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No Need to Fear XBRL

No Need to Fear XBRL

by Rick Turoczy on April 24, 2006

Companies have been slow to adopt XBRL. One reason may be the distraction and burden of Sarbanes-Oxley compliance. We noted another reason several weeks ago: Some companies are afraid it will be a back door to regulating the structure of corporate charts of accounts into a single model, something that we believe is a very bad idea. Since then we have learned that the SEC, the ultimate arbiter in this case, is opposed to a single chart of accounts structure for U.S. public companies. Gary Booth, CIO of the SEC, recently stated in a speech that the “guiding principle I think the SEC should continue to pursue is to make sure registrants continue to have as much flexibility in the presentation of their financial statements as they currently do under U.S. GAAP accounting.”

Booth went on to note that an attempt by the SEC to simplify reporting through a “fill in the blanks” approach failed because “the universe of SEC registrants is extremely diverse, and we need to account for that.” In remarks to an XBRL conference this January, SEC Chairman Christopher Cox, who views XBRL as a cornerstone of his agenda, echoed the same tone. Far from encouraging a single accounting structure, the SEC sees XBRL as a means of maintaining flexible accounting standards in increasingly global financial markets. Properly structured, XBRL would enable users of filings to view results in U.S. Generally Accepted Accounting Principles (GAAP), European International Financial Reporting Standards (IFRS), or both. Another reason adoption has been slow is that development of the taxonomies underlying XBRL has not received much support. Although the concepts underlying a universal taxonomy for financial statements are clear, the devil is in the details. Broad categories of assets and liabilities may be easy to caption. However, establishing the structure of how specific items roll up into “Other Liabilities” or “Property, Plant and Equipment” is a painstaking process, precisely because companies in different industries with different business models report their results in different ways. Moreover, XBRL must be able to accommodate individual companies’ reporting preferences.

No Need to Fear XBRL

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