Digital Financial Reporting

I think that I heard, for the first time from the SEC, that the old SGML/HTML filing formats which public companies currently use are going to be phased out over time.  Check out the video of the open meeting in which the SEC mandated XBRL, approximately 2 hours 10 minutes to 2 hours and 12 minutes.  Listen to it, see what you heard.

This makes sense for three reasons.  First, the liability issue which was discussed during that time in the video and raised by the one descenting vote.  Second, it just means more work for preparers who have to be sure that the two versions (the SGML/HTML and the XBRL) agree.  Third, relating to the second is that you have two versions of the truth as you have two versions of the filing.

It makes a lot of sense to have both the old and new filing formats for a while.  This is definitely a very safe way to introduce XBRL, it helps get issues resolved.  When people are happy with how the XBRL is working, make everyone's life easier by getting rid of the SGML/HTML.  Users will be able to render the XBRL perhaps not exactly like the SGML/HTML versions, but functionally the same.

So, this brings up a bunch of questions.  I will highlight one (there are others).  This is a good one.  It has been discussed for years in the XBRL community.  I speculate that now that accountants understand that this XBRL stuff is real, they will have to start dealing with these types of issues.

The issue I will point out is the statement "presented on the face of the financial statements" (or something to that affect).  There are two notions in financial reporting, presented (on the face of the financials) and disclosed.  If you ever looked into an XBRL instance document, there is no partition between the "face" and the "disclosures".  An XBRL instance document is just a big bag of facts.  Users can get those facts out however they desire.

Does there need to be some partition?  Personally, I don't think so.  This is one of the legacy ideas which fits with paper-based financial reporting which is really unnecessary with XBRL.  Users can get whatever information out of the XBRL instance that they desire, however they desire, arranging that information however they see fit.

Is this without issues?  No.  The point is, this is one of many things which will need to be figured out by the business community.  Again, there others.  My fear is that too many legacy ideas will be brought forward to the new paradigm.  Should some past ideas be brought forward?  Absolutely, the good ones.  But not the bad ones.  The question is who makes the call?

Could I be wrong about whether "presented on the face of the financials" needs to be brought forward?  Sure I could be wrong.  If it does need to be brought forward, it still needs to be discussed as there is no approach for achieving that currently in the US GAAP Taxonomy, in the preparer's guidance, or anywhere else that I have seen.

I think it is time for financial reporting to "go green", think of new ideas an not be limited to what paper can achieve, and take advantage of this opportunity.