I recently listened in
on a meeting of the XBRL-US Data Quality Committee (DQC), a
well-intentioned group that promulgates rules to improve data quality. They were reviewing new, non-mandatory rules governing XBRL tagging. It included a
20-minute, mind-numbing discussion of the proper presentation of lease
liabilities. It was unclear what this had to do with XBRL.
More generally, I was
struck by the extent to which XBRL governance had devolved into complex
accounting minutia and technical details. The whole idea behind XBRL was to
simplify financial reporting against a common dictionary that would allow easy
comparisons across companies. This would level the playing field for small
investors in accessing standardized financial data. We could have predicted
that, like other regulatory endeavors, countless rules and restrictions would
make compliance more costly and undermine its original goals.
The purpose of
standardization is to move up the abstraction ladder, to repackage detailed
data using a less detailed taxonomy. It seeks comparability at the expense of
granularity. But the SEC’s implementation of XBRL is unwilling to sacrifice
granularity. The US-GAAP standard taxonomy continues to grow. Custom tags make
comparability impossible. We’re left with a hybrid of limited utility.
Between the DQC rules
and the Edgar Filing Manual, there are plenty of rules to follow. And yet,
there is wide variability in how the rules are interpreted and little
clarification, much less enforcement, from the SEC. (a rule that's not enforced is just a suggestion) The result is chaos that
resides just beneath the surface of normal-looking financial
statements. It’s in the metadata - the incorrect tags, the extensions, the
missing element relationships, the ill-conceived dimensional structures, and
the extended taxonomies that are either invalid or inconsistent with the standard
taxonomy. It requires experts to understand. The data is unreliable and
therefore, of limited utility.
Ultimately, the main
benefits of XBRL accrue to compliance software vendors and the large data
aggregators. Financial data hasn’t been ‘democratized’ as many claim, it’s been
further ‘institutionalized’ using a machine-readable format. Small investors
were the target beneficiaries, but XBRL data isn't easily accessible. If they
want fully-standardized, quality fundamental data, they're still paying for
costly subscriptions.
To paraphrase Cormac
McCarthy in ‘No Country For Old Men’, IF THE RULES FOLLOWED BROUGHT US TO
THIS, OF WHAT USE ARE THE RULES?
