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XBRL Advances; SEC: Heed Comment Letters

Melissa Klein Aguilar | October 3, 2006

The Securities and Exchange Commission has decided to forge ahead with its push for widespread adoption of XBRL, announcing a major overhaul of its database of corporate regulatory filings that will use the interactive computer language as its technological heart.

The overhaul comes through three contracts worth a total of $54 million, which the SEC says will transform EDGAR, the agency’s 1980s-vintage public company disclosure system. The project supposedly will transform EDGAR from a “form-based electronic filing cabinet to a dynamic, real-time search tool with interactive capabilities.”


Cox

As Compliance Week has previously reported, SEC chairman Christopher Cox has been tireless in his promotion of XBRL, or eXtensible Business Reporting Language, which he says will make financial statements easier for investors and analysts to search and compare.

Financial regulators already require banks to use XBRL to report a variety of statistics. Corporations, however, have been slow to climb aboard the bandwagon, saying XBRL has weak technological underpinnings and no real incentive to make them spend the money on updating their IT systems. Just two dozen companies have volunteered to furnish their financial information to the SEC “tagged” in XBRL in exchange for expedited reviews of their registration statements and annual reports, and many of them are software companies with a commercial interest in seeing XBRL grow.


Ciesielski

“I don’t know if that’s enough money to get it moving or if it’s more money than needed and it [will] wind up being wasted,” says Jack Ciesielski, publisher of the Accounting Observer. “I don’t think we’ll know what it [is] that gets XBRL jump-started until after we’re all using it. However, it seems like this is a step in that direction.”

The $48 million contract to revamp EDGAR to use interactive data went to Keane Federal Systems, which will partner with technology and consulting companies including Bearingpoint, Microsoft, Rivet Software, EMC Corp., and Akamai Technologies. The initial contract is for three years, with an option for up to three additional one-year terms. The SEC says the $48 million estimate will account for reduced operations and maintenance costs.

Cox says the new system will make it easier to file information with the Commission and to use it. “For investors and analysts, it will represent a quantum leap over existing disclosure technologies,” he says. “For companies, it will mean easier and less costly compliance with SEC requirements.”

With the new system in place, investors and analysts should be able to search forms and the information within them, download that data into applications software, and get real-time, streaming data using RSS feeds and other automated Web tools.

More than 700,000 documents and data sets are filed on EDGAR each year, according to the SEC. But the data is locked in antiquated forms, making it hard to find information unless users know which form to search. Even then, the data must be re-keyed before it can be downloaded into spreadsheets or other applications software, which can introduce errors into the data.

The SEC also awarded a $5.5 million contract to XBRL U.S., the group responsible for developing XBRL in the United States, to complete the job of writing the computer codes to tag financial-report information. That work is expected to be completed within a year. The SEC also awarded two separate contracts worth a combined $500,000 to Rivet Software and Wall Street On Demand to provide new interactive tools on the SEC’s Web site that will be made available for free to the public. The SEC unveiled plans for the Web tools to enable investors and analysts to access XBRL-tagged documents on the SEC Web site back in August.

In announcing the contracts, the agency said it hasn’t required companies to file their information in XBRL because not all of the XBRL tags have been completed and because EDGAR can’t yet use XBRL’s extra capabilities. But the contracts should close that gap, “paving the way for universal XBRL filings by companies,” the SEC said.

Meanwhile, the SEC was scheduled to host a roundtable on Oct. 3 focusing on the new software that will use interactive data to provide research tools for investors. The roundtable, the second in a series of events on interactive data announced earlier this year, will include remarks by incoming PepsiCo Chief Executive Officer Indra Nooyi. PepsiCo is participating in the SEC’s XBRL pilot program. A roundtable relating to preparers using interactive data will be held this winter.

Extensive coverage of XBRL can be found in the box above, right.



SEC Says: Take Comments To Heart

Last week, corporate directors and their advisers got a reminder from the head of the SEC’s Corporation Finance Division about the importance of paying attention to the division’s disclosure reviews.

Typically, when the Corporation Finance staff decides to comment on a company’s public filings, it issues a “comment letter” with thoughts on where the filings could be improved or where the staff feels it needs more information.

Directors should be familiar with those comments and should see them as a valuable resource, according to John White, director of the SEC’s Division of Corporation Finance. Speaking at the Practising Law Institute’s Annual Directors’ Institute on Corporate Governance last week, he said, “The staff takes time and care to provide thoughtful and meaningful comments. A knee-jerk reaction to be dismissive of those comments, or to ‘fight’ them, is seldom, in my opinion, the right response.”

He encouraged directors to think of the comment letters as “not only being inquiries directed at your company, but also as being a resource for you as a director,” since directors generally must sign the company’s Form 10-K. And if the 10-K is incorporated into a subsequent offering document for a public issuance of securities, directors also will have liability for the disclosures in that document.

“If I were a director, I would want to make sure I received a copy of each of my company’s comment letters and, equally important, the responses my company submitted,” he said. Directors should understand the questions the staff asked, the answers the company provided, and any revisions to the filings, and they should use that understanding to help set the benchmarks for future disclosures, he told the audience.

“I do not mean to suggest that directors need to be at the front lines of preparing their companies’ public filings,” he said. “ You do need to understand your company’s disclosures, however, and this can be one more tool in your toolbox to do that.”

Also, noting that the SEC’s comment letters and companies’ responses eventually are made public on the SEC’s Web site, White said: “It’s one more thing to keep in mind when crafting responses to my staff’s comment letters. One day, your neighbor may read them. And more importantly, your own bosses—your shareholders—may as well.”