Risk Professional, February 2009

t e c h n o l o G y By Jeffrey Kutler

Transparency Through XBRL

An IBM-led initiative eyes a better way to report risk

arranted or not, Christopher Cox will go down in history as the Securities and Exchange Commission

chairman who presided during the worst financial industry crisis since the Great Depression. Drowned out by the unrelenting bad news of 2007 and 2008, however, was a policy for which the Bush administration appointee had actively – and successfully – crusaded from almost the day he took office in 2005: a requirement that U.S. public companies and mutual funds report their financial data in the extensible business reporting language, or XBRL.

It was perhaps all too fitting that the SEC’s ultimate vote to make XBRL mandatory in phases between mid- 2009 and 2011, came on December 18, when news media were preoccupied with the Bernard Madoff Ponzi scheme allegations that emerged a week earlier. Given Cox’s long and vocal advocacy of what he touted as a revolution in financial reporting, through standardized tagging that would accelerate and simplify analysis and comparisons by professional and retail investors and regulators alike, SEC’s XBRL announcement was arguably anticlimactic anyway. But Cox and other XBRL promoters could have concurrently claimed another tri-

umph as more than 50 major corporations, participants in the IBM Data Governance Council, launched an effort to define XBRL standards for risk exposures.

“If XBRL is good enough for GAAP reporting, then it should be good enough for risk reporting,” asserts Steven Adler, director of IBM data gov-

ernance solutions in New York and chairman of the council, which had previously developed a “maturity model” for standards and best practices in corporate data oversight. He notes that the Zurich-based Operational Riskdata Exchange (ORX) Association, which has some overlap with his membership base, has paved the way with a data-gathering platform for operational risks that the IBM council believes it can learn from and expand upon.

Adler and members of the council – including Bank of America, Bank of Tokyo-Mitsubishi UFJ, Bank of Montreal, Citibank, Deutsche Bank, Nordea Bank and the World Bank – see XBRL transforming the mishmash of individually defined corporate disclosures of operational, market and credit risk data into simplified and commonly understood streams of information. The result could be “a new macroeconomic tool and greater fiscal accountability for regulators, investors and central banks, making it easier to identify toxic assets on the books, mitigate fraud, help prevent wide-scale fiscal crisis and rebuild confidence in financial systems.”

Still, arriving at a specification is a tall and potentially time-consuming order. It took virtually a decade for XBRL to migrate from conception in the accounting community to the SEC’s recent vote – though several European and Asian jurisdictions adopted the standard more quickly. But with the generic XBRL groundwork in place, and risk now a front-burner management and technology issue for global financial institutions, the data governance initiative is off to a quick start. Discussions within the council were under way a month ahead of IBM’s December 15 launch announcement, and the first of several expected formal meetings during 2009 is scheduled for February 26- 27 in New York.