Stockholders Have a Tool to Analyze Financial Statements—Why Not Stakeholders?

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Commentary

May I talk to you about Extensible Business Reporting Language (XBRL)? Do a Google search and there are plenty of resources to explain what this transparency and consistency software tool is. But do a search on this website and you won’t get one match.

Using XBRL is required by publicly traded companies in their reports filed with the United States Securities and Exchange Commission. It makes data analysis robust for those interested in reviewing financial statements and the data they provide. It’s great for comparisons between companies and prior year data, as well as other trend analysis exercises.

This business reporting standard even has its own nonprofit organization. Its name? XBRL. What is XBRL? “XBRL is the global standard that powers digital reporting. By making business reporting computer-readable, it helps make business data easy to find, access and analyze.”

The key word is “global.” Everyone is using it. Well almost everyone. But it’s mentioned in Investopedia. Its Wikipedia page is huge. The Medium publishing platform has a guide for beginners. So does the Financial Accounting Standards Board. But there is also the Government Accounting Standards Board, and it is not recommending it, yet.

One of my hobbies is reviewing the annual comprehensive financial reports of municipalities in California. Sometimes I get a virtual copy of a city’s annual audited financial statement, which means scrolling down to find what I need. Most of the time there is a PDF available on a city’s website, but it is not always searchable.

If governmental agencies could catch up with the rest of the globe, then citizens would have incredible transparency as to how their tax dollars are being spent. They would have the ability to compare cities, counties, and states. We could see who is paying how much on average for employees, for public safety, and in California, on homelessness.

Five years ago, I tried to encourage the state where Silicon Valley is located to consider adopting XBRL. It seemed that this would be right up California Gov. Gavin Newsom’s alley, as he authored “Citizenville: How to Take the Town Square Digital and Reinvent Government.” He also included $40 million per year into the state’s budget for his digital innovation office.

As a California State Senator at the time, I introduced Senate Bill 598, the Open Financial Statements Act of 2019.

“The bill would establish the Open Financial Statement Commission, consisting of 9 members, in the Treasurer’s office. The bill would authorize the commission to contract, through an open and competitive request for proposal process, with vendors possessing the necessary software and financial data standards development expertise to build one or more taxonomies suitable for public agency financial filings and create a software tool that enables a public agency to easily create machine readable documents consistent with these taxonomies, if necessary. The bill would require the commission, by January 1, 2021, to report to the legislature and make recommendations regarding how and whether to transition financial reporting by state and local agencies to a machine readable format. The bill would repeal the Open Financial Statements Act as of January 1, 2025,” according to the bill text.

I was fortunate to have an excellent collaboration with California State Treasurer Fiona Ma and her staff. She even allocated the necessary funding out of her budget for the effort should it move forward.

For the state legislature to vote on a bill, it must first go to at least one committee for approval to move onto the Senate floor and then onto the Assembly side of the house for concurrence. For my bill, it had to go to three separate committees before reaching the Senate floor: the Senate Governance and Finance Committee, the Senate Committee on Governmental Organization, and the Senate Appropriations Committee. In the Assembly, it was referred to the Local Government Committee, the Accountability and Administrative Review Committee, and the Committee on Appropriations. It then went to the Assembly floor and to the governor’s desk, having endured this process without receiving one vote in opposition.

With the support of a statewide elected officer and 120 legislators, this was a no-brainer for the governor. It would even confirm his “digital” bona fides.

He did not sign the bill. He returned it to the legislature with this note:

“I am returning Senate Bill 598 without my signature.

“This bill establishes the Open Financial Statement Commission within the State Treasurer’s Office and requires the Commission to report to the Legislature regarding how and whether to transition to state and local agencies’ financial reporting to a machine-readable format.

“Although improving public agencies’ financial reporting processes for transparency is vital, this bill imposes additional unbudgeted costs for the state and contains implementation provisions that are problematic.”

While the state may have missed an opportunity to be a real digital leader for the municipality industry in this nation, Treasurer Fiona Ma is still a supportive figure in this effort. And she will be speaking in Orange County later this month on the topic.

Someone once told me that they like improvements, but it was change that they hated. Well, governmental agencies must move into the future, even if it involves kicking and screaming.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.