Exclusive Online Only ContentSEC Mandates XBRL Filing for Public Companies, Mutual Funds
December 18, 2008
The Securities and Exchange Commission, as was widely anticipated, has passed regulations requiring that all public corporations and mutual fund companies submit their reports in the extensible business reporting language, or XBRL.
The commission approved the rules, initially proposed in May, by a 4-to-1 vote Wednesday. Beginning in June, the 500 largest companies using the U.S. generally accepted accounting principles will have to file in XBRL. Other public companies using accelerated filing will migrate in 2010, while a final group, including foreign companies that adhere to the International Financial Reporting Standards, will do so in 2011. Under the original proposal, the largest companies would have had to use XBRL-formatted data beginning earlier this week.
“We’re not changing the way companies or mutual funds provide information to the SEC,” said chairman Christopher Cox. “Instead we’re revolutionizing the way they provide it--the format. We’re taking the step from document disclosure to data disclosure. XBRL will enormously improve the way investors use that information.” Mutual funds will need to file risk and return data in XBRL by 2011.
Since 2004, the SEC has operated a voluntary XBRL program that allowed companies to submit automated 10K, 10Q, 8K and 8Q annual and quarterly filings. Though participants received expedited reviews of their securities registrations, the program had attracted fewer than 100 companies by May.
At a press conference in Washington, D.C., Cox displayed an SEC ledger from the middle of the 20th century that contained manually typed information from hundreds of companies. “When this was first published,” he said, “it was a useful report.” Though that information is now stored electronically in the SEC’s Electronic Data Gathering, Analysis and Retrieval (Edgar) system, it is presented in static HTML and ASCII code. “While the switch to electronic filing was an improvement, it remains time-consuming and expensive to analyze and compare information,” said Cox, adding that XBRL will allow that data to be utilized in a variety of ways.
Over the next three years, Edgar will be replaced with an XBRL-based platform, called Idea, or Interactive Data Electronic Applications. Reporting data will be available at the Idea Web site, as well as from companies, funds and third-party sites. According to Cox, the data “will be as free and accessible as any information is today on the Internet.”
Cox described the XBRL mandate as a “giant step in the SEC’s full-disclosure mission, making information more available to capital markets and easier to compare facts between companies and mutual funds and similar filers. The SEC is based on the idea that investors are best protected when they have access to information about particular investments.”
Cox noted that future incidents such as the scandals at Enron and WorldCom and the subprime mortgage crisis might be averted through interactive data. In those cases, “false and speculative information was too difficult for honest members of the investor supply chain to detect, and too easy for criminals to hide,” he said. “Data disclosure will make the markets far more fair for honest participants.” While 10K and 10Q filings have grown dramatically in volume and complexity, the information in them has often proved inadequate, added Cox: “Paper and financial representations of paper can’t keep pace with financial engineering and digital capital markets.”
Unlike document disclosure, data disclosure, which XBRL will facilitate, helps analysts and others find red flags. “Data analysis is faster and more accurate than document analysis,” Cox said, and “will help today’s markets recover from a dearth of confidence.” He said that in recent years, “computer analysis of options data protected millions of investors from the dilution of their holdings,” as the information migrated to an XML format.
