Monday, March 16, 2009

How XBRL can help the Securitization Market
by Gerald Trites

Various people in the XBRL community have been saying that XBRL can help the market for securitized instruments, such as Mortgage backed Securities, and could have helped if used before the recent crunch. While XBRL may not be a panacea, nevertheless, part of the problem with complex instruments has been a lack of information about their true value. This has affected investors trying to determine a price and also has affected accountants bound by mark-to-market rules in determining a proper carrying value for reporting purposes.

XBRL US has been doing some interesting and valuable work in trying to explain how and why XBRL can help. Recently it issued a white paper, which can be downloaded free from the XBRL US site. The white paper explains how the various layers within the securities could be tagged such that investors could drill down through the layers to find the true cash value of the securities. This requires a different kind of XBRL implementation than we have generally seen so far. Indeed, it is akin to the idea of deep tagging, which is a methodology that has been espoused by several , including a research study published by the CICA last year called "Interactive Data - Integrating XBRL into Accounting Information Systems". That study explores how XBRL can be implemented within an information system, such that the tags can roll up through the system and carry the attributes of the information with them to the top.

To date, most companies have implemented XBRL by simply tagging the financial statements after they are completed. All this does is to put the statements into a different form, one that can be read by other computer systems and that can facilitate processing of the information by analysts, but one that does not look down into the data. One that does not achieve the real benefits of XBRL.

What XBRL US and others are trying to demonstrate is that XBRL has benefits that have not yet been tapped and the white paper shows how this would work.

Mark Bolgiano, CEO of XBRL recently testified before the Domestic Policy Subcommittee hearing of the Oversight and Government Reform Committee on a similar issue. He explained how "the use of a free, open-source technology standard (like XBRL) can be used to provide citizens, government and investors consistent, comparable reporting on the existing pool of securitized assets, help regulators track the disbursement and use of TARP funds and enable more effective regulation by government." Some details of his testimony are in set out in an XBRL US press release.

XBRL is a tool that is needed to enable investors to cope with sophisticated investment instruments and to enable accountants to report on them. While the market for such instruments is at a low (sic) right now, we can be sure that we haven't seen the last of complex layered investment securities. We need to be ready for the next round.


At 3:57 am, Anonymous Anonymous said...

I agree 100%



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