XBRL: Digitial Needles In the Digital Haystack

In a recent post, the SEC Data Guy pointed out:

The number of unique extension tags, tags companies create when they can’t find a good fit in the current US GAAP dictionary, had been running around 8,000 ….This quarter the number exploded to about 48,500. The main cause of the increase is probably the set of companies that had to move into “detailed” tagging. That means placing every number in the Notes section of their 10-Q into this format.

This number is way north of any expectations I had heard.

And this is just the beginning as companies are just now tagging data in the Financial Footnotes. As experts in Footnote analysis, we have know for some time that fitting the Financial Footnotes into XBRL was a real stretch. Data in the Notes is simply too subjective and dynamic for a machine to track. In addition, companies’ disclosure interests are not aligned with those of investors. The Footnotes is where companies often like to HIDE data, not make it easier to find.

We expect the number of tags to continue to explode because companies, as they have for most of history, change the names and description of their financial data from one period to the next in addition to creating new data points every period. Analyzing the Financial Footnotes takes years of training and experience. To do it with any scale, you need specialized information processing technology in addition to deep expertise and experience in accounting and finance.

We have always known that finding data is the Footnotes is, for most investors who are without our patented Research Platform, like searching for needles in a haystack. With XBRL, the only difference is now investors can search for digital needles in a digital haystack. Funny how little things change.

5 Comments

  • Daniel Roberts

    September 28, 2010

    There are two drivers for the creation of an extension (well, two that I’ll mention). The first is the situation in which the filer is unable to identify an element that matched their reporting concept. In such a case, a new reporting concept (a new element) is created as an extension. The second, and more common extension, happens when the company’s label for an item is different from the “standard” label provided as part of the taxonomy. In this case, and in line with the SEC’s requirement that the information in the XBRL be the same as the information in the hTML 10K/Q, a label extension is created. In the second case, the underlying ability to analyse the information should not change, as standard elements are being used, only the display name has been extended. It is only in the first case that increased opacity is introduced. In the first case, the assumption is that in the 16,000 elements there is not one that matches the company’s reporting concept. In this case, a new element is created, and the data tagged with that extension element. In this case, the potential for loss of comparability in introduced into the XBRL. Of course it is worth arguing that the lack of comparability already existed through the provision of line items that are unique to the reporting company, so it could be argued that the introduction of the extension element has no reduced in any way the value of the information reported (form a comparability perspective), and has increased the usability of the information simply though the provision of tagged data that is machine to machine consumable.

  • David Trainer

    September 29, 2010

    Daniel:
    Thank you for your excellent and informative comment.
    I agree that XBRL is an important step toward greater transparency for financial reporting.
    Our deep and lengthy expertise in the Financial Footnotes gives us unique perspective. We have analyzed the Footnotes for over 100,000 filings, and I have been studying Financial Footnotes for over 15 years. We have seen all the tricks and changes that companies make – long before XBRL was introduced as a concept and long after. My point is that analyzing the Notes to the Financial Statements will continue to require a lot of hard work and expertise in both accounting and economics. XBRL does not remove the challenge created by companies putting so much critical information in the Notes and by how much that information changes from year-to-year, company to company and industry to industry and etc. See our report for the Senate banking Committee on the number and frequency of Corporate Disclosure Transgressions to gain a better perspective on how many loopholes and gaps (forgive the pun) that are in GAAP reporting. Simply, Wall Street financiers are still many, many steps ahead of the the SEC and the average investor.

    As a former Wall Street insider, I know how the research “sausage is made”. And I created New Constructs to empower investors to make more informed decisions about how they invest their money in stocks.

    XBRL is great but not the panacea some people make it out to be. Put another way, there is simply no substitute for the hard work required to gain an advantage in the investing business. Translating accounting data into economic information about the profitability and valuation of stocks remains the one, true way to be a successful investor over the long term.

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