SEC plans XBRL standard to liberate financial data

Securities and Exchange Commission is encouraging companies to start filing their financial reports in XBRL format in hopes that filings will be more transparent and accessible.

WASHINGTON--Financial information about companies is sometimes difficult to uncover, and even more difficult to compare.

It's buried in footnotes to earnings reports and sometimes almost seems intentionally obfuscated. The Securities and Exchange Commission thinks it has the answer: a type of language for business data that could be to finance what HTML was to the Internet.

That was the plan, at least. There have been no fewer than 17 conferences so far to advance the Extensible Business Reporting Language, or XBRL, standard, and it still is not mandatory for U.S. companies. (The SEC started a voluntary XBRL filing program, and in May 2008 published a proposal that would require companies to submit their financial statements in XBRL format starting in the first quarter of 2009.)

At the 18th International XBRL Conference held here on Thursday, the SEC was expected to officially establish new XBRL filing rules. However, the rules were not set, and embattled SEC Chairman Chris Cox--Sen. John McCain has called for his resignation as a result of the recent financial crisis--did not appear at the conference as scheduled.

In general, regulators claim that adopting XBRL is essential to improving the efficiency and transparency of the public reporting process and has far-reaching implications for keeping track of the corporate world both domestically and internationally. But publicly traded companies don't like the uncertainty created by the SEC's delays.

"We have hundreds of companies sitting on the fence," said John Yapundich, executive vice president of EDGARfilings.

The SEC maintains an online database called EDGAR--the Electronic Data Gathering, Analysis, and Retrieval system--so investors can review public companies' financial reports.

EDGARfilings is a vendor that provides software for filing documents with the SEC, and the company has invested heavily in XBRL software, Yapundich said.

Even so, "people are only slowly adopting the XBRL format because they're waiting to see the rule sets from the SEC," he said.

The conference appeared to be peopled not with representatives from public companies who will file in XBRL format--but instead government regulators and vendors like EDGARfilings, Fujitsu, and Rivet Software that are pitching their XBRL software.

XBRL filings use XML data tags to describe business and financial information, making the documents much more searchable than the current official EDGAR filings, which are submitted in HTML or plain text format. Elements of a report, such as executive pay, are much more accessible, and the new format allows for more extensive cross analysis .

"The benefit is better analysis, better understanding--it's the transparency virtue we're shooting for," David Blaszkowsky, director of the SEC office of interactive disclosure, said Thursday at the conference.

Politicians, shareholders, and the public alike are clamoring for more transparency and accountability from Wall Street, the panelists at the conference said. Eisuke Nagatomo, president and CEO of Japanese company EN Associates, said that in the past year, the term "corporate governance" appeared 575 times in the Wall Street Journal--the same as the previous six years combined.

With so many large companies collapsing under poor management, high executive pay has been a particularly hot issue. The House of Representatives in April 2007 passed a bill providing shareholders with an advisory vote on executive compensation, and Democratic presidential candidate Barack Obama sponsored matching "say on pay" legislation in the Senate. With McCain also expressing his support for shareholder advisory votes, the legislation will likely make it into law during the next administration.

"That tightens the need for better and faster information," said Patrick McGurn, special counsel for RiskMetrics Group. "Investors will be looking at hundreds of thousands of these 'say on pay' profiles."

By providing standardization from company to company and across markets and making elements like executive pay easy to find in a report, XBRL has the potential to eliminate the time crunch involved in that process, he said.

"There's a need for XBRL to serve as the horse in front of the cart on the disclosure issue," McGurn said. "Once investors have information for one market, they'll want it for every market."

 

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