Joanne Locke, senior lecturer at the University of Birmingham (UK), is a member of the International Acunting Standards mittee Foundation’s XBRL Advisory uncil. Her current research focus is the trend toward global standardization of business information.

"Where are the missing masses?" is a question that social theorist Bruno Latour poses for sociologists. It also a useful query for the XBRL mmunity: What happened to the large numbers of users that were expected to demand "interactive data" and create the critical mass for its adoption? As Todd Neff wrote in pliance Week, "Investors and analysts have since celebrated this regulatory milestone [the SEC mandate of interactive data] with an extended, gaping yawn." XBRL is being adopted by regulators and stock exchanges regardless of the lack of interest, while claiming that investors are the key beneficiaries. 

I want to tackle two broad questions: (1) Are retail investors (the masses) important? and if so, (2) What is needed to provide them with interactive data that is useful for them?

Are Retail Investors Important?

The SEC has emphasized the need to protect retail investors through interactive data’s potential for improved aessibility and transparency. Investor protection is part of the SEC’s mission and EDGAR was old and in need of updating; however, very little is understood about how individual investors use mpany reports for investment decision making. Indeed, the little evidence available suggests they mainly don’t. So if the purpose is to provide protection by increasing the efficiency of the capital markets by turning retail investors into an "army of regulators" as David Roth in his Wired article suggests, I think the effort is misdirected.

Recently, attention has returned to the role of investment funds and other institutional investors in active stewardship and ernance oversight of the mpanies in which they invest. A study that will soon be published by the ICAEW, Digital Reporting Options for Europe, shows that the proportion of the capital in the UK and US markets provided by institutional shareholders is steadily rising. In the UK, Sir David Walker has recently released a report on ernance in banks which takes this view and echoes earlier calls for institutional shareholder responsibility. Given that professional investment analysts working in this sector already have aess to sophisticated databases that provide data directly for their investment decision models, interactive data does not provide them with any significant enhancement.

It may be that despite the regulator rhetoric about benefits to retail investors, that this is not actually the key argument. It may be that we simply believe that it is a citizen’s right to have the potential to aess the best data that can be provided if they so choose, as Bob Schneider argued in this post. This approach is attractive from the point of view of the power of the inter to create something closer to "level playing field" and "democratization" for individuals. But it is equally important to nsider the hyperbole used about the potential effects and carefully evaluate the st/benefit, the regulatory structures for ntrolling the tagging, and how the data will be audited. These are critical questions.

What Is Needed to Provide Retail Investors with Interactive Data in a Useful Format?

If we take the view that improved aess to data is an investor’s right, then how do we ensure that the functionality provided by interactive data doesn’t actually mislead and nfuse less sophisticated retail investors? 

Experimental research undertaken as part of the Digital Reporting Options for Europe project mpared user decision making and perception using PDF statements and an XBRL-tagged presentation in an Excel spreadsheet that included key ratios calculated automatically. The results show that investors tend to view ratios automatically calculated from the tagged data as more "aurate" than their own calculations based on cutting and pasting (or retyping) from the PDFs. They relied on them without questioning the basis on which they were calculated.

The experiment nsisted of two mpanies’ acunts. The problem in this example is that the automated calculation does not take into acunt that the financials, both prepared in nformance with IFRS and aurately tagged, were not mparable because one mpany had internally generated intangibles and the other had purchased brands. This fundamental difference between the two mpanies results in a different acunting treatment that renders the financials not directly mparable (footnote information must be integrated to adjust the figures). This is just one of many possible examples where even where mpanies mply with the requirements, mparison is not straightforward. 

I can hear XBRL proponents saying, "Yes but that’s a problem with acunting that exists today." Yes, that’s true – but it may be exacerbated with interactive data. The "slicing and dicing" and automated processing of data removes the retail investor further from the chance of integrating this information, which is at least presented in the ntext of the whole report using PDF. Automated calculation makes it easier to focus on the ratios and presenting them side by side gives the appearance of direct mparability. Unless the software and portals that are designed for retail investor use are carefully structured to provide support to improve the quality of decision making, we risk providing not a simple tool, but a simplistic one, that misleads. As researchers have noted, this problem is magnified many times if the tagging isn’t aurate or the mpany creates unnecessary extensions.

The challenge ahead is to provide a careful, objective evaluation of what interactive data can and can’t do for retail investors. To safeguard investors and deliver the potential benefits – regulators, software vendors, investment advisors, and academics – will need to take responsibility to ensure that the mechanisms by which interactive data are disseminated and analyzed are fit for purpose in the hands of the intended user. So far, the SEC has taken the view that it is not the appropriate body to guide the development of such tools, leaving it to the market. But unleashing interactive data without balancing guidance and appropriate tools may end up hurting the investors it was intended to empower.