I spent a couple of fascinating hours Tuesday at a round table hosted by the United States Securities and Exchange Commission. The subject was Interactive Data, a term which is hardly self-explanatory but really means “Business Transparency”. This in the same week that Jonathan sent a letter on the same subject to SEC Chairman Christopher Cox, who was also around the table. Mr. Cox and the SEC are definitely on the right track; I expect bumps in the road, but there’s a chance that Accounting As We Know It could be blown up. Which would be a good thing; and not just because Open Source is creeping in.
Interactive Data? · When they say this, they really mean XBRL (Extensible Business Reporting Language), an XML dialect designed for encoding companies’ financial statements. This rebadging, I am told, is Chairman Cox’s idea, and you can see his point; “XBRL” is neither euphonious nor compelling as a rallying cry.
The SEC wants public companies to replace the current practice of financial reports being big fat globs of unstructured heavily-footnoted text by an alternate reality in which they’re clean structured detailed machine-readable edifices of transparent truth. What’s not to like?
Sidebar: Washington Surprises · I’ve done a lot of business in That Nation’s Capital over the years, and to be honest I love it. Yeah, it’s slow and process-bound and infected with cronyism and worse things too, but at the end of the day they’ve got their arms, up to the elbows, in the stuff of reality. And it can surprise you.
Chairman Cox and his SEC surprised me too. He looks like the Republican insider he is; the haircut, the suit, the jaw, the smile. A lot of West Coast geeks would be apt to blow all this off as old-school or right-wing or “Enterprisey” or whatever. Which would be silly; Cox’s SEC is taking steps to drag business reporting into the cold clear light of truth by way of what he calls Interactive Data and I call XBRL, but the name isn’t the thing; and the parallels to the Open-Source world-view are not exactly subtle.
Oh yes, Open Source; among other things, the SEC is putting its money into some. Although it’s not perfectly clear in this press release, a substantial part of that $500K worth of software will end up as Open Source. That’s my kind of Republican.
Sidebar: On Accounting and Evil · It’s fashionable, in technology circles, to diss lawyers. Not here; I’ve been doing business for 25 years and while I’ve frequently complained about my legal bills, I’ve long since come to appreciate how essential attorneys are to the process of getting things done.
My bête noire has always been the practice of accounting. The reality is that in any given industry segment, exactly half of the companies are doing worse than average. Their management teams are highly motivated to conceal the truth. All too often, they find Generally Accepted Accounting Practices helpful. A certain part of the deep complexity and abstraction in accounting theory is in fact there to reflect business reality; but I’m convinced that another part of it is there to serve as a carpet under which to sweep inconvenient truths.
Attempting to impose accounting formalisms on business reality is always going to involve compromises and various kinds of twisty little passages, but some of those passages lead to the Dark Side, and I’ve seen companies go there. At a company I co-founded, we had to fire a CEO for “revenue recognition problems”. To those who don’t know what that means: keep it that way as long as possible. To those who do: XBRL is a tool that might turn turn out to be real useful in fighting the bastards who do this kind of thing.
Back to Interactive Data ·
Anyhow, here’s the dream: right now, if you know the name of a company,
you can be pretty sure that by visiting
.com you can find the basics:
where the offices are, who the CEO and Directors are, and so on.
I imagine a future in which you can go to
.com and be
pretty sure of finding authoritative machine-readable financial data.
And in this picture,
applies in more than one way: not only does the value of the financial data
increase as a strong function of how many companies are providing it, but the
pressure to join in does too, on those companies who aren’t providing it.
XBRL ain’t perfect; they made no particular effort to hit any 80/20 points, so it’s big and sprawling and taxonomist-ridden and it tries to Solve the Whole Problem. In this particular case, I claim that the information is so valuable that it’s worth fighting through all this and finding a way to make it work.
In this vision, it‘s a whole lot harder for a management team gone bad to turn a decent company into a den of thieves.
Done right, the impact of XBRL oops Interactive Data could dwarf that of RSS and Atom put together. I’m on board, and anyone who believes “truthful business” isn’t necessarily an oxymoron should be too.