Supporters of open data should be relieved. Rep. Robert Hurt decided not to introduce a bill directing the Securities and Exchange Commission to exempt nearly 80 percent of public companies from the requirement to file financial statements in the XBRL structured data format.
During today’s hearing of the House Financial Services Committee’s subcommittee on capital markets, Rep. Hurt said he might still introduce legislation directing the SEC to exempt a smaller set of companies. He told his subcommittee colleagues he would circulate a discussion draft to interested parties before making a final decision.
The Data Transparency Coalition had vigorously opposed the prospect of an effective ban on the use of structured data for corporate financial statements filed with the SEC. The Coalition shares the frustrations expressed by Rep. Hurt. Investors don’t make much use of XBRL data because they distrust its quality. Companies don’t believe their efforts to create XBRL-formatted financial statements are worthwhile.
But the Coalition believes that to simply roll back the clock on open data–and return to paper-based disclosure–is not a solution. Instead, the SEC should heed calls from investors, the House Appropriations Committee, and the House Oversight Committee to fully enforce the quality of existing structured data filings and to transform more of its disclosure system from documents into structured, open data.
Witnesses at today’s hearing voiced consistent opinions. Noting that collecting disclosures in plain text is “1930s technology,” Tom Quaadman, director of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, testified that the SEC should adopt structured data for its entire disclosure system. He supported the possibility of further delays and exemptions from XBRL until such a system is ready.
“I think we would all agree that [transparency] is one of the cornerstones of our capital markets,” offered Rep. Hurt during his exchange with Quaadman. However, he noted, many investors are simply not using the SEC’s XBRL data.
“The SEC has moved away from what is material to investors,” replied Quaadman, “and the more we have moved away from that, the more inefficient our capital markets have become.”
Speaking on behalf of the North American Securities Administrators Association (NASAA), Heath Abshure embraced XBRL, citing the risks to investors from a lack of reliable data to evaluate. He also supported House Oversight Committee chairman Rep. Darrell Issa’s (R-CA) recent advocacy for reform at the SEC.
The Data Transparency Coalition hopes members of Congress interested in delivering actionable data to investors–including both XBRL supporters like Issa and critics like Rep. Hurt–will begin working on a compromise.
Today’s hearing opened the door for legislation that would (a) provide limited and temporary exemptions from the XBRL reporting requirement; (b) ensure better enforcement of data quality to make XBRL data more useful for investors; and (c) direct the SEC to adopt structured data formats for its whole disclosure regime, moving beyond the just the financial statements to include proxy filings, earnings releases, lists of subsidiaries, and other submissions.