The 14th annual XBRL International conference was held in Philadelphia�this week, bringing together some of the leading figures in the government, accounting, financial services,�and technology sectors to laud the development and prospective adoption of�eXtensible Business Reporting Language or XBRL in the US.�

SEC Chairman Christopher Cox led a parade of notables to the podium, all�confirming that the XBRL standard has support from�some of the most powerful agencies in the US government.��The SEC has thrown its financial�support behind the XBRL standard and is preparing to finalize contracts �with�XBRL US�and the Financial Accounting Standards�Board�to complete�the accounting taxonomies which�are, in theory,�needed to truly begin the adoption process.�

Of note, to accomplish this task,�the SEC is relying upon two entities with little�commercial or technical contracting�experience,�XBRL US and the FASB,�to complete the construction of the�XBRL GAAP taxonomies that will be integrated into the EDGAR system.� This choice creates�considerable technical, legal and political risks for the SEC,�for�Chairman Cox personally and for the adoption prospects of XBRL.

As Chairman Cox�noted in his remarks, an optimist is someone who, when told that�things can't get any worse replies: "Yes they can."� On those terms, we're optimistic about XBRL.� Stay tuned.�

Besides the�immediate technical obstacles facing the SEC in preparing XBRL for broad adoption by public companies, there�is a more fundamental issue, a�flaw in the�grand design�that may ultimately doom�XBRL in the US,�namely the fact�that the�community of corporations and other filers of SEC documents�remain�largely indifferent to�and ignorant of this process.� Fewer than 40 companies have joined the SEC's voluntary filer program over the past two years.� Downstream users of financial data are even less�aware.

As a representative of one of the largest SEC filings vendors�in the US told The IRA this week:� "We hear almost nothing from our clients regarding XBRL.� Most�don't understand the benefits of the technology or�participating in the SEC's voluntary filer program.� Those few corporates which�do have an understanding of XBRL seem content to wait for the SEC to mandate the technology and do nothing until then."

Over the past month, we have�interviewed members of the XBRL consortium about the pluses and minuses of the XBRL effort to date. Almost universally, we hear our colleagues describe the challenge facing the SEC effort in technical terms;�as being to rationalize a "document centric" view with the need to gather financial statement data in a way that is structured and machine readable.� Most believe that if the XBRL US/FASB team complete the GAAP taxonomies needed to structure SEC filings, adoption will follow.� Like the film Field of Dreams:��"If you build it, they will come."

We respectfully disagree. Part of the reason for the failure of the XBRL�effort�in the US to catch the imagination of public companies�is the assumption that the technology of XBRL, which combines the transport capabilities of XML with accounting definitions, will somehow�define and control�the process of disclosure by�public companies.

Nope. Repeat after us: the content is king, the content is king, the content is king.

Fact is that financial reporting is an ever evolving process; a process that balances the legal requirement of disclosure with the business cases needs of companies to manage their public image before investors and markets; that is, to be opaque and thereby maximize market value. Trying to make the content fit into a pre-conceived technology framework strikes us as both arrogant in technical terms and unworkable in political terms.�

IRA's independent explorations outside the Beltway reveal some very rational questions about the�business case�value of XBRL. Compliance specialists�note to us that XBRL still deals with too narrow a range of reporting items that must be delivered to regulators. They have little choice, at the moment, but to concentrate their infrastructure investments elsewhere; more precisely, on tools that facilitate delivering broader spans of reporting and compliance obligations.

Technologists in the EDP�and ERM words tell�us that the true landscape of information interoperability starts at the transaction layer and that the real drivers of systems development priorities remain setting up least cost automation to, for example,�confirming Sarbanes-Oxley internal controls.� Further, the pressing financial interoperability challenge lies more in the area of exchanging data using least cost means between disparate legacy systems.

Interoperability is�still a game of CSV, vanilla XML and SQL interconnections; a game that�is driven very much by internal business process integration needs of enterprises seeking�to remain competitive.� Many view the complex overlay of XBRL transmission as potentially adding to as opposed to managing down their project risks and financial burden.� One has to admit that such concerns do have "to the bottom line" poignancy -- just like the objections to Section 404 of Sarbanes-Oxley.�

Advocates of adoption of XBRL in the US need remember that the customer here is not the SEC, but the US economy. The public good objective�is to craft a technology that is such a clear improvement over the current�text-based standard used for meeting the requirements of the Securities Act of 1933 as to be self-evident.� More, to avoid being thrown into the "bad" Sarbanes-Oxley�404 bucket, XBRL must demonstrate that it provides cost savings and other efficiencies.�

In our view, the biggest obstacle facing the SEC as the champion of adoption of XBRL in the US�is to craft a compromise that helps rather than threatens filers, not just corporate filers, but the funds and other entities which�use the dozens of forms currently filed with the SEC.� If the tool that results from the development effort supports the evolving conversation between filers and investors, then the XBRL standard will be adopted and enjoy success.

If XBRL�fails this test, then the SEC and Christopher Cox will be in the same position as is the Bush Administration is in�Iraq: looking for a face-saving way out.� Indeed, the�failure of the XBRL adoption effort in the US�could be a considerable blow to Chairman Cox's rising�political star.� The operative�timeframe here is the next six months.

The�SEC�already is�fighting a rear-guard action with respect to rolling-back�Sarbanes-Oxley, which both parties in the Congress look ready to eviscerate in 2007.� We have some ideas on how the SEC might combine the need to drive greater awareness and adoption of�interactive data (but not necessarily XBRL)�with the impending reform of Section 404 of SOX, but we ain't talking till somebody makes it worth our while.

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