New SEC chief unhelpful on IFRS and XBRL

Reading in Reuters that SEC head Mary Schapiro

…made it abundantly clear that XBRL was very low down her priority list when she spoke at the Reuters Global Financial Regulation Summit on Tuesday, and she hinted that the SEC might allow for delays in compliance, though she didn’t know if that would be necessary. “I don’t mean to be dismissive of it in any way — it’s just not one of my highest priorities,” she said.

Even worse, unlike Cox she has little interest in promoting the initiative, though she does acknowledge it could become a useful tool. “I’ve only given I think three speeches and I don’t think those letters (XBRL) have slipped into into any of them,” she said…

…Just to rub it in, Schapiro also said that the SEC would be seeing whether Cox’s original roadmap for a possible move to international accounting standards in the U.S., possibly by 2014, still made sense given the cost of conversion and the current state of the economy.

I can’t imagine anything more unhelpful than to be signaling these important changes will likely be shelved or, at the least, put back. Calling up the state of the economy and cost issues is a red herring. At least as far as XBRL is concerned. In this study at 3M:

They estimate that the initial process took about 80 hours of 3M staff time between getting  educated, reviewing the tags and on through to final submission.  Subsequent filings only took about 8 hours of 3M staff time. XBRL.

This from Comcast in the same study series:

Comcast relied on Rivet’s Dragon Tag tool to convert its financials at a cost of $2,800 for the  license and support.  There was no cost associated with the Dragon View software used for review and validation purposes as it is provided free of charge by Rivet Software.  Comcast staff spent about 120 hours doing research and getting trained on the tools themselves and about 60 hours on the first filing.  Subsequent filings were much easier given that the tags (identifiers for their financial statement captions) had already been identified and today each filing takes around 20 hours of staff time.  In addition to the cost of the license, Comcast pays $710 per filing, which includes the fees for the SEC EDGAR submission by its financial printer and a review of the Form 8-K by external counsel.

Do those costs seem onerous  for a large company, especially when they help stakeholders get a better understanding of comparative results?

IFRS places more demands on staff and auditors but the problems experienced to date have largely been restricted to issues around impariment of assets, especially derivatives (and we all know where that goes) plus evaluating intangible assets. The issues are well understood, even if the practices and procedures necessary to implement the changes are yet to be put in place in the US.

As might be expected the software companies want a piece of the action and which else other than SAP to be leading the charge. However, I would caution anyone from taking a software company’s opinion or advice on this topic. They are the mechanics who make this stuff happen, it is the job of professionals to figure out best practices.On that point – if the chart of accounts is too cumbersome to easily change then in my view it is the software vendor’s responsibility to sort that one out. Not the buyer.

Regardless of economic constraints, I can’t think of anyone who doesn’t believe the past systems of reporting and the underpinning audit practices have served stakeholders well. IFRS and XBRL, when taken together, provide a solid framework that should lead to greater transparency. Anyone who thinks that’s a bad idea – and by implication I am pointing the finger squarely at Schapiro – is not thinking straight. Or is being manipulated by those who don’t wish to see the kind of transparency that’s urgently required. At the very least, Schapiro’s statements throw everyone into a state of confusion about what happens next.

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Tagged as: IFRS, International Financial Reporting Standards, XBRL