Public Company Disclosure

We were intrigued recently by a Wired article suggesting that there is a simpler way to format public company disclosure so that there is radical transparency, making reports easier to understand and easier to interpret. Of course, regulators believe that the current system does exactly that. But making financial reporting simpler is the exact opposite direction we have been heading. The idea is to have public companies file using universal tags that make the data easier to explore. We like the idea but don’t think it will be that simple. The current system already uses the equivalent of universal tags—“accounting terms of art.” The problem is that to overhaul financial reporting we need first to overhaul accounting. In a sense that is happening with the intended abandonment of GAAP and adoption of more international standards. But some lament the standards will allow more subjective interpretation, thus making financial statements more susceptible to fraud. And what 100 or so tags would you include. Revenue is good, but is that cash or accrual accounting? And earnings per share is great, but do you count pledged shares, options, warrants, convertible debt, etc. We like the idea because current reporting is inscrutable to almost everyone, including lawyers, accountants, and investment bankers, but as with everything, the devil is in the details.
-- Paul Marotta