Lynn Turner, the outspoken and former SEC chief accountant under Arthur Levitt, is again in the news straight talking about what is wrong in the world of accounting. His straight talk has earned him a reputation as a beacon for clear financial reporting and no non-sense. I had the pleasure of meeting Mr. Turner in 2002 while speaking as a conference at the University of Northern Colorado. My topic, XBRL, was very new to the entire audience except for Lynn. Then something completely unexpected happened.
In the middle of my talk, Lynn raised his hand like traffic cop and said “Stop”.
The next few words surprised me and stuck with me to this day. Lynn said, “Neal, I’m a believer and supporter of XBRL. In fact, I wrote the speech for Arthur Levitt when he mentioned XBRL back in 2000. But please promise me that whenever you speak in public about XBRL remind people that you must get the accounting right first.”
When the shock of being stopped in mid-sentence by the former SEC chief accountant wore off, I thanked Lynn for his comments and continued with my talk. Later, as I reflected upon what Mr. Turner had said, the idea of putting accounting first began to resonate. You see, XBRL is a unique new way to tell the world about the accounting choices your company has made. Each line item and soon, each numerical value in the footnotes to financial statements will carry additional information about the label, definition and authoritative reference associated with each value. Never before has the accounting behind the numbers been so exposed.
Getting the accounting right will be a process that will evolve over time. For example, I do not expect the newly released 2009 Us GAAP taxonomy to be perfect. Each individual line will require careful review by the management team during the time-compressed close to file cycle. Review processes will be tested and tweeked as the XBRL becomes a critical part of the correctness and timliness of the corporate SEC filing.
Problems are also likely to surface from outside filing companies. The taxonomy will be “stress tested’ when over 500 first phase filings begin this June. I expect to hear reports of missing elements and errors in the taxonomy. We will also hear about cases where the use of the XBRL taxonomy exposes interesting things about corporate accounting that might not be right. As Lynn Turner admonished over seven years ago, companies need to get the accounting right first, then correctly tag the results in XBRL.