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XBRL from the Analyst-Investor Perspective. XBRL US Conference, October 15, 2008. Tom Larsen, CFA Harding Loevner Management CFA Institute XBRL Working Group Chairman. XBRL is Inevitable. XBRL: A move into the 21st Century CFA Institute and the XBRL Working Group
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XBRL from the Analyst-Investor Perspective XBRL US Conference, October 15, 2008 Tom Larsen, CFA Harding Loevner Management CFA Institute XBRL Working Group Chairman
XBRL is Inevitable • XBRL: A move into the 21st Century • CFA Institute and the XBRL Working Group • Committee on Improvements to Financial Reporting (CIFiR) • XBRL comment letter feedback • Going forward
The 21st Century: An Analyst’s View of XBRL • Historically accountants distilled financial reporting (GAAP) requirements onto pieces of paper • XBRL has enormous potential to improve the • Convenience, accuracy, quality, transparency, and detail of financial reports • Efficiency, timeliness and automation of delivery of those reports • Analysis, valuation, comparability and search-ability by analysts • However, without continued analyst input comparability and consistency are at risk • Achieving XBRL’s potential depends upon well considered implementation
21st Century disclosure based on data and software • Detailed information from notes are easily and automatically incorporated into analysis • XBRL tagging moves us away from earnings-centric financial reporting and valuation • Communication between investor and company improved Source: SavaNet
CFA Institute Member Survey Results from CFA Institute July 2007 Survey • Nearly 60% said “I am not familiar with XBRL” • A high level of importance was placed on the convergence towards a global XBRL taxonomy • Over 90% indicated a preference to limit the ability of companies to expand the approved taxonomy • Desire for reliable and consistent information was echoed loudly
CFA Institute XBRL Working Group Key Principles • Tagging/taxonomies based on GAAP disclosure • Comparability is key, customized extensions are a risk • XBRL framework should be the filing format • There should be open and free access to filed information • Taxonomy must be kept up to date For a discussion of these principles, visit: www.cfainstitute.org/centre/topics/reporting/pdf/principles_for_xbrl.pdf
CFA Institute Involvement • Serves on XBRL International committees • Frequent interaction: U.S. SEC and XBRL meetings and comment letters to both XBRL US and International • Promoting awareness of XBRL through panels at the CFA Institute Annual Conference and member societies; • Conducted member survey; applied results to development of key principles
CIFiR — XBRL Issues • Uncertainty reduces preparer, auditor, software company, and investor willingness to invest • Fear of Sarbanes-Oxley type implications (costs and assurance) • Small capitalization companies • How far to go disclosures, MD&A, beyond • “Bolt on” is a long way from integrated and filed • KEY Agreement by preparers and investors that mandatory phased-in adoption is needed
CIFiR — What Did the SEC Do? • Based on the voluntary program and initial recommendations of CIFiR, SEC proposed: • Three overlapping two-year phases, based on company size all public companies by 2012 • Year one: Tagging statements with block tags for notes • Year two: Increase to full tagging of notes • IDEA — The SEC’s new technology platform designed around XBRL to gather corporate information • New public disclosures using XBRL: mutual funds, credit ratings, oil & gas reserves
XBRL comment letter • The SEC should move forward as planned; once a large number of companies file in XBRL investors/analysts will pay more attention • Current & future tags are used consistently otherwise comparative analysis is lost Extensibility is kept to a minimum • Sufficient data is tagged and accurately reflect published accounts • International convergence needs to address the fact that there are fewer IFRS tags than US GAAP Tags • Taxonomies are kept up to date as accounting rules and disclosures change
XBRL Benefits to Investors • Almost real time data • Less manual input and recheck of numbers • Increased transparency with footnote information better analysis and less reliance on headline numbers • Consistency & comparability across companies and accounting regimes due to standardized tags • Sharing of data and convergence of information globally by investors, regulators and others
XBRL challenges • Will enough data be tagged or the right data be tagged? • Experience in China shows some data in paper filings have not been tagged in XBRL filings • Loss of data through international convergence there are fewer IFRS tags than US GAAP Tags • Standardized tags vs. extensibility • First Japanese filings suggest problems with custom extensions • European Banking regulators are also struggling with extensions • Oct 3, 2008 letter from CFA Institute to IASC regarding extensions • Keeping taxonomies up to date with accounting changes
Conclusions • XBRL has enormous potential to improve the quality, accuracy, speed and cost of information to investors and analysts • XBRL can enhance financial analysis if implemented properly • Ongoing coordination with investor community is essential if we want to achieve the full potential of XBRL • Initial implementation should consider of how tags are reviewed for consistency, reliability, extensibility