XBRL: The Israeli Experience

A few weeks ago, Haaretz, Israel’s oldest daily newspaper, published an article about the untry’s adoption of XBRL with the chilling headline A third of Israeli mpanies get int’l financial reports wrong.  Summarizing the findings of a recently published study by a trio of researchers, the piece states:

The ISA [Israel Securities Authority] had hoped that Israel would be a light unto the nations. Barely a flicker, really: In practice the project has been more reminiscent of the Tower of Babel…34% of the 2008 rporate reports showed innsistencies between the XBRL reports and the Hebrew versions. In 11% data was missing, and in 28%, there was a mismatch in the ntent. 

The article includes this eyebrow-raising quote from Ariel Markelevich, a member of the research team:

…There were cases in which mpanies reported losses per share as profits per share in XBRL, and a case in which a mpany put its data for 2008 in its balance sheet, but in the middle of the llection of numbers, it switched to figures from 2007. There were 15 mpanies that simply didn’t report a profit and loss statement in XBRL.

In the paper, which is available online, the authors describe how XBRL statements are prepared in Israel. Filers neither map or tag their financials; instead, they enter line-item data (footnotes are largely excluded) into a form at the ISA’s TOFES web The ISA nverts the mpany data to XBRL and uploads it to its MAGNA reporting Importantly, the authors note that “…a similar data entry form has existed on the ISA’s web for a while. The only difference seems to be that the ISA is now nverting this data to XBRL format.”

After reading the paper a uple of times, I’m uncertain how things went wrong. Some of the mistakes described — such as a reversal of signs that would, for example, turn an EPS loss into a profit — have been well documented in XBRL nversions. The SEC (among others) has cautioned filers about the potential for error, and these mistakes are unlikely to reappear in any number in future XBRL exhibits. Wholesale mistakes such as the mplete absence of any P&L numbers at all, however, are just baffling.

But for argument’s sake, let’s assume the errors in the XBRL statements are as serious and as extensive as the authors ntend. What does the Israeli experience tell us about the utility of XBRL adoption, and what lessons does it hold for regulatory agencies throughout the world that are implementing XBRL reporting? 

Very little. As the authors make clear, the “unique process” by which XBRL statements are prepared in Israel — with filers doing no tagging, and the ISA itself performing the XBRL nversion — is poles apart from that of SEC and many other national registrars. Because Israel’s method of implementing XBRL bears no resemblance to the way other regulators are pursuing XBRL adoption, drawing any nclusions about the viability of XBRL statements from the Israeli experience is impossible. 

Nevertheless, the authors oasionally imply such a nnection. Although stating the uniqueness of Israeli adoption, they spend much time discussing the SEC experience, focusing almost exclusively on the Voluntary Filing Program (VFP) and the mistakes researchers have found in participants’ XBRL exhibits. Based on this evidence, the authors state that “Due to the amount of human intervention (manual or software tagging), the reliability of XBRL filings currently made available is highly worrisome.”

That’s like a baseball writer in mid-May forecasting that, given its lousy spring training rerd, a team will finish last in their division — when they’re already 26 and 14 in the regular season. The largest mpanies have now been filing XBRL exhibits for a year, and by most acunts adoption has gone relatively smoothly with low data error rates. (Footnote data may prove more challenging, but, as noted, the ISA adoption did not include footnote disclosures.)

I understand the needs of researchers, who are eager to analyze whatever large sets of data are available. And it’s both reasonable and useful to discuss mistakes in XBRL financials prepared under such programs.

But the VFP was specifically set up so that mpanies uld gain experience with XBRL without worrying about getting everything right. Assessing the overall viability of XBRL adoption for financial reporting on this data is not only wrongheaded: it can also disurage regulators from inaugurating such programs, and mpanies from participating in them.