By Stephen Roth
The US Securities and Exchange Commission, which regulates the country's stock markets, gave a major push to the electronic financial reporting language XBRL with several new initiatives this month. John Stokdyk reports.
The SEC has accepted electronic filings in the extensible business reporting language (XBRL) for several years, and users can download these files for free from the SEC's online search engine Edgar.
SEC chairman Christopher Cox is an XBRL enthusiast who sees it as a "universal" language that represents the future of financial reporting. Earlier in February, Cox welcomed a report from the commission's advisory committee on improvements to financial reporting and vowed to consider its recommendations, which included making electronic filing of XBRL-tagged financial statements mandatory for top 500 companies.
The 112-page committee report acknowledged that not all the ingredients were in place yet, but predicted that some of the conditions were not far away from resolution. The first hurdle is to ensure that reporting companies have the capacity to implement the XBRL-based taxonomy for US generally applied accounting principles and secondly Edgar needs to be able to render the accounts accurately.
However one of the committee members raised concerns about whether it would be possible to provide third party assurance over the contents of XBRL-tagged financial statements - for example to ensure they applied the GAAP taxonomy correctly and that the XBRL documents did not create the potential to mislead investors. Independent assurance should be provided, the committee advised, providing that the extra audit did not result in a significant increase in costs.
Once these preconditions and reservations have been overcome, the committee urged the SEC to consider extending mandatory electronic filing not just for large domestic US corporations, but all other reporting companies.
In a parallel move, the SEC also introduced a new rule to eliminate a range of paper-based disclosures required from non-US listed companies. Granting an exception under rule 12g3-2(b) to foreign companies would mean that their non-US disclosure documents would have to be published electronically. This would make it easier for US investors to gain access to the material and to make better informed investment decisions, the SEC said.
To give tangible shape to these electronic reporting initiatives, the SEC launched an XBRL-based Financial Explorer to let investors compare the financial results of public companies. The Financial Explorer uses the underlying financial data to produce diagrams and trend charts for earnings, expenses, cashflows, assets/liabilities and financial ratios - without the need to copy and paste rows of revenues and expenses into a spreadsheet.
In addition to Financial Explorer, the SEC offers investors two other online viewers - an Executive Compensation viewer and the Interactive Financial Report viewer. The Executive Compensation viewer lets investors compare what 500 of the largest US companies pay their top executives and the Interactive Financial Report viewer helps investors gather, analyse, and compare the XBRL-based financial disclosures currently filed voluntarily by US companies.
"XBRL is fast becoming the universal language for the exchange of business information and it is the future of financial reporting," said Cox. "With Financial Explorer or another XBRL viewer, investors will be able to quickly make sense of financial statements. In the near future, potentially millions of people will be able to analyze and compare financial statements and make better-informed investment decisions. That's a big benefit to ordinary investors."
