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Starting next year, for the biggest firms, Cox's three-year XBRL plan would "let the sun shine in."
Alan Rappeport, CFO.com | US
May 14, 2008
The Securities and Exchange Commission voted unanimously Wednesday to propose a rule requiring companies — by as early as next year — to file financial statements in an "interactive data" format.
The proposed schedule is a landmark moment for interactive data-tagging, using the system known as XBRL, for extensible business reporting language. Christopher Cox, the SEC chairman, called the development something that would "significantly transform the SEC's business model," and compared XBRL's importance to that of the first personal computers and the requirement that financial statements be published online in the Edgar database.
"Interactive data will let the sun shine in as never before," Cox said, calling it the 21st century's answer to disclosure and transparency.
The plan initially would require companies with market capitalization of more than $5 billion — about 500 firms total — to make disclosures in XBRL format beginning in the fiscal periods ending in late 2008. They would become public in that format in early 2009. The following year, all other companies that file their statements using U.S. generally accepted accounting principles would have to follow suit. In the third year of the proposal, international companies that file with the SEC using International Financial Reporting Standards would also be required to file in XBRL format.
If adopted, companies will have a 30-day grace period to make their first interactive filings. Companies will also have to supply data tags — the labeling information needed to run XBRL — for primary financial statements, footnotes, and schedules. In the first year firms will be able to use a "block text" format, but then they will have to use detailed tagging.
Advocates of XBRL say the data-tagging technology could be a boon to information-hungry investors and analysts who would be able to more easily search and compare companies' financial statements. However, it could also cause headaches for CFOs, depending on how long the SEC ultimately gives them to turn their traditional, static financial statements into interactive, searchable documents.
"Eventually all public companies will be required to file in XBRL," says Sunir Kapoor, a board member of XBRL US and CEO of UBmatrix, a provider of XBRL products. "This move will not only make it easier for the SEC to handle the thousands of reports it receives annually, but it will also make it easier for companies to file their 10-Qs and 10-Ks and allow them more flexibility in their reporting."
Commissioners said they expect to receive questions about the costs of complying with an interactive data mandate. At Wednesday's open meeting SEC officials said that in their pilot program — which included more than 70 companies — the average cost for a voluntary filer was $30,000 and took between 36 and 38 hours on average. That cost is expected to be less for smaller companies and to decline as firms develop XBRL templates for their statements and as software becomes more advanced.
Commissioner Kathleen Casey said that the SEC is building a necessary framework, but that market innovation will be needed for XBRL to reach its full potential. A market for XBRL solutions does seem to be evolving, although there has been some hesitation prior to the SEC rolling out a schedule.
"Auditing firms should be leading the parade on the subject of providing assurance on the quality of XBRL preparation," Jack Ciesielski, author of the The Analyst's Accounting Observer, notes on his blog. "Instead, they're focusing only on changeover of GAAP to IFRS — a great revenue enhancer, with the promise of something more exciting-sounding than making sure computer code is telling investors the truth."
Despite some anxiety companies have expressed about the integrity and costs of dealing with XBRL, a final decision — after years of discussion — will likely come as a relief to many. The SEC will accept comments on its proposal through mid-July before completing its plan.