The Securities and Exchange Commission has now adopted a three-year timetable, starting mid-2009, for requiring companies and mutual funds to file disclosures using the eXtensible Business Reporting Language (XBRL).
SEC Chairman Christopher Cox has made XBRL a top priority – and spearheaded getting the final rules approved before leaving office in January. A video of the announcement by Cox on Dec. 17 explains the benefits. The interactive data format electronically tags hundreds of line items and topics in company filings. XBRL will allow automated data mining by investors (or anyone else) with tech skills to rapidly compare companies and industries, analyze changes over time, and search for discrepancies or financial data overlooked by people in the marketplace.
Originally, XBRL was about bringing disclosure and investment analysis into the interactive age through 21st Century technologies. Now Cox ties the need for change to recent financial collapses and scandals, which he blames partly on lack of accessible information. He says XBRL will help:
Data disclosure will make the markets far more fair for honest participants … Unlike document disclosure, data disclosure helps analysts, financial journalists and regulators find red flags. And it makes it easier to detect missing information. This is because data analysis is faster, cheaper and more accurate than document analysis.
(I’m a big believer in the critical role of information in assessing value and risks. But Cox seems to overreach when he claims XBRL will help restore confidence in markets, prevent financial frauds and even avert formation of future asset bubbles. His emphasis on XBRL as an enforcement tool is interesting, though – this is new, like data mining to detect flu outbreaks.)
Cox’s earlier plan (see June 18 post) would have “gone live” with XBRL at the start of ’09, but the SEC took mercy on finance staffs – and investors – scrambling just to survive in ’08. The final timetable:
- About 500 largest US and foreign companies ($5+ billion in float) will start filing XBRL-coded reports with the first 10-Q after June 15, 2009.
- All other “accelerated filers” must start filing after June 15, 2010.
- And all other companies must start filing with XBRL after June 15, 2011.
So XBRL really is coming our way. Companies can get ready by (1) studying up, starting at a site like XBRL.US, (2) consulting legal counsel and CPAs about the requirements, and (3) investigating vendors for XBRL tagging services. No doubt, the vendors will be calling you. Whether the actual work of implementing XBRL falls to IR, Accounting or Legal, investor relations professionals need to help their companies prepare.
We should also consider how data mining will affect the capital market’s view of our companies: What kind of data will XBRL users seek to compare, within or across industries? How will that reflect on our companies? Does the tagging process, as it is implemented, accurately capture our unique features or issues? Can we expect a different type of investor to become interested in our companies, or will they ask different questions?