to be incurred for no rational reason (i.e., non-market failure). For example, I hadn’t seen riots when the U.S. Post Office tried to curtail Saturday mail delivery, yet Congress insisted this product be provided despite the fact that fewer and fewer people actually mail anything.
So, if no one is using the information then why hasn’t the SEC decided to thrown in the towel on XBRL? The primary reason may be that the biggest user of the interactive data may be the SEC itself in determining whether to subject a filing to further review. In other words, it appears that while XBRL doesn’t seem to benefit the intended beneficiaries, it may stick around because it is helping the SEC determine where to focus its enforcement efforts. Mandating XBRL to aid enforcement and to protect investors is certainly the Commission’s right, but it does seem that maintaining XBRL on the premise that the information directly helps investors, issuers, and analysts is disingenuous.
My prediction: XBRL isn’t going anywhere. In fact, issuers need to use the same amount of effort in making sure that their interactive data files are correct as any other part of the filing. And expect that, at some point in the next year, issuers will receive very specific comments from the Division of Corporation Finance when the issuers’ financial statements appear “out of line” with the industry average.