XBRL and the New Four

If you have any interest at all in reporting then this last week has been a big one for XBRL, the emerging technology that will change the way global reporting is undertaken. I counted 28 pieces on searchTwitter in the last two days alone. However, the most important pieces did not appear in the technical or professional media, but in Wired and the Huffington Post. Why? As I said on IT Counts in my brief round up of the more important events of the week:

Whether Huffington Post can be regarded as a credible source for reporting on IT is another matter but the fact the topic is entering the US mainstream consciousness should be a wake up call to us all.

Wired’s position is the more potent, arguing that:

…the volume of data [the SEC receives] obscures more than it reveals; financial reporting has become so transparent as to be invisible. Answering what should be simple questions—how secure is my cash account? How much of my bank’s capital is tied up in risky debt obligations?—often seems to require a legal degree, as well as countless hours to dig through thousands of pages of documents. Undoubtedly, the warning signs of our current crisis—and the next one!—lie somewhere in all those filings, but good luck finding them. Even the regulators can’t keep up. A Senate study in 2002 found that the SEC had managed to fully review just 16 percent of the nearly 15,000 annual reports that companies submitted in the previous fiscal year; the recently disgraced Enron hadn’t been reviewed in a decade.

The answer unsurprisingly is XBRL. Ever since first becoming aware of XBRL’s potential, I’ve felt that finding novel uses for data that can be readily compared offers analysts and consultants a rich seam of fresh revenue that adds value to the client engagement. However, when asking the software apps industry, I constantly got the answer: “No-one’s asking for this.” Of course they wouldn’t.

Until very recently, few have been paying any attention to the issue. If there’s one thing I know about development – that’s users don’t know what they want until you show them. That’s why developers have to go out there and invent. Anything else is what I now call the Oracle Defense i.e. “We ask customers…they tell us what they want…we go develop.” XBRL is not something you ask for, it is the enabling technology that can provide for a very different style of reporting, one that is more transparent and provides immediate market differentiating opportunities.

Having seen what Twinfield is offering I am keen to see how others are approaching the problem. There will not be a single ’standard’ way of tackling the issue and I expect different forms of alliance emerge in the software industry. If you’re a practice management software company for example, there is very little point in going down the development road when companies like Twinfield have already done the heavy lifting. If you’re in practice, then vendors like Twinfield could become very attractive because the amount of re-tooling you’ll need to do could be minimised, provided your accounts production people play ball. Of course we could go the other way where every man and his dog is competing for XBRL attention. Which brings me to the New Four.

Anything I say from here on in is conjecture and I have no way of knowing whether this is happening now or will happen any time soon. However, background chatter, serious discussions and blog posts provide a series of clues about how things might be different.

1. Demand for consulting and audit services is in global decline. Francine McKenna knows more about layoffs and terminations than I do but the consistent feedback is the Big Four are in pruning mode. That should not be a surprise.
2. Terminations are not following a logical business led pattern. Instead they seem aimed at maintaining the partners lifestyles. A perfectly reasonable approach when you’re an equity holder but not one that allows for the retention of the best talent -either by design or otherwise. It also puts back the timeline over which aspiring partners are likely to see themselves at the partner pig trough.
3. It is almost certain we are going to see an entirely new form of regulation and oversight in the coming year(s) as  faith in the profession continues to erode and the litigation that could crush any one of the big firms plays out.
4. XBRL creates new opportunities but making the best of them requires new thinking. So far, the profession has shown itself to be occasionally opportunistic but not radical in the way it assists clients.

Add all these factors up and what you get is a real opportunity to create new styles of firm that are committed to meaningful standards, based on a genuine desire to do what’s right for clients. That is and always has been a long term winning strategy but one that appears to have disappeared from the thinking of partners in the Big Four who are more likely to be salesmen than do’ers. That’s why I say that XBRL could be a trigger for a New Four – firms that are willing to behave differently, charge differently and offer valued services based upon the opportunities that XBRL is holding out. Note what Ventana Research says at CFO.com in relation to the SAP announcement:

“SAP is just the first step of what’s going to be a much more extensive set of capabilities that [vendors] will offer as requirements for the US filers expand,” says Kugel. “They’ll have more capabilities down the road too.”

The same will hold true elsewhere. Of course the UK has some years in front of it before the XBRL landscape becomes clearer. But just as I collaborate with people like Francine and others in the US, Blag in Peru, Mrinal in India, Richard and others UK, Anne in Norway, Dick and others in Germany, and still others on occasion in Ireland, Canada and the Netherlands, there is no reason why like minded Big Four refugees can’t rapidly create a global network capable of offering services of value.

Some may think: ‘What? Build a business on a technical data type?’ Demand for XBRL skills is already heating up. Data is what people want, it is what feeds analysis, its nature is rapidly changing and the environment in which it ‘lives’ is also changing. That’s a genuine consulting opportunity with legs across a number of disciplines. The New Four will see that and leave the Big Four bewildered.

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Tagged as: big four, Huffington Post, SAP AG, XBRL