The new Congress fell just short of fast-tracking an exemption for more than half of all public companies from submitting their financial information to the Securities and Exchange Commission via XBRL.
In its first full day of business, the House of Representatives looked for a two-thirds majority vote to suspend its rules and push through its H.R. 37, “Promoting Job Creation and Reducing Small Business Burdens Act,” which includes a bill proposed by Rep. Robert Hurt to exempt public companies with revenues below $250 million from the XBRL filing requirement. The fast-track approach requires a two-thirds majority to pass, but the measure fell shy with 276 votes out of 422 cast for 65 percent.
Hudson Hollister, executive director of the Data Transparency Coalition that is lobbying against the exemption, says the exemption gains a few more votes each time it arrives on the floor. “We expect they will try again with their regular procedure, and that will take a few weeks, but it will probably pass,” he says. “We’ll be working in the meantime and we hope to persuade more Republicans that the XBRL partial ban is the wrong direction.”
The SEC adopted rules in 2009 requiring public companies to begin submitting their financial statements digitally via XBRL so that investors and other users of financial statements could enhance their analysis. The SEC established a phased process whereby the largest companies would begin submitting via XBRL in 2009 and the smallest companies would not be required to comply until 2011.
Despite several years of experience, companies are questioning the costs and benefits of digital financial reporting as investors and users have been slow to make use of the machine-readable data. Academics studying use of XBRL data say it has been slow to gain traction with users because too much of the data submitted via XBRL contains errors that make it unreliable.
Congress has threatened the exemption while also pressing the SEC to become more proactive in enforcing higher quality submissions from preparers. In response to Congressional pressure in early 2014, SEC Chair Mary Jo White said investors benefit from the structured data format for financial statement information and an exemption for smaller companies would harm investors and the SEC alike. “To the extent companies would be exempt from this requirement, the structured financial data available to the SEC and public would be less complete and, as a result, the exemption could reduce the extent to which these benefits are realized,” she wrote.
Hollister says Congress should focus not on exempting companies but on directing the SEC to address problems in the system. “While Rep. Hurt had a point when he said that the SEC does a poor job of integrating data into the corporate disclosure system, Congress should be directing the SEC to fix these problems - not simply eliminating data reporting altogether for most companies,” Hollister said in a statement.