The U.S. Securities and Exchange Commission has taken a major step toward requiring publicly traded companies to submit their reports to the agency in an interactive data format, with backers saying the change will make financial reports easier to analyze.
All three SEC members voted to publish a proposal that would require public companies to file reports in eXtensible Business Reporting Language, or XBRL, a programming language related to XML that's being developed by a nonprofit consortium of about 450 companies. Under the proposal, which still needs final approval from the SEC after a public comment period, the transition from text and HTML reports to XBRL would take three years, with about 500 of the largest U.S. and foreign companies required to start filing XBRL reports after Dec. 15.
The smallest public companies and foreign companies not using U.S. generally accepted accounting principles (GAAP) could wait until the third year to file reports in XBRL.
SEC Chairman Christopher Cox said the change will make SEC reports easier to read and analyze. XBRL will benefit investors and public companies, he said. With XBRL, companies will use XML data tags to describe financial information in the SEC's online Edgar database.
In many cases, company financial data has to be re-entered by hand before it can get online at the SEC's Web site, Cox said.
The XBRL proposal will "transform the SEC's business model, making interactive data the backbone of the SEC system," Cox said during a commission meeting. "We can make that information easier for investors to get, easier for investors to use and more efficient and more cost-effective for companies to disclose."
The SEC's move to XBRL, which follows similar efforts in other countries including Japan and China, has faced some criticism. Some companies have suggested the cost may not be worth the benefits.
The SEC began an XBRL pilot program in 2005, and 76 companies have signed up to deliver data using XBRL since then, SEC staffers said. The average cost for companies to file their first report in XBRL was about US$30,000, but the costs fell dramatically after the first report, according to an SEC survey.
Commissioner Kathleen Casey expressed concern over the initial compliance costs, but said the SEC would pay attention to any issues encountered by larger companies during the first two years of the three-year phase-in. The SEC will "take stock" of any problems and could make changes to the XBRL requirements if it sees potential problems for small companies, she said.
Cox suggested that some of the same concerns came up when the SEC began to move financial reports to its online Edgar database in 1985. Companies complained about the extra work, but the benefit was better information for investors, he said.
"Then, as now, the future had its enemies," Cox said.
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