For six years, the Securities and Exchange Commission (SEC) has required public companies to report their financial information twice – once as a plain-text document, and a second time as open data.
The SEC first began collecting corporate financial statements in the machine-readable XBRL open data format in 2009. But the agency never stopped collecting the plain-text, human-readable document versions alongside the data ones.
In a 2009 rulemaking release, the agency decided to collect document and data versions of every corporate financial statement.
The SEC defended its decision to adopt the XBRL format in addition to the plain-text document fomat and effectively collect every financial statement twice from every company, in the rulemaking release that adopted XBRL reporting for the first time:
“Because we believe that the various electronic formats have uses for which each is best suited, we will continue to require the existing ASCII and HTML [plain text] electronic formats now used in filings. We also believe it is necessary to monitor the usefulness of interactive data reporting to investors and the cost and ease of providing interactive data before we consider discontinuing the use of ASCII and HTML formats and the integration of formats. However, the new rules will treat interactive data as part of the official filing, instead of as only a supplement as is the case in the voluntary program.” (Page 33.)
In other words, in 2009 the SEC believed that it had to keep collecting two versions of financial statements because plain text is human-readable and XBRL is machine-readable. But even then the agency suggested that it intended to “consider discontinuing” the plain-text filings and rely just on data.
Last month, Congress asked why the SEC is still collecting duplicative filings.
On July 21, Congress started to ask why this seemingly temporary arrangement has persisted for six years. Senators Mark Warner (D-VA) and Mike Crapo (R-ID) sent a letter to SEC chair Mary Joy White asking if and when the SEC intends to move from duplicative documents-plus-data filings to a single searchable data filing.
Sens. Warner and Crapo pointed out that current technology – namely, the inline XBRL or “iXBRL” format – could allow the SEC to collect financial statements that are both human-readable and machine-readable.
The senators described three problems that could be solved if the SEC adopted the inline XBRL format for a single submission and got rid of the duplicative documents-plus-data system:
1. Poor data quality
|Because the SEC still collects an “old” and a “new” version of each financial statement, Commision staff have, understandably, continued their work the way they always had, focusing their reviews on the document version they’re used to rather than the open data version. The Division of Corporation Finance has only rarely noted XBRL errors in its regular comment letters. This has led to data quality so poor that investors have been reluctant to use it.|
2. Impeding full modernization
|The continued separation of document-centric and open data disclosures has impeded further progress in the modernization of the Commission’s corporate disclosure system. In July 2013, the Investor Advisory Committee (IAC) called for the adoption of open data formats throughout all the information the Commission collects. The Commission has not formally responded to IAC’s recommendation.|
3. Extra costs for companies
|Public companies must separately prepare a document version and an open data version of each financial statement, and compare the two against one another before filing, which contributes to unnecessary compliance costs.|
The SEC responded yesterday.
Yesterday, Chair Mary Jo White told the Senators that SEC staff are working to upgrade the agency’s data filing platform to be able to accept inline XBRL.
Chair White also said a rule change is in the works: “SEC staff currently is developing recommendations [for a new rule] to allow filers to submit XBRL data inline as part of their core filings, rather than filing XBRL data in an exhibit.”
Read SEC Chair Mary Jo White’s response letter to Sens. Warner and Crapo.
The SEC’s response didn’t commit to a time frame. But even without a deadline, the agency’s new commitment is encouraging. It comes on the heels of the decision by the SEC to use XBRL for a new sliver of reporting, pay-for-performance disclosure, and reflects the agency’s new openness to modernizing its disclosure system.
Equally encouraging is Sens. Warner and Crapo’s support for modernizing corporate disclosure through open data.