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Rob Blake

DATA Act and OFR… Modern Day Transcontinental Railroads?

What the Pacific Railway Act did for the Transcontinental Railway, the DATA Act and OFR can do for XBRL.

The current state of XBRL in the U.S. reminds me a bit of the early days of the railroad industry.  Much like the 1840′s and 1850′s saw the local and quasi-regional build-up of train infrastructure, broad-base use of XBRL is pretty localized within the U.S. to the Securities and Exchange Commission (SEC) and Federal Deposit Insurance Corporation (FDIC).

Just as the early train industry struggled with getting everyone to use the same gauge of rail, (most but not all used the 4 ft 8.5 inch standard) which slowed the expansion of an inter-connected train network, XBRL adoption and acceptance is a struggle now.  While the “standards” aspect of XBRL is not in question, XBRL continues to struggle given its limited pockets of adoption and given that its one pretty visible implementation at the SEC remains dualistic in nature (HTML and XBRL submissions) and partial in use (e.g., some Form types, not all content).

For the train industry back in the day, the lack of a standard railroad gauge in the face of the expansion of the underlying ecosystem put the rail industry at a tipping point and in dire need of a catalyst to take it to the next level. On July 1, 1862, that catalyst was provided in the form of the Pacific Railway Act (PRA).  Passed by President Abraham Lincoln, the PRA did two things:  First, it authorized the creation of a transcontinental train system, thereby expanding the use of trains and increasing its value-proposition to the entire supply chain.  Second, the PRA sorted out the disparate rail gauge size issue by requiring all track used in the building of the transcontinental system to be the same (4 ft 8.5 in).  To me, the resulting formula for success was simple:  Increased usage/availability (more track, over more distance) + standard gauge (same size) = enabler for expansion of ecosystem.

Fast forward from the transcontinental railway of yesterday to today’s information superhighway and it sure seems like XBRL could use a similar catalyst.  While the easy answer is to get the SEC to step things up a notch or two with their filing program, I say there’s a bigger catalyst that’s in play.

Blake’s Take:  The combination of Congress passing the revised “Digital Accountability and Transparency Act” (or DATA Act) and the efforts of the Treasury’s Office of Financial Research (OFR) will transform the standards ecosystem in the U.S. and pull with it the expansion and use of XBRL.  Much like the PRA did for the rail industry, an expansion of standards-based reporting by and from the federal government will not only further cement key standards like XBRL but also expand existing XBRL implementations to a whole new level (and dare I say make XBRL less “repulsive” to the folks having to do it now).

The importance and impact potential of the DATA Act and OFR was made clear to me last week when I was on Capitol Hill to get an update of the current state of both fronts.  In its simplest terms, the DATA Act would require any local, state or federal agency that receives appropriated funds to report information in “common data elements” via “data reporting standards” (previous version of bill). Leading the DATA Act charge is Congressman Darrell Issa, Chairman of the House Oversight and Government Reform Committee and original sponsor of the DATA Act which was passed by the House of Representatives in April 2012 but failed to pass the Senate when they chose to take no action on a similar bill in September 2012.  From the private sector, broad-based support is being championed by Hudson Hollister and members of the Data Transparency Coalition (DTC).  The end game of this effort, and recognized formally by Chairman Issa, is simple:  The re-submission and eventual passage of the revised DATA Act by the current Congress.  Chairman Issa made it clear that it’s full speed ahead as he continues to work in close partnership with the sponsor of the bill in the Senate to “clear the tracks” (pun intended) to get the necessary bi-partisan support lined up when the votes are called.

Moving from a bill to a group created by a bill (see Dodd-Frank), the team at OFR quite frankly has a chance to have an even greater impact on the XBRL-related standards ecosystem. The OFR ultimately is responsible for “promoting” (actually, it’s “requiring” but I digress) the use of standards within financial regulations.  While OFR is still early-on in its mission and reviewing a large number of opportunities for standardization, their first official step has already been taken in the form of the Legal Entity Identifier (LEI).  The LEI is a global initiative and agreement to define the basics of what an entity is and how it should be referred to.   While LEI is still in its early stages, it’s a step in the right direction and a sign that OFR is looking for cross-over/commonality points and charging aggressively after them to remove redundancy and replace with standards-based consistency. While XBRL wasn’t directly discussed, its presence was definitely felt via David Blaszkowsky, previously with the SEC’s Office of Interactive Disclosure.

XBRL and trains, right?  A stretch you say?  Maybe.  But the parallels are compelling when comparing what DID happen to the railroad industry after the Pacific Railway Act and what WILL happen if the DATA Act is passed and OFR achieves its mission.  To be clear, the efforts and results of the DATA Act and OFR are not just about the advancement of XBRL, and that’s okay.  What’s more important is that both initiatives will help establish and validate a much larger ecosystem that XBRL will clearly play a key role in. And as a result, help change the conversation from one filled with angst and frustration to one more like “Gee, I didn’t even know I was doing it.”  Novel concept, right?

 


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Posted in Completion | Financial Reporting | XBRL

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