TechTalk Blog -- US HOUSE MUST ALLOW THE US SEC TO KEEP TOOLS LIKE XBRL TO PROTECT INVESTORS THROUGH MORE TRANSPARENT AND ACCOUNTABLE REPORTING

By David Colgren posted 05-09-2017 01:59 PM

  

In my March 22, 2017 IMA blog -- I mentioned that new legislation was introduced by Conservative Republican Congressman Darrell Issa of California that would continue the build-out of the global XBRL data standard for better financial transparency for government reporting across all federal government departments for financial reporting.

Unfortunately, on May 4, 2017 the US House Banking Committee passed legislation in the Dodd-Frank Roll-Back (Choice Act) to take the same XBRL data format -- now proposed for better financial government reporting transparency and remove XBRL for public company financial transparency that the US SEC uses for more than 60% of companies filing to agency.

Key Questions to Ask Members of Congress:

Why would these Congressional leaders support the use of XBRL for better federal government financial reporting but not for public company financial disclosure driving our capital markets growth and prosperity by preventing future Enron or Worldcom accounting fraud? We remember the effects of Enron of worker pension plans across the country…

Why would the US House vote to strip the US SEC from tools like XBRL to prevent accounting fraud and move back to paper reporting format like PDF which requires manual extraction of key data items to determine financial fraud?

The US SEC has been using the XBRL data reporting standard for almost 10 years now – why roll back something that Congressman Darrell Issa is suggesting not only be used for government reporting but also be moved across other asset classes besides the equities marketplace to protect both investors and taxpayers?

The US FDIC has been using XBRL for bank call reporting since October 2005 for more than 8,000 US Banks. Why would the US Congress want to roll-back the equities marketplace use of XBRL for reporting purposes?

Background

The XBRL global data standard was created by the accounting profession – to improve the transparency and accountability of business and financial reporting – both for government and for the capital markets for better decision making.

Congressman Issa issued the following press release about “The Financial Transparency Act” he and other Congressmen on both sides of the isle have introduced in the new Congress to promote better government reporting transparency.

From the article:

“The Financial Transparency Act, reintroduced by Rep. Darrell Issa, R-Calif., this week, would eliminate document-based financial filings. The eight major financial regulatory agencies would have to compile information already received under certain banking and securities laws into common data fields, and make other published information electronically searchable and downloadable without restriction.

The Treasury Department would also adopt data standards that reach across agencies and the Securities and Exchange Commission would replace its current financial statement reporting format with a single XBRL filing.”

This same XBRL data format is being deployed across the federal government for contract and grant making under the DATA ACT approved unanimously by the US Congress in 2016. Efforts are underway to deploy XBRL for Federal financial reporting since – according to the General Accounting Office (GAO) we don’t know where more than $144 billion is being spent by the Federal Government in 2016. The use of XBRL across federal financial reporting can help US government agencies report how taxpayer funds are being spent potentially linked to performance for better government.  

More than 50 countries are now using XBRL for more transparent and accountable reporting. In countries like Australia and the Netherlands they have gone even further -- using XBRL for a “Standard Business Report” that companies are disclosing that is shared across stock exchanges, regulators and investors using one report. It looks like Congressman Issa and other members of Congress from both parties would like the same model to apply to make businesses competitive and reduce regulatory reporting burden.

More than 2/3 of the world’s capital markets are using XBRL for better financial statement reporting by public companies.

With the XBRL global data standard – data reported by a company can be pulled off the Internet and put into Excel or business models for instant analysis without re-keying data.

Efforts are underway to use XBRL for nonfinancial information that companies disclose which also includes natural and human capital metrics to deal with better corporate governance topics such as global warming, diversity, human trafficking and child labor.

The IMA supports the build-out of XBRL because it allows management accountants to move away from keying data into Excel spreadsheets and move to data analytics – predictive analytics for companies they serve.

Ms. Liv Watson, IMA member and senior executive at Workiva is known as the “Mother of XBRL”. She has worked tirelessly behind the scenes to gain support and adoption of XBRL global data standard by the accounting profession to support the management accountant. Ms. Watson serves on the IMA’s Technology Solutions Practices Committee and has been an IMA for more than 25 years. Ms. Watson has written a book about XBRL called, “XBRL for Dummies” with Charles Hoffman the “Father of XBRL" that discusses the history and use of the data standard in the United States and abroad. Today -- more than 35 countries are using XBRL for business reporting and analysis. We are grateful for Liv's continued efforts to drive adoption of XBRL to assist management accountants. 

Governments, investors, bankers, and lawyers spend huge amounts of money and time looking for relevant business/financial data to make decisions – XBRL transforms both financial and critical business information into a machine-readable format linked to accounting rules that allows search engines on the Internet to better obtain and analyze vast amounts of information for instant review. 

With the move to the global IFRS accounting standard linked to XBRL we can -- one day have a public company issue an IFRS financial statement tagged in XBRL that can be consumed by stakeholders around the world including leading stock exchanges. Today, public companies have to issue country specific financial statements instead of one financial report using one accounting standard. This is extremely expensive to public companies and to the investment community that has to import and review across different accounting frameworks. Having one accounting standard -- IFRS linked to XBRL -- regulatory burden could be significantly reduced by having one report in one accounting standard using one data standard. Congressman Issa's legislation moves the world of accounting and regulatory reporting in this direction...    

Let's hope the full US House of Representatives and the US Senate will have the wisdom to remove amendments to the “Choice Act” that will allow the US SEC to keep tools like XBRL that promote transparency and accountability of financial reporting protecting millions of investors.  The capital markets is finally rebuilding investor confidence after the 2008 Wall Street Meltdown. The US SEC needs tools like XBRL prevent future Enron or Worldcom and safeguard millions of investors, workers that have stock in their pensions and taxpayers who would be required in some cases for bailouts.

Stay tuned. 

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