This is written in support of S. 4295, the Financial Data Transparency Act of 2022. It is bi-partisan legislation. Senator Warner (D-VA) and Senator Crapo (R-ID) are sponsoring a bill that would require the Municipal Securities Rulemaking Board (MSRB) to "establish data standards'' and to "scale" reporting requirements for "smaller regulated entities." These entities would include state and local governments. This legislation supports the use of technological advances toward developing standardized financial information that already exists for publicly traded companies. Truth in Accounting wholeheartedly supports this legislation.
Let me first explain my history with accounting and why I want to convince you to support S. 4295. In 2008, I had many years of accounting behind me and decided to return to school to earn my Master's degree in accounting. At that time, a technical advancement was on the profession's horizon. A new data tagging system was being required and implemented by corporations for their submission of documents to the SEC. The tool was called eXtensible Business Reporting Language or XBRL. XBRL allows users to easily examine the financial statements of publicly traded companies without the difficulty of reviewing pdfs and their hundreds of pages of stagnant information. The statements were tagged, much like a grocery item for scanning, with a programming language that allowed the data to be machine-readable. This allowed users to click on an interactive link and review the data as well as download the financial statements into Excel and compare the data through ratio and trend analysis. The average person could understand how this worked within minutes.
I was so taken with the new tagged data that I wrote J. Louis Matherne, then the Director of Information Technology at the AICPA, and asked if I could speak to him about this advancement, and he agreed. At the time, I thought this would be an amazing tool to bring transparency to government and grant accounting. Based on what I saw and his interview, I wrote my final capstone on the subject, advocating for XBRL to be implemented across all spectrums of the accounting world to bring transparency to all aspects of accounting. I spent five years as a grant and governmental accountant. I knew first-hand that transparency and accountability was needed in the government sector.
It took the passion and hard work of many individuals to launch XBRL as a reporting tool. People worked with little pay, learning as they went. But today, publicly traded financial statements are easily accessible and readable at the SEC. Furthermore, in just the past couple of years, the submissions have included a new, more robust XBRL version called Inline XBRL. Users can easily search the notes, audit opinion, and Management Discussion and Analysis. The SEC still offers the classic or old-school version of the original XBRL versions, but Inline XBRL is even more transparent and easier to read.
My passion for XBRL remains steadfast even today. I am a college professor with advanced degrees in law and accounting. I teach beginning attorneys and accountants how to read and analyze financial statements. I take them through the SEC's EDGAR website and lead them through the data download and, subsequently, the analysis. These are often students who have never read or seen financial statements. Within weeks, they are analyzing and comparing the corporate data that XBRL has made accessible and transparent.
I am also the Director of the Truth in Accounting Project at the University of Denver's Daniels College of Business. There, we analyze government financial statements to extract data for our Financial State of the States and State of the Cities reports. We spend months extracting data from the pdf Annual Comprehensive Financial Reports uploaded by the states and cities for their stakeholders. When I demonstrate the difference between XBRL-tagged corporate reports and government reports to my students, their eyes glaze over, and they become confused and frustrated by the governmental statements. If XBRL was implemented by governmental entities the data would be in an understandable format for even the most novice user.
It is in this context that Truth in Accounting supports Senators Crapo and Warner. Truth in Accounting makes these arguments in support of the legislation:
A mandate for utilizing a specific technology for governmental and nonprofit financial reporting would require identical financial reporting taxonomies across all types of public entities. This is exactly what the public and other users need in governmental reporting. Comparability, transparency, and accountability are vital for correct decision-making. This is demonstrated through teaching new attorneys and accountants. Because of the use of XBRL the students learn and understand corporate financial data quickly. They then ask why governments aren't doing this. If it is good enough for investors and creditors of corporations, why isn't this good enough for citizens and taxpayers?
Transitioning to or potentially adding new reporting categories would require changes to underlying financial systems. And we say, thank goodness! I stare at government reports all day for our State of the States and Cities reports. We need transformation at the government level. For us and others who study governmental financial information it takes hours to find the smallest bits of information. Yet, in the corporate reports, we can download comparable data in seconds.
The legislation will have transition costs to hire consultants, reconfigure financial systems, or implement new software or to assist with the ongoing costs to support this additional reporting burden. It is true it will take money. But states have been given vast amounts of resources with the American Rescue Plan (ARP). As of April 2022, only 63% of the money had been spent. The ARP legislation spend dates could be extended for another few years, and these funds could be spent to help cities and states become XBRL compliant. If we have the will, we will find the way.
While transition costs may be incurred the long-term benefits to the taxpayers and other government financial data users would be great. Taxpayers could easily download their government’s financial data and even compare it to other governments. Researchers taxpayers would have quick and easy access to governmental pension data. When making financial decisions, including tax and spending policies, elected officials would have the data they need at their fingertips in an easy-to-understand format.
I have been teaching college courses for about 11 years. I can say unequivocally that XBRL facilitates ease of use and transparency. I have witnessed a living incubator of XBRL success in my classrooms. My experience is that XBRL has a tremendous effect on transparency. If stakeholders can easily access the data, they can move toward understanding the data more readily. The SEC and EDGAR are models that prove that point.
Truth in Accounting asks you to support Senators Crapo and Warner on this bi-partisan effort to establish data standards in financial reporting as it is a necessary and wise initiative.