Analysis of competing hypotheses

The US Central Intelligence Agency's reputation for analytical accuracy may have been tarnished lately, but nevertheless it can provide useful generic tools for analysis under uncertainty. The chapter on Analysis of Competing Hypotheses from the publication Psychology of Intelligence Analysis is such a case in point: it describes in some detail the procedure how to arrive at the most likely hypothesis by way of analysing competing hypothesis, knowing that - against intuition - the hypothesis with the least evidence against it is often the best guess. The rigour of this approach may be excruciating, but it is also the most promising in my view.

Finance 2.0

I've had the great pleasure and privilege of presenting the CFA Institute Comprehensive Business Reporting Modell as well as its position on XBRL to the 17th XBRL Conference in Eindhoven. Needless to say that this was also a great opportunity to share & discuss some thoughts about the future path of financial research with participants. 

The slides of my presentation are available here, but I'm already in the process of reworking them, taking on board new ideas from the peer discussions. My thinking goes along the lines that XBRL will be a disruptive force in finance eventually, but not in the immediate future as data intermediaries are well positioned to leverage their incumbent interfaces with the cheaper and faster fundamental information. For them, XBRL will be sustaining - for a while. That also means that most professional investors - at least those on the sell side - will not care much about XBRL since they are receiving the goods indirectly via improved third party providers. Disruption will come to them by other means, however ... I am looking forward to this conference in the fall, which should firmly establish the debate among investment professionals.

No benefits to CFOs?

We've been talking about XBRL scepticism earlier, concluding that the instances referred to were not to be taken overly seriously.

This CFO.com story (again!) is different, though, even though it has its shortcomings. Where it is probably spot-on is in the statement that preparers presently have little to no benefits from the implementation of XBRL as there are no tested ERP applications that truly integrate XBRL at this point. So all (complex) XBRL preparation will be done in a bolt-on fashion.

This is probably true for the time being, until the SAPs and Oracles of this world actually integrate XBRL GL into their products fully. On the other hand, the integrated approach of XBRL adoption is usually referred to as the most expensive one, thus the intermediate bolt-on solution will result in little additional expenditures.

The story gets much more disputable where it goes into the benefits for analysts. It quotes the FEI as poking holes in the other purported benefits of XBRL by insinuating that "The organization predicts XBRL could instead lead to analysts receiving excess information." This is an undue truncation of an admittedly complex, yet valid point made in the FEI's comment letter:

We believe we may be creating a situation where preparers will be providing more information than the analysts want (versus key information/data), later than when they need it (to update their models), thereby missing the real window of opportunity which is likely when a company releases its earnings for the quarter. Strategically, the long-term direction of this project needs to be determined and communicated − is it to upgrade the manner is which data is filed with the SEC or is it to provide (key) information to investors and analysts for their use?

Pensions Directive Review

As a precursor to the EU Commission review expected later this year, CEIOPS has published its own Initial review of key aspects of the implementation of the IORP directive. The main conclusions (from the press release) are:

there is considerable diversity in the way some key aspects of the IORP Directive have been interpreted and implemented;

there is little evidence of major issues arising from these differences;

given early days and limited experience of the Directive's implementation in some areas, it would be premature to recommend changes to the Directive.

More to follow ...

Pensions webcast

In yet another effort to increase its accessibility, the IASB makes its first ever recorded webcast about its recent pensions DP available to the public on its pensions project site. The webcast had about 120 participants and the included Q&A session was rather good.

I think that the IASB ought to add public webcasts to its ongoing projects due process. The ease of (global) participation and dialogue would enhance the reach of the IASB's due process to a new group of users (of financial statements) which was hitherto unreachable due to lack of time and attention.