SEC officials say first set of filings using the interoperable XBRL language had some firms 'anxious', but fewer problems are expected in the next batch.
A model that would bring more transparency to financial reporting could emerge as the Securities and Exchange Commission implements a requirement that all public companies submit financial statements in an interactive data format, said agency officials and Internet consultants.
In January 2009, SEC finalized a rule requiring public companies to use extensible business reporting language, or XBRL, to submit financial information to the agency's public financial reporting Web site, EDGAR. The programming language relies on tags to make financial information uniform so that a user's computer applications can easily search and share the data.
Most public companies that were required to file under the new regulations, starting with the fiscal period ending on or after June 15, filed on time, according to SEC officials, despite the agency issuing some guidelines right before and after the cutoff. For example, SEC didn't state on its Web site until the middle of the summer that, beginning July 22, it would support the Generally Accepted Accounting Principles in the United States (U.S. GAAP) taxonomies. "The U.S. GAAP 2009 taxonomies are in the process of being loaded into the EDGAR system and will be available for use on July 22, 2009," the agency posted on its Web site. Taxonomies are standard lists of categories needed to report in a format that is consistent with U.S. regulations.
In addition, the agency did not issue until Sept. 17 an interactive data test suite, a tool that is helps companies ensure filings are formatted correctly before they are submitted to EDGAR.
"You might have thought that something like that would have been out in June," said Neal Hannon, a senior XBRL strategy consultant at the content management practice firm Gilbane Group. "The SEC was having a hard time digesting the enormity of the rules in getting the old EDGAR system revved up to accept it."
The financial industry expected delays because, like in many big technology modernization projects, the transition took longer than expected to execute. This forced filers to guess the SEC's next move in order to meet their deadlines. Early in the year, SEC started enhancing its information technology systems to comply with the new regulations, including improving the agency's storage capacity and viewing tools.
Ultimately, companies were successful because SEC announced most expected changes ahead of time, and many firms sought outside help from financial information management consultants. Companies that sought outside assistance had fewer reporting errors, according to an independent outside analysis by service provider XBRL Cloud.
Mike Schlanger, vice president of product management for XBRL at Merrill Corp., a financial information management service, said his firm worked with companies under the assumption that SEC's computer systems would institute the 2009 taxonomies sooner.
"Releasing this at such a late date forced the hand of all of us," he said. "In our case, we threw the dice and readied over 95 percent of clients to use the '09 version." Still, the company retained a backup copy of each filing formatted with the 2008 version in case SEC missed the deadline. Merrill Corp. processed documents for about 70 companies.
Commission officials said they articulated in advance many of the elements that would be deployed later in the process. "Staff were in continual contact with issuers, filing agencies, software firms and others to keep them apprised of the stages of the rollout of the interactive data filing applications and instructions," said David Blaszkowsky the head of SEC's Office of Interactive Disclosure. "Some players were anxious, but in the end the filing period went smoothly, and the next ones should be even better."
In all, the first phase of the three-year process included more than 425 public companies with a worldwide public common equity float in excess of $5 billion. By 2011, between 10,000 and 12,000 companies are expected to submit statements in XBRL.
Companies and SEC expect fewer issues the next filing season because the rules have been defined. Besides, the ultimate benefit of greater transparency and accountability in the financial sector outweigh the inconveniences, consultants and SEC officials said.
"I think the SEC has things under control and the next filing will be a lot smoother," said Hannon, who also is an accounting professor at Central Connecticut State University. "It's just normal to have some glitches in a major overhaul. . . . Nobody in the world has attempted to make XBRL fit something this big and this complex."
The moving target "made companies uncomfortable," but SEC's effort to strengthen its XBRL program is "in general, good for the overall capital marketplace and specifically good for demonstrating the far-reaching capabilities of XBRL in the federal government," said Rob Blake, senior director of Interactive Services at Bowne, a financial compliance service provider. This past filing season, Bowne filed XBRL documents for about 120 public companies.
"What interactive data is permitting is the elimination of [technological barriers] so that investors, regulators, journalists and analysts of all kinds will be able to get critical information, with its context, in a precise and usable way on time," Blaszkowsky said.
Some open government advocates and lawmakers say XBRL also should be required for reporting stimulus spending and the results of the $700 billion bailout program. SEC requested in August information from software vendors on products that could inject more meaning into filings coded in XBRL.
"There is tremendous opportunity for government agencies through the use of open, common standards such as XBRL to improve interoperability" by adopting XBRL, Blaszkowsky said. "Having a set of open common standards, such as XBRL, really increases transparency."