The SEC Enhances its Commitment to XBRL Data

October 20th, 2014

 

In the Opening Remarks at the SEC’s Investor Advisory Committee on Oct. 9, 2014, SEC Chair Mary Jo White discussed recent developments in the “Commission’s rulemaking agenda.”  Chair White touched on reforms to enhance the transparency of money market funds, she described “two quite significant Dodd-Frank Act rulemakings,” and she touted a “very successful year in terms of both the breadth and quality” of SEC enforcement.  For more detail, you can read the full remarks here, but Chair White did something that really caught our attention.  Chair White made explicit mention of XBRL and other structure data initiatives, and described a deeper commitment by the SEC to the XBRL requirement.

Chair White described the use of structure data as an “important, ongoing priority,” and she said the SEC is continuing to find “ways to improve the quality and usefulness of structured data while reducing the burdens on companies as much as possible.”

Chair White also referenced a report by the Division of Economic and Risk Analysis (DERA) regarding its assessment “of the use of custom tags in XBRL exhibits.”  As Chair White explained, DERA also “performed an analysis of calculation errors in companies’ XBRL,” which led to the Division of Corporation Finance issuing ‘Dear CFO’ letters to “several companies that failed to include all required calculation relationships in their XBRL data.”

These explicit mentions of XBRL by the Chair of the SEC were significant in their own right, especially in light of the continued and misguided efforts within the halls congress to gut the XBRL requirement.  However, we were particularly happy to hear Chair White’s glowing introduction to Dr. Mark Flannery.  Dr. Flannery recently joined the Commission staff as the new Chief Economist and Director of the Division of Economic and Risk Analysis (DERA).  As Chair White explains it, DERA is one of the “primary Divisions that is leading the structured data initiatives.”  Chair White said that while Dr. Flannery is new to the SEC, he is “long conversant with the use and value of structured data.”  White also referred to Dr. Flannery’s inaugural speech as the Director for DERA and described the speech as being “dedicated entirely to the topic of structured data.”

Dr. Flannery’s speech to the Data Transparency Coalition’s Fall Policy Conference on Sept. 30, 2014 was indeed entirely about structured data.  He explained the “important role that high-quality financial information plays in the efficient operation of capital markets and their oversight by regulators,” and he made clear that the SEC is “committed to improving the availability of financial information through the presentation and analysis of structured data.”  He addressed the ongoing need to increase the quality of the available XBRL data, and he made clear that “making useable data available to the public is a key function of many of the Commission’s disclosure rules.”

Flannery’s speech enumerated many of the uses—and users—of structured data, stating that the SEC staff themselves are huge consumers of the data.  The division that Flannery now oversees, the Division of Economic and Risk Analysis (DERA) uses structured data in their “economic analysis of rules, risk assessment and market supervision initiatives” as well as to “support enforcement actions and compliance programs.”

Dr. Flannery expanded on the SEC’s continuing and increasing commitment to the XBRL and other structured data initiatives in the face of those who would “advocate an exemption of the requirements for smaller companies.”  He said that removing the XBRL requirement for smaller companies would, in fact, be a detriment to those companies because “their ability to disseminate machine-readable financial information critically enhances their ability to access capital in financial markets.”  If XBRL becomes the standard for financial reporting only for large companies, smaller companies will be overlooked by financial analysts and institutional investors.

Although he dismissed the notion of removing the XBRL mandate, Flannery was sensitive to the fact that any new regulatory requirement does impose additional burden on companies of all sizes. Flannery said that the SEC is “taking the most prudent course, continuing its efforts to monitor filing quality and educate filers,” and he explained that as is the case with “all new compliance experiences, time is required for sufficient learning to overcome the inevitable start-up problems and costs that companies incur.”

After saying that the SEC is exercising gradualism and patience as the XBRL mandate enters maturity, Flannery did make clear that the “DERA staff will continue to address the quality of XBRL submissions by periodically analyzing their content for accuracy and completeness,” and that “where appropriate, DERA staff will work closely with the Division of Corporation Finance to provide guidance to filers.”

In concluding his inaugural speech as Director of DERA, Dr. Flannery said that “ensuring that market participants have access to useable, high-quality” structured data was the primary purpose of the initial SEC XBRL mandate in 2009, and he said that he and his staff at “DERA are committed to helping fulfill that original aim.”

The SEC is committed to XBRL, and they are committed to high quality, useable XBRL data.

RDG Filings can provide your company with a Full Service Tagging Solution or with XBRL Quality Assurance Services, both of which will vastly improve the quality and usability of the XBRL data you are submitting to the SEC and create significant cost efficiencies for your company.

Contact us for more information.

Feel free to contact me any time.

Stewart Walker – SVP, Director of Sales

415.643.6017