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Rebuilding Public Trust: The Case for Compliant Financial Data

8 May 2009

By Diane Mueller
In the aftermath of banking failures, subprime mortgages, and bailouts across multiple industry sectors, it is a good time to examine the strategies it will take to rebuild public trust in our government and in the world’s financial markets. I believe the answer depends both on what we can do and how we do it.

With all the financial information that corporations were obligated to report because of existing government regulations, how could we not have foreseen this financial disaster? Did we misread the data? Was the information in the reports incorrect? Is there more that should have been required to report?  What was missing were regulations that properly addressed how the information was to be reported. Being specific on the “how” may very well have provided the warnings of the impending disaster rather than finding out how bad it was in the midst of it.

The key to solving the problem is figuring out the best way to publish our data.

A major step towards solving the problem of how to report financial information has been addressed in the latest set of regulations from the U.S. SEC. The regulations now require a growing number of companies to provide financial statement information in eXtensible Business Reporting Language (XBRL). Once all companies that are required to report use this format, analysts will be able to provide more accurate and timely warnings. Rather than using the past rules of demanding information — whether locked inside spreadsheets, forms, PDFs, the web, and other proprietary formats — specifying XBRL makes the data more usable and more easily gathered and analyzed.

If we can’t find the data, if we can’t figure out the problems that may be buried in the mountains of information, and if we haven’t any means to explore the data, we are no better prepared for the next financial crisis.

Creating Compliant Data

To complete the true financial picture of our economy, we need to complete the move to XBRL to ensure that all financial reporting is available as XBRL-tagged content. The government also needs to use XBRL reporting as part of creating a complete picture of the economy. As the bailout legislation, Recovery Act and other massive appropriations that include requirements for public disclosure continue, XBRL reporting could provide an excellent method of measuring the effects to the economy in real-time. Usually economic indicators lag behind because time is needed for surveys and reports to be collected and processed.

The initial impact of new regulations layered on top of existing regulations like Sarbanes-Oxley will be that corporations will be obligated to publish even more data, more frequently. The Obama administration’s effort to push more government data out via Recovery.gov is a good example of the movement to encourage more disclosure. If that information was in XBRL, we could more easily use the data. As the government rolls out its mandate for corporations to submit their financials using XBRL to the U.S. SEC for closer scrutiny and better compliance, they could also take a page from their own book and make all government financial reporting available to the public in XBRL, facilitating a more open national dialogue on our government’s financial health.

As Obama said in his Memorandum on Transparency, “Government should be transparent. Transparency promotes accountability and provides information for citizens about what their Government is doing. Information maintained by the Federal Government is a national asset.” This information needs to be compiled in a harmonized, compliant fashion across agencies to facilitate its preservation, dissemination, and exploitation and to maximize the research that is derived from it.

Connecting the Data

Like pages on the web, we intuitively know that the public data being posted to sites like SEC.gov and Recovery.gov is interconnected with other sources of data. But discovering the connections when all the data is in disparate formats is next to impossible for most — even  the expert research analysts at times. The government has already started to require XBRL with positive results in terms of access to data, so there should be no reason not to settle on XBRL for all financial reporting by companies and government entities alike. Beyond any specific qualities of XBRL, just by using the same format, reporting and analyzing the reports is faster and more likely to be accurate.

Further transformations like those proposed at recovery.gov (such as a service to transform the data to RDF-tagged semantic data) can allow the financial data in XBRL to be combined with data from other industry and government sectors — transforming the way we explore information.

In addition, the data about the data needs to be discoverable. Just having information in a usable format does little without it being easily accessible. Any kind of data object or concept should be found at a specific Uniform Resource Locator (URL) so that people can look up specific names, get useful information, and discover more.

As Tim Berners-Lee, director of the World Wide Web Consortium, put it, “It is about making links, so that a person or a machine can explore the web of data. With linked data, when you have some of it, you can find other related data.”

Another consideration is trusting the provenance of the data itself — maintaining the connection to the source of the data whether it’s a filing on the SEC website or a recovery.gov document listing all the grant recipients for bailout funds. If the link (or URL) to the primary data source is lost, the connection and the provenance of the data is no longer assumable and any derived research loses its authenticity. When posting financial information for public consumption, entities enter into an unspoken agreement to maintain those links with the consumers. As more and more data is available online, the long-term stability of government sites and the continued maintenance of links must be guaranteed. The links are the mechanisms that will enable us to trace back to the sources and link us to the authoritative literature; whether that content is a Financial Accounting Standards Board (FASB) ruling, a Senate Bill allocating billions of bailout dollars, or the financial data related to an entity’s compliance with these rules and regulations.

If governments and corporations publish financial information using harmonized data standards and ensure that relevant links are maintained and accessible, this will go a long way to improve finding the location of relevant data.  Public scrutiny will diminish, and we will again trust the financial markets and the agencies that regulate them.
 

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Diane Mueller has been actively involved in the development efforts of the XBRL standard for the past nine years. She is the Canadian representative to the XBRL International Steering Committee, serves as Vice Chair of that body, and chairs the XBRL Working Groups on Rendering and Software Interoperability. She currently serves as vice president of XBRL development at JustSystems, the largest independent software vendor in Japan and a worldwide leader in XML and information management technologies. Learn more about JustSystems at http://www.justsystems.com, and contact Diane at diane[@]justsystems.com.

About JustSystems and XBRL

Along with the SEC, the International Accounting Standards Committee (IASC) Foundation, XBRL International, and many other organizations worldwide, JustSystems has been aggressively supporting the development of the XBRL standard and integrating the interactive data format into its xfy platform. JustSystems’ software solutions work with XBRL to enable a richer way of working with and utilizing information, leveraging our technology around information search and retrieval, semantics, document management, and data integration. To learn more about how to accelerate the creation, quality, and consistency of the financial content that your organization produces and consumes today or to participate in the JustSystems beta program, please visit http://na.justsystems.com/xbrl_blog/.

Please feel free to publish the above commentary in full or in part with attribution according to the Creative Commons license.