We are delighted to see how quickly the mainstream media is catching on to XBRL, calling for its use by the government. A March 11 Congressional hearing attracted a lot of attention when US XBRL organization president Mark Bolgiano explained how XBRL could produce consistent, comparable reporting on the existing pool of securitized assets for public access, and could also help regulators track the disbursement and use of TARP funds. Read the full XBRL US press release.

In fact, the idea of using XBRL to track loans is catching on so fast that within days of the hearing where many legislators firsts heard of XBRL, we came across a financial blog accusing the “inept” Obama administration of inaction in having not already implemented it!

Implementation could begin quickly. Just how XBRL can be used to separate good loans from bad is described in a white paper by EDGAR Online CEO Philip Moyer. Called Bringing Transparency to the Mortgage-backed Securities Market, the paper was a key resource for the XBRL US testimony and it is also attracting mainstream interest. The white paper is open for public comment.

We agree with the premise of the Wall Street Journal article by Crovitz, who argues that while XBRL solves the technical problem, the political problem is Washington’s focus on increasing regulatory powers instead of increasing transparency: “…markets are too complex for even the most powerful regulators to dictate. Better transparency is the surest way to make markets more efficient and less volatile. Market wisdom results when more people access better information.” Read the full Wall Street Journal article.
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Written by EDGAR Online President and CEO Philip Moyer, the position paper shows exactly how standardization in XBRL can benefit industry and government leaders working to alleviate the current financial crisis.

The industry is awash in a sea of incomparable data,” writes Moyer, “but we don’t need to invent another reporting standard to solve this problem.” Download the full text.

“The technology and information necessary to make the data reporting standards a reality in this market already exists and can be implemented for a relatively low overall cost by most market participants. Every member of the MBS supply chain is bearing the cost of broken information standards already. The market needs digital transparency to unlock the great cash flows frozen in the MBS market. Standardized information can shine a bright light on what is wrong and more importantly, on all that is right with the re-securitization market.”

The paper is addressed to those industry leaders, regulators, legislators, and investors, who want to define transparency-and restore trust. The paper was a key resource for the XBRL US in its testimony March 11 before the Domestic Policy Subcommittee hearing of the Oversight and Government Reform Committee. The hearing, on the Treasury Department’s oversight of the use of funds by financial institutions under the Troubled Asset Relief Program (TARP), addressed data collection procedures to monitor the use of funds and the ability of the Treasury to detect and prevent waste and misuse of funds.

XBRL US invites comments to and participation in the solution offered to fix the broken information ecosystem that is plaguing the MBS market.

The morning discussions moved back and forth between economic interpretations, technological implementation, and banking operations.  It was clear to everyone, said Alder, “that the sharing of normalized data via common interfaces could provide regulatory authorities with new insights on systemic risk.”  In the afternoon, XBRL was the topic, and what might have happened if Lehman Brothers data had been reported in this data format: “XBRL metadata tags would have identified the relevant information to computerized analytical tools, and the financial institutions could have summarized their exact exposure at the press of a button.”

Adler chairs the IBM Data Governance Council and writes about the exciting two-day meeting in a blog post titled Smart Financial Regulation because that is what the group believes can be done, and soon. Smart Financial Regluation reguires 1) a new reporting structure (XBRL taxonomy) that precisely describes financial products and 2) new regulatory reporting rules preventing the trading of financial products unless they are defined using this new taxonomic vocabulary.

Alder says he intends to host regular meetings among principal representatives of these groups to develop the new reporting standards that enable Smart Financial Regulation. Stand by for more news soon on the Council’s progress.

Moyer has been speaking on the topic of transparency and the value of XBRL for analyzing asset-based securities and companies’ financial reports. In this video interview with Steve Gelsi for MarketWatch, he explains that that information on toxic assets is actually available; but the documentation (thousands and thousands of pages) is nearly impossible to put into analytical models.

In brief, XBRL (eXtensible Business reporting Language) is an open-source global standard for more transparent, reusable, interactive data. It brings regulators, CEOs/CFOs, the accounting profession, investors and the financial analyst community together around a common set of data elements that represent the health and potential of a business.

Over the next decade, we expect XBRL to move through three phases of adoption in the marketplace. The first, in response to the SEC’s mandate, is that companies start generating XBRL data. The second phase is the response of analysts as they discover the speed and capabilities of automated analysis. The third phase is the widespread adoption of interactive data by the entire financial supply chain. (Read the full article “XBRL: A Magic Pill?”)

The four main principals of Wikinomics are full transparency, peering, greater sharing of intellectual property, and more globally-oriented action. In a white paper titled “Risk Management 2.0: Overcoming the Current Financial Crisis and Restoring Stability and Prosperity with a New Perspective on Risk” the authors envision a new model for the financial services industries in the U.S. and other industrialized nations. Under this new model, participants would share knowledge and intellectual property, ensuring that the best essential resources are available to the entire market. This includes sharing data, models and underlying algorithms, correlation analyses, and stresses.

The full white paper can be downloaded here: Risk Management 2.0.pdf It includes the following description of how the main principals of Wikinomics can be used to create a new, more open approach to risk management.

TRANSPARENCY: The start of the current financial meltdown was found in the banks’ inability to properly model the price, volatility and risk of various asset based securities (ABS). Banks, until recently, packaged and sold these assets to third parties in an opaque and complex way. The inscrutability of these instruments made many of the ABS securities impossible to price, meaning they have paralyzed many markets and arguably, the entire financial sector.

PEERING: With Web 2.0 technologies, transparency can go far beyond simple data sharing. Risk Management 2.0 participants can build on the example of Linux and other open-source systems to share models, methodologies and other IP. With access to the data, multiple organizations can collaborate on creating models for calculating value, volatility and VaR within the public domain.

SHARING INTELLECTUAL PROPERTY: Hoarding intel­lectual property profited a select few until miscalculations on Wall Street caused the system to implode -negatively affecting everyone. If taxpayers need to bail out the financial system, then shouldn’t they require this IP to be exposed to and vetted by others? Former Intel chairman Andy Grove has called upon open-source rules for finding advanced technology to solve the energy crisis. Maybe they should also be used to curtail the spreading financial crisis.

ACTING GLOBALLY: The credit problem is clearly a global one and localized actions in one country will do little to prevent the next implosion elsewhere. Risk misman­agement is having a deleterious effect daily on the world’s wallet and as such, it is becoming everyone’s concern. It’s time to align responsibility with accountability. A rising tide of cooperation is the only option left, leaving secretive, opaque financial institutions naked to the wisdom of the crowd.

Even before the summit, an informal meeting of EU heads of state on November 7 came to a number of conclusions pointing to, but not explicitly stating, the need for continued global adoption of XBRL.

Writing about that early meeting to members of XBRL Yahoo groups, XBRL consultant Piotr Madziar said he found it “interesting to observe how the crisis streamlines the political debate in the EU and unites the participants around problems and solutions to them.”

The result was a stated consensus for more transparency and accountability in financial systems; for increasing international cooperation between the countries’ financial regulators; and for expanding the scope of international financial institutions to include emerging economies.

We quote more of Madziar’s letter below, keeping his boldface emphasis. XBRL addresses all these goals, and the XBRL international organization, along with its national and regional jurisdictions are already in place to help with the additional items agreed upon by the group.

• “It’s time to devise long-term ways to reform the international financial system.”
• “Groups will be monitored by the colleges of supervisors in a coordinated manner. Means to be introduced by national authorities; if appropriate under international institutions’ supervision.“
• “Applicable rules will have to be designed as to create common standards between financial centres.”
• “Transparency of financial transactions must be ensured by means of more comprehensive information systems, which no longer omits vast swathes of financial activity.”

There’s more agreed language from the November 7 Informal meeting of European heads of state or government, and you can download the full text here.

Since companies started reporting to the SEC in the 1930s, the public has relied on these huge paper-based documents. “These reports are very difficult to understand and analyze; it’s it’s hard to find and evalute assets in a company’s financial statements,” said Moyer. “I can’t even look at my own 401(k) and know my personal exposure to AIG, or Lehman Brothers, or Fannie and Freddie.”

“People found they couldn’t really understand these new or exotic asset-based securities and derivative products. And it is nearly impossible for people to question the rating agencies unless they went through these onerous, multithousand-page documents and parsed the numbers on their own. So there’s no ecosystem of counter-party analysis that was raising red flags.”

Regarding the frozen markets, Moyer said that “without being able to understand a bank’s balance sheets or to see what and where the assets are, you can’t measure a bank’s exposure. Therefore, the banks had no reason to trust their counter parties, and everyone feared being left holding the bag. The ecosystem of information, from assets to investor, is broken.”

Moyer had just checked the markets when we spoke and was clearly agitated by the fear and uncertainty gripping the market he said, “because there is a solution that can shine light in the dark corners of these balance sheets.” It involves XBRL technology, regulation, and accounting. “I hope the SEC uses this crisis to fix the infrastructure problem, he said. “It’s not glamorous work, but we have we have the opportunity to modernize the entire information supply chain that underlies the financial markets.”

“XBRL is a major part of the technology solution,” said Moyer, and that part is underway. The SEC has already proposed that companies be required to file using XBRL as early as next year. The eXtensible Business Reporting Language (XBRL) format is superior for communicating business data and is computer-searchable for automated analysis, ending the reliance on paper-based information that is difficult to read, copy, and paste into spreadsheets.

But technology is only one part of the solution, says Moyer. The regulatory solution is critical, and the accounting profession needs to develop better definitions. “For example, how does a company account for the value of its assets?  How do we define liabilities, or fuel costs, or oil reserves?  Since July of this year, oil has fluctuated from a high of $147 per barrel to just below $90 today. So how can a company state the value of its oil reserves? How can any analysts know what price they used last quarter to determine the value of their reserves? With XBRL and better industry-standard accounting definitions, this is all doable.”

Having an open, common standard that everyone is required to use is a fundamental step in fixing the problem—from a technology standpoint.  “XBRL gives everyone a common language format,” says Moyer. “Industry accounting groups can use it to define these things, and the SEC can better state what needs to be reported. We should have the information that XBRL financials can deliver”

He compared financial data to a health care data, in which a patient has a chart that anyone (primary care physician, emergency room, surgeon, etc.) can reference to see the patient is allergic to penicillin. “Likewise, investors and analysts should be able to see, instantly, that a particular company is, for example, a big holder of asset-backed securities and they would be allergic to a downturn in that asset class.”

EDGAR Online, as far back as 1989, has been working on the basic problem of “inadequate data” In absence of the regulatory mandate for XBRL reporting, EDGAR Online has already translated SEC reports of over 12,000 U.S. public companies into XBRL format, broken down into more than 6,000 separate elements for in-depth automated analysis. “We look forward to working closely with the government regulators and with industry accounting groups to upgrade the information supply chain from businesses to investors, with more granular, transparent XBRL information,” says Moyer.

While the United States and Asia focus on XBRL for use in capital markets, Europe is employing an eye-opening array of government-wide and cross-border applications in Europe. China has been using it since 2004 and continues to lead innovation, extending the use of XBRL for mutual funds reporting, IPO approvals, and even unofficial and internal financial reporting for smaller companies. What happens when the world’s largest capital market starts reporting in this format next year-and when everyone anywhere can share consistently structured, computer-readable data? You can get the full story in the October publication or go online to the Journal of Accountancy.

The SEC announced its IDEA in a recent webcast during which Chairman Christopher Cox demonstrated the system’s speed and user-friendly tools. “People should have the same easy tools for comparing financial data”, said Cox, “as they have for comparing cars or airline tickets or vacation packages”.

IDEA is expected to be fully operational within three years. As it is being built, it will function in tandem with EDGAR. Users will seamlessly transition to the new system as the old system is eventually relegated to an archive database. IDEA will offer enhanced XBRL-formatted data that which software applications can automatically search, download, and crunch-without the need of a third party data provider.

What a minute! Isn’t EDGAR Online a third party data provider? So why we are as excited about this IDEA as the SEC is?

Yes, IDEA delivers XBRL data for free, but SEC data has always been free – EDGAR Online has used it to become the world’s premier online source of value-added business information. The SEC’s commitment to XBRL simply increases our ability to offer even more valuable information, while increasing the value of I•Metrix, which is already one of the best selling XBRL analysis tools in the world and which can help people make sense of the data coming into IDEA.

We’ve been backing XBRL for years:

• EDGAR Online has already translated (tagged) over 10 years of SEC’s data, created the largest historical database in the world of XBRL data on US companies. That means we can provide context that no one else can for the XBRL data that will be coming directly from companies reporting into the IDEA database starting next year.
• We have components that can make it easy for web sites and applications to display this data.
• We have expertise to help investors compare the 12,000 XBRL elements in IDEA to the 3,500 elements in China’s version of IDEA and 2,500 elements in the Korean version of IDEA and the Indian, Japanese XBRL repositories.
• We have the ability to create private repositories of XBRL data – -and help the financial community analyze their own XBRL data vs the XBRL data that will be in the IDEA system.
• Last but not least we have automated software that makes it easy and low cost for companies to create the XBRL-formatted filings that they will be required to submit to IDEA. EDGAR Online understands the EDGAR system and the IDEA system possibly better than any other company.

Simply said we add value across the entire XBRL food chain.  We have been waiting for the day that XBRL is a required data format.

For those who don’t like new ideas, the SEC has no technical specification or regulatory mandate on the horizon that makes XBRL the only filing format.  This means companies will be filing documents with EDGAR for many years-and investors will need access to these historical documents for many, many, many years.

In addition, there are nearly 200 form types that are filed as EDGAR documents. The SEC has only required supplemental XBRL data for 3 of these 200 or so forms (10-K, 10-Q, and the Mutual Fund Risk Return Statement).  We expect the need for EDGAR documents and IDEA data will coexist for more than a decade as all these forms and the associated regulations and industry players need to be converted to IDEA’s data specifications.

The full webcast of the SEC’s presentation of IDEA can be seen at the SEC’s Web site.

Only 44 percent of the companies surveyed have only just begun learning about XBRL and 11 percent still reported no knowledge at all of the reporting format that is about to become standard in the United States. Nearly 80 percent had no internal expertise. Of the remaining, nearly all personnel knowledgeable about XBRL were on the reporting team rather than in the IT department.
Large and small companies are similarly unprepared, even though about 500 of the largest companies will likely be adopting XBRL within months.

Fortunately, a fast learning curve
Most companies that currently file XBRL reports in the SEC’s voluntary filing program use an outside resource to translate and submit their financials in XBRL format.  Of those, most use RRD Donnelley’s XBRL filing solution, which is powered by EDGAR Online. Both companies were early participants in the voluntary program, where they developed the efficient, three-step process.

Called EZ Start XBRL Filing, the solution lets companies jump starting the learning curve and quickly develop internal expertise. A whitepaper explaining the process is available at www.tryXBRL.com.