Last week, the SEC officially proposed a timeline to make XBRL reporting mandatory for large US publicly-traded corporations (see press release here).  The great news:  this should eventually give individual investors the same kind of analytic capability — especially cross-company analysis — that now only exists for people who can afford a $25k Bloomberg subscription.  Even bigger:  it may help create a new generation of “provestors” (producers-investors) who *interact* with corporations and each other around financial data, rather than just “consuming” it.

In the very short run, it means we should all be able to run cross-company comparisons at a much greater level of detail than before — not just, for instance, comparing revenue or book value; but also, comparing items that appear in Notes to the financial statements.  (Think of contingent liabilities, or stock option valuations.)  Also, the data is much more likely to be truly comparable, because the companies will be tagging it themselves, rather than relying on teams of data-entry staff in India or elsewhere.  Just as CFOs carefully manage their “adjusted operating income” or other specialized measures they use for forecasts, they will want to carefully manage how their numbers look in standard comparisons with their main industry competitors.  For more detail on XBRL as it stands today, see this white paper from Bowne here.

In the longer run, the XBRL approach could bring about a much more radical shift in the relationship between investors and corporations — hopefully bringing the “prosumer” worldview, where consumers now help co-produce many goods and services (see Wikinomics, the book), to a new “provestor” community, where investors can engage with corporations more successfully.

Imagine the following roadmap (in no particular order):

• Step 1.  Corporations publish data in a standard cross-company, machine-readable format, to a single, open-access standard repository in each major jursdiction (e.g., the SEC the US; similar agencies in Korea, Japan, China, the EU, etc.).  [Currently underway in multiple countries.]
• Step 2.  Someone publishes the separate national XBRL repositories to a common global repository (e.g., on ManyEyes or Swivel), for true cross-company comparison across geographies and accounting standards.  [Currently feasible, though not in practice, to my knowledge.]
  • Step 2a.  The DNS infrastructure extends so that investors can find the relevant XBRL data, signed by the relevant corporation or oversight agency, using simple “xbrl://” calls, just as we now find websites through our browsers by typing “http://” or “https://” calls.  [Requires major changes to internet routing conventions, but not unhead-of.  FTP and other protocols exist already alongside HTTP.]
• Step 3.  Analysts, either “informed amateurs” or professionals running subscription-based financial blogs (see, for instance, Psychology of the Call or www.rightside.com), start to publish forecast models also in XBRL, tied to the global repository.  These could provide segment-level detail or other sub-analyses, and could also become the basis for “consensus” forecasts and deltas vs. actuals.  [Would require some additions to XBRL, either ad-hoc or eventually official, to include forecasts for line-items rather than just actuals.]

I’m sure we will see all this, and much more, over the next 20 years as Wikinomics hits the financial markets.  In fact, I see a huge opportunity to mitigate risk through crowdsourcing, with measures that go beyond Step 3 here.  (This is the topic of a future blog post.)  In the meantime, these early steps by the US, Japan, Korea, China and others are a great step forward towards transparent, meaningful data all investors can work with.

PS — Christopher Cox, SEC Chairman, has a cute sense of humor.  In  last week’s speech (see video here), he harkened back to the announcement of EDGAR, the SEC’s online repository of financial data — by referring to a 1985 article in Women’s Wear Daily.  Who knew that wwd.com makes a better resource on the SEC than, say, the Wall St. Journal?