The Securities and Exchange Commission has taken long-awaited steps to advance the use and accuracy of digital financial statement data, both in moving to a streamlined approach to filing and in bringing foreign entities following international accounting rules into the data stream.
The SEC has proposed requiring all companies to file their financial statements using inline XBRL, eliminating the need for dual filing of the static document and the interactive document that most companies perform today. It also would eliminate the requirement for companies to provide the XBRL document on their websites.
The proposal is meant to ease the filing burden, improve the accuracy of digital data, and ease access for investors, said acting Chairman Michael Piwowar as he and Commissioner Kara Stein agreed to propose the rules for 60-day public comment. The remaining positions on the five-member commission are still vacant.
Requiring all companies to use inline XBRL, which is now permitted as an option, would streamline the process and reduce compliance costs, Piwowar said. “While XBRL technology has made disclosures easier to access for investors, there are legitimate concerns about the burdens smaller companies face when preparing their filings,” said Piwowar.
The SEC began in 2009 requiring all companies to provide financial statement data in the XBRL format, an extensible markup language that is machine-readable, enabling more extensive methods of organizing and defining data. Companies have been submitting financial statements in both the HTML and XBRL formats until the SEC recently permitted companies the option to file in inline XBRL, which is a method that integrates both the XBRL and HTML documents into a single document and single filing process.
Investors and analysts have not embraced XBRL-formatted data as expected, in part because the data was fraught with errors at the outset and improvements in data quality have come slowly. Advocates have championed inline XBRL as at least one way to improve the quality of data added to the system.
Under the current SEC proposal, companies would embed XBRL data directly into HTML filings instead of adding the XBRL exhibit as a separate attachment, reducing the likelihood of inconsistencies. The SEC says companies would benefit by having greater control over XBRL presentation and could use tools to review accuracy more efficiently. The requirement would be phased in over a three-year period.
The SEC’s move to have all companies file in inline XBRL will be good both for companies and investors, says Darren Peterson, senior software product leader at Donnelley Financial Solutions. “The ability for machine-readable and human-readable information to travel together is good on many fronts, including data quality,” he says. “There’s been a push for data quality, and this is one of the bigger steps recently.”
For foreign issuers who file financial statements with the SEC using International Financial Reporting Standards, the SEC is now providing an IFRS taxonomy that filers can use to submit their financial statements in XBRL. Until now, those companies have been unable to file in XBRL because the SEC had not approved a taxonomy for their use.
With the SEC now accepting the IFRS taxonomy, that means those companies are expected to begin filing their financial statements in XBRL for periods ending on or after Dec. 15, 2017.