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January 27, 2009

XBRL not quick fix for reporting ills

By Nicholas Moody

XBRL is supposed to be a boon for investors, who from 2009 will be able to extract financial information at the click of a button for the largest US listed companies. But an investment analyst has warned that investors may not have engaged with XBRL at all yet.

Head of accounting and valuation research at JPMorgan Cazenove, Peter Elwin, said while he can see the potential of XBRL it is not the panacea to all financial reporting ills.

“I am probably starting from a position of scepticism in that ultimately it is an IT information project. It is very easy to travel rather than arrive as far as that [XBRL] exercise is concerned,” he said.

Elwin has questions regarding the cost to corporates, how the taxonomy has been formulated and how changes in accounting rules will affect the taxonomy.

“I don’t think investors have engaged with XBRL at all, because they don’t have to. It is far too esoteric for them to engage in debates about the taxonomy,” he said. “That is the worry.

“Is what has been created ultimately a form of Esperanto which has been designed by a few clever people but in reality may not match the way the real world works? That would be one of the big risks.”

Elwin said investors would ideally like between three and five years worth of financial data before they consider investing in XBRL search engines.

“There is a tipping point. If the Securities and Exchange Commission requires companies to submit data in XBRL that quite quickly gets you to a stage where you have a useful data set,” he said.

Improving access to information

Elwin acknowledged that the electronic tagging system could help analysts access information at a “granular enough level to make it useful” and remove the need to laboriously extract key figures from annual reports manually.

“I think XBRL could make [extracting information] a lot easier. It would allow you to utilise the data that is there but is currently unusable. It’s a bit like having oil in the ground but the cost of extracting the oil is too high so you can’t use the oil. If there is a cheaper way of extracting it then you can use the oil,” he added.

Nicholas Moody

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