Dear Members of the House Financial Services Committee,
We, the founders of Calcbench, writing this letter to continue expressing our opposition to HR 5054 in its present form, specifically the bill’s proposal to exempt small companies from the mandate to file financial reports using the eXtensible Business Reporting Language (XBRL).
As we have written before, there are several reasons to oppose the mandate. These include, but are not limited to, the following:
We are prepared, today, to add more color to our position. The use of XBRL by investors is growing.The largest investors in the world all use XBRL. Many are our clients.We are contractually bound from disclosing their names, but if we could, we would SCREAM their names at the top of our lungs.
Why do these firms use XBRL? In a nutshell, because XBRL lets them get the data they need in financial filings directly from the firm that filed it.
These firms using XBRL also get that data fast. There is no delay in obtaining the information once it is in the public domain.
There is another, less publicized but critical aspect to maintaining the XBRL mandate for small firms: Investor Protection.
On June 5, 2018, we discovered two firms in the food services industry that changed their names to imply that they were in the financial services space. Specifically, these firms changed their names to include the words “Blockchain” and “Fintech.” But their filings indicated that they remained predominantly food service firms.
How did XBRL help us to identify that issue?
We were analyzing the economic data of the food services industry. XBRL allowed us (and anyone else) to search the metrics of those firms and detect red flags in their business.
Specifically, our exercise involved looking for firms with extreme Days Sales Outstanding (DSO). This is a well-documented way of searching for firms that may be manipulating earnings or that may have credit concerns with their customer base. We found two firms in the food services industry with extreme DSO, Long Blockchain Corporation and Future Fintech Group.
Our first thought was that these cannot be food service firms; that there must be some mistake. But in looking at their business descriptions and their financial segment disclosures, we found that they were primarily involved in Food and Food processing.
Of course, any comapny can use whatever name it wants, but some names can be misleading to the public. XBRL-based analysis helped us to find these two firms quickly.
That is one simple, practical example of why XBRL is useful to investors. Trust us, we have many more.
This is part of the reason that XBRL is invaluable. Help us to keep it that way.
Alexander M. Rapp and Pranav R. Ghai
Co-Founders, Calcbench, Inc.
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