Introduction
Accounting data such as financial statements have been crucial for informing investment decisions. Accounting statistics allow entrepreneurs to perform research and business evaluations of the stock market and establish how they can enhance the performance of their investment portfolio. For instance, an entrepreneur may conduct hypothesis testing of mutual investments of the same financial claim that can deliver a 20% annual return on investment (ROI). This means that the sources of accounting statistics used for investment decisions should be realistic and dependable to alleviate potential business issues once accounting data is used to launch a venture. Thus, more and more technologies and accounting policies are launched to improve the accuracy and reliability of accounting information. For example, XBRL is one of the frequently used accounting technologies to make work easier for accounting analysts and investors.
Inline XBRL refers to a structured data language developed to assist filers of accounting data in preparing one machine-readable and human-readable document (Harris & Morsfield, 2012). This means that filers only need to prepare one financial document that summarizes all financial information. Although the importance of the XBRL mandate, Harris and Morsfield’s findings revealed several misgivings about this mandate. This article discusses Harris and Morsfield’s significant results: analysts’ and investors’ dissatisfaction with high tagging-error rates in the filings, excessive use of tagging extensions, the need for more detailed tagged data, lack of audit assurance of tagged data, and the lack of tools to receive the data the integrate it into companies’ workflow.
Findings on analysts’ and investors’ dissatisfaction with high tagging-error rates in the filings
In their research, Harris, and Morsfield established that the high tagging-error rates have significantly compromised the accuracy of XBRL filings since the XBRL mandate became operational (Harris & Morsfield, 2012). They argue that this was so because, during XBRL’s initial filing stages, the U.S. GAAP (generally accepted accounting principles) Taxonomy (UGT) was embryonic (Harris & Morsfield, 2012). This is because the XBRL filers were inexperienced in tagging, leading to high tagging error rates. The authors developed that analysts and investors’ dissatisfaction with high tagging-error rates in the filings forced XBRL filers to use unnecessary extensions to reduce the errors (Harris & Morsfield, 2012).
According to Harris and Morsfield’s findings, analysts’ and investors’ dissatisfaction heaped pressure on XBRL filers to find new and proactive strategies to meet analysts’ and investors’ expectations. This led to a new challenge in the application of this mandate. The more extensions were introduced, the more analysts and investors lost their confidence in XBRL’s ability to solve accounting issues.
Excessive use of tagging extensions
Harris and Morsfield realized that the mandate categorized its filings as “furnished” instead of “filed,” hence the XBRL filings were not assessed for filing errors (Harris & Morsfield, 2012). Because the U.S. Securities and Exchange Commission (SEC) failed to announce the end of the furnished condition that gave XBRL filers limited liability for filing high tagging errors, filers continued to add more unnecessary extensions to XBRL (Harris & Morsfield, 2012). The SEC’s department of Risk, Strategy, and Financial Innovation (RSFI) develops a strategy that assists it in using analytical tools to oversee companies’ financial filings. Moreover, the duo found that different techniques and models, such as Accounting Quality Model (AQM), are launched to improve filing accuracy to alleviate the filing penalties associated with the excessive use of extensions (Harris & Morsfield, 2012). Analysts and investors in interviews with Harris and Morsfield registered their complaints about the excessive use of extensions because more extensions yielded inaccurate accounting statements that dragged them into making unjustified financial decisions. Thus, analysts and investors suggested that a new version of US GAAP Taxonomy was essential to reduce the need to create unnecessary extensions and add tags to meet XBRL filers (Harris & Morsfield, 2012). Analysts and investors believed that the quality of tagged financial statements would yield efficient and dependable outcomes.
The need for more detailed tagged data, lack of audit assurance of tagged data
Harris and Morsfield revealed that the XBRL mandate had no measures put in place to ensure that XBRL filings are accurate. This meant that tagged data from XBRL filings lack accuracy since they are not audited (Harris & Morsfield, 2012). Thus, the Public Company Accounting Oversight Board (PCAOB) and the SEC must enact filing audit requirements if they must ensure accurate data that satisfy analysts and investors (Harris & Morsfield, 2012). Furthermore, the interviews with financial analysts and investors pointed to companies’ need to engage their auditors to review the accuracy of their filings for tagged data. The Columbia study also realized that XBRL filings users wish for more tagged accounting data, including proxy statements, elements that are missing in tagged data at present, and the Management Discussion and Analysis (MD&A) section (Harris & Morsfield, 2012). Accounting data can be voluminous and challenging to understand by its users. Therefore, accounting tags (simple pieces of accounting data) should be described in one document that analysts and investors can realize (Harris & Morsfield, 2012). Tagging accounting data allows users to organize accounting statistics more conveniently by linking shreds of information in one document. Arguably, this is the reason analysts and investors do not have confidence in XBRL filings, as it does not provide detailed tagged data of financial statements.
The lack of tools to receive the data and then integrate it into companies’ workflow.
The research findings noted that companies lack tools to receive XBRL-tagged data and are unable to incorporate them into their workflow. Based on the research outcomes, most filing corporations find it problematic to prepare XBRL SEC filings because XBRL SEC filings are viewed as additional expenses that cannot be generated from the companies’ enterprise resource planning (ERP) systems (Harris & Morsfield, 2012). Because of this, firms cannot use filing details for accounting analysis since their ERP systems lack data from XBRL at the time a transaction is executed. Companies wishing to embrace XBRL filing must use significant software vendors to build an effective XBRL system (Harris & Morsfield, 2012). This means additional company expenditure on XBRL filing, making it more expensive and unpopular among analysts and investors.
Conclusion
In summary, the Columbia study by Harris and Morsfield on XBRL reveals many setbacks of the XBRL filing technique. Notwithstanding, analysts and investors heavily depend on financial statements to make well-informed economic decisions to promote the global economic growth. Thus, accounting figures should be accurate at all costs to ensure that we do not end up with deadly economic decisions that can lead to world economic crises like the ones witnessed in the past decades. Also, instead of majoring on the downfalls of the XBRL filing system, we should view the accounting model as a tool that assists us in leveraging electronic information for our entities rather than seeing it as a burden. Harris and Morsfield recommend that we should initiate more XBRL policy requirements to promote XBRL filing efficiency. Additionally, there encourage finance and accounting professionals to seek more XBRL filing knowledge to improve their experience and skills in handling XBRL filing to improve its effectives. If we achieve these recommendations, this accounting tool will be more helpful to analysts and investors. There and then, it will receive more praise than criticisms. XBRL Filing tool is critical in accounting arena and we must do everything to ensure it succeeds, no matter the challenges it faces today.
Reference
Harris, T. S., & Morsfield, S. G. (2012). An evaluation of the current state and future of XBRL and interactive data for investors and analysts.
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