Two Cheers for XBRL
Guest Blogger: Prof. Troy A. Paredes

The SEC’s XBRL initiative should be applauded. Through interactive data, XBRL has the potential to make a body of information easier to search, process, and understand. Consequently, XBRL is expected to lead to more transparency and thus better decision making by investors.

XBRL raises a more general point that is sometimes overlooked. That is, in designing an effective disclosure regime, it is important to consider not only “what” information is disclosed, but also “how” the information is disclosed. The focus is often on more and more disclosure without enough attention paid to how the disclosure is formatted and presented. Yet the same information, when formatted and presented in a more accessible, straightforward manner, is more understandable, making it simpler for securities market participants to evaluate a company as well as to compare companies.

The question of understandability of disclosures is more acute today than ever. Businesses are more complex than ever; more information is disclosed than ever; and there are more investment opportunities to assess than ever. The sheer volume of information itself can tax the resources of investors and analysts, leading to information overload.

Efforts such as XBRL (or MD&A summaries, tabular and graphical presentations, charts, etc.) that can make information easier to search, process, and understand should be welcome. When information is easier to access and interpret, transparency improves. And as transparency improves, investors will make better decisions.