Another XBRL Nudge from the SEC

The SEC issues a formal request to add an XBRL analysis tool to its online Edgar system. The move increases pressure on companies to voluntarily ad...
Tim Reason and Alix StuartAugust 14, 2006

The Securities and Exchange Commission continues gently pressuring companies to adopt XBRL. On Monday, the SEC issued a formal request to software vendors for help in developing an XBRL-based analytical tool that it could add to the Website where public company financial filings are posted.

XBRL, an Internet-language method of tagging financial data, has been championed by SEC Chairman Christopher Cox, who has argued it would make the financial statements of public companies easier for investors to examine and compare. To date, however, the SEC has shied away from any suggestion of requiring XBRL, relying instead on incentives to attract some 25 companies to a pilot program. Adding an XBRL tool to the SEC’s EDGAR online filing system would likely create more pressure for companies to voluntarily adopt the technology.

Last November, the SEC announced plans to upgrade its EDGAR system, which stores some 700,000 filings per year, and has been in use since the early 1980s. According to the SEC, that information isn’t easy for investors to use. “Individuals and organizations that used EDGAR for over 375 million on-line searches in fiscal 2005 had to re-enter most of the data they found in order to analyze it,” the SEC said in a statement last fall.

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This latest request seeks help developing “web-based analysis software” that would allow investors and analysts to use XBRL to analyze corporate data.

First conceived in the late 1990s, XBRL has been slow to catch on. The technology itself is simple: A string of computer code, or a “tag,” is assigned to every line item in a financial statement, identifying net income as net income, EBITDA as EBITDA, and so on. Once properly tagged, those figures can be reassembled into other reports at the push of a button, or pulled into software for analysis, or imported to or exported from any number of software packages, reports, databases, or other systems.

But creating the tags for thousands upon thousands of different fields has taken years, and is not yet complete. At the same time, procedures have had to be created to allow companies to develop customized tags for numbers that they feel don’t map to any existing standardized XBRL tag.

As CFO magazine reported in “XBR-What?,” many companies expressed skepticism about the benefits of XBRL at a recent SEC roundtable on the topic. “The payback is difficult to quantify,” said Comcast controller Lawrence Salva, during the roundtable. “XBRL really doesn’t do that much for the company, for the registrant,” says Bill Ferko, CFO of Genlyte Group, adding that, to the extent that it enhances transparency, he supports it.

Investors, however, like the idea. R. Christopher Whalen, managing director of investment research firm Institutional Risk Analytics, recently told CFO magazine that “any company that can’t get itself organized to submit tagged documents will soon be worthy of investor skepticism.”

Of course, if Whalen is right, then adding an XBRL analysis tool to the SEC’s existing online financial filing system is likely to throw a spotlight on companies that don’t submit their documents in XBRL format.