XBRL: A Colossal Waste of Time (and Money)?

By Cydney Posner

Here's an article that should be music to everyone's ears, but did they really need to perform a study to prove this??  This article in Compliance Week, "If You Build It, They May Not Come,"  discusses a new report from Columbia Business School indicating that the time-consuming and costly effort to implement XBRL "might have been a colossal waste of time." As the author notes, after reading the report, anyone involved in the corporate reporting process might feel "like they just spent months building a ballpark in a cornfield, only to find that no one seems to be showing up." 

Apparently, according to the report, the investors and analysts that were supposed to benefit from XBRL "don't seem to be using it.  According to the report's authors,… analysts and investors remain skeptical about XBRL and have many concerns about its utility. The main complaint, according to the study, is that the data is still unreliable and fraught with errors. ‘We could not identify any users or potential users who were comfortable with the reliability of the XBRL-tagged data currently available,' the authors write." The article notes that the SEC has been "very vocal about the need to clean up mistakes and tagging errors," highlighting that limited liability depends on the company's good faith efforts and prompt correction of errors. Apparently, a major problem is that companies are still using too many company-specific tags, known as "extensions," rather than existing tags. The author speculates that "part of the problem lies with filers. They tend to think that the whole project is an exercise in tedium, and therefore they aren't vested enough in the process to truly make it work. ‘Most filers we surveyed doubt whether any investors are using their XBRL data and believe they are bearing an unnecessary incremental cost with any benefits going to data aggregators who resell the data and can reduce their own data collection costs,' the [report] authors write. They found that companies aren't using their own XBRL interactive data for internal decision making or for benchmarking with peers. Until that changes, filers might not have enough skin in the game to really make XBRL work."

Another deterrent for analysts and investors is that XBRL is limited to financial filings and doesn't apply to much of the other information that they use in their models and analyses. (But fixing that problem would mean expanding the use of XBRL to earnings releases and MD&A, and who can get behind that?) In addition, there are still too few analytical tools that make use of XBRL. There are efforts underway to develop tools (and an offer of a $20,000 grand prize), but might it be a little late?  The author suggests that "it's way too soon to dub XBRL a failure or to predict its demise. But the window of opportunity won't be open forever, either….The fact is that just because you build it doesn't mean they'll come. You've got to make it great. And with XBRL, it's not entirely clear that regulators and, more importantly, filers have enough vested interest to improve XBRL to make it useful enough to get a broad swath of its intended audience to use it regularly."

The question remains whether the SEC will continue to require that companies expend the time and money for data-tagging with XBRL (not to mention the potential impact on quality as a consequence of the abbreviated review time that results from the need to implement XBRL), when the benefit seems to be so negligible?  Where were you Business Roundtable when these rules were adopted?

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