The Securities and Exchange Commission has begun sending letters to public companies that fail to file their financials with all the necessary data using Extensible Business Reporting Language technology.

The SEC began requiring the largest public companies to file their financial statements using XBRL in 2009 and phased in the requirements for smaller issuers over the next two years. XBRL technology uses a data-tagging format that is supposed to make it easier for investors and analysts to compare financial information across companies and industries. Problems with the technology and the inconsistency of the tags used by companies have limited XBRL’s usefulness to many investors, however.

Nevertheless, the SEC has continued to work with vendors and companies on refining the tags and with the Financial Accounting Standards Board on regularly updating the XBRL taxonomy to adjust for any changes in U.S. GAAP. This month, the IRS’s Division of Corporate Finance started sending letters to corporations that have not been meeting the mandate.

“As you know, our rules require that you file an exhibit to certain of your filings that includes your financial information in eXtensible Business Reporting Language,” said the letter. “Our rules also require that you include calculation relationships for certain contributing line item elements for your financial statements and related footnotes. Through our selective review, we have noticed that your filing does not include all required calculation relationships.”

The SEC warned companies not to jump to conclusions just because they had received an acknowledgment from its EDGAR online database of financial filings. “Acceptance of your filing by EDGAR does not mean that your filing is complete or in compliance with the Commission's requirements,” the letter continued. “We ask that you, in preparing your required exhibit with XBRL data, take the necessary steps to ensure that you are including all required calculation relationships.”

The SEC asked issuers to refer to Chapter 6, Sections 6.14 and 6.15, of the EDGAR Filer Manual for information about the XBRL requirement, along with other guidance relating to the structured data-filing requirements on the SEC’s XBRL site. Companies can also contact a help desk at (202) 551-5494 with any questions about the structured data-filing requirements.

A group of technology companies and accounting firms that support XBRL, known as the Data Transparency Coalition, said they welcome the SEC’s enforcement of the XBRL reporting requirements.

“The SEC's failure to enforce the quality of structured-data financial statements has prevented investors, markets, the agency and companies from realizing the benefits of open data,” said Data Transparency Coalition executive director Hudson Hollister in a statement. “The agency's progress toward transforming its whole disclosure system from documents into open data has stalled.”

The coalition noted that the SEC systematically reviews the document version of each financial statement for potential errors and issues, but does not apply the same quality control to the structured data version. Beyond the financial statements, the SEC uses hundreds of document-based forms to collect other information from companies, mutual funds and financial firms, with no structured data collected at all, the coalition pointed out.

It noted that errors are rampant throughout the SEC's XBRL data set, as documented by Calcbench and TagniFi.

Other members of the coalition include PricewaterhouseCoopers, Teradata, Workiva, RR Donnelley, Level One Technologies and BrightScope.

The coalition argues that accurate structured data would bring the benefits of open data to investors, markets, enforcers and the companies themselves.

“XBRL financial data, if made reliable, would help investors make better decisions, allow the agency to use analytics to find accounting fraud, and provide an opportunity for public companies to automate compliance tasks,” said the group. “In addition, as analysts’ coverage costs drop, they would be able to cover more companies—helping smaller companies get more attention from investors.”

The Data Transparency Coalition is urging the SEC to apply better quality control to the structured-data financial statements it receives from public companies. It pointed out that a bipartisan group of lawmakers in Congress has been actively pressing the SEC on the issue as well, with House Oversight Committee chairman Darrell Issa, R-Calif., calling on the agency to begin enforcing the quality of XBRL data. Rep. Mike Quigley, D-Ill., and Rep. Keith Ellison D-Minn., have asked why the agency had not begun to enforce the quality of XBRL data. Until this week, the SEC had never taken any action, according to the coalition.

“We are pleased that the SEC has finally begun enforcing the data quality of the XBRL financial statements it collects from public companies,” said Hollister. “Open data can improve accountability to investors and markets, open data can support analytics to uncover accounting fraud, and open data can allow compliance to be automated—but only if the agency ensures the data is reliable.”

The group noted that while the SEC letter is a positive step, it is only a first step. “The agency must treat the structured data version of each financial statement with the same care it applies to the old-fashioned document version,” said Hollister. “Ultimately, we hope the SEC will eliminate the current duplication and collect a single submission from public companies—one that is both human-readable and machine-readable. The SEC should also re-start its stalled transformation from documents to data by adopting data standards for all the information it collects under the securities laws.”

The coalition said it supports the reintroduction of legislation known as the Financial Industry Transparency Act, which would require all U.S. financial regulators to replace documents with structured data throughout all the information they collect under the securities, commodities, and banking laws. Two months ago, the coalition celebrated President Obama's signature of the Digital Accountability and Transparency Act, which mandates a similar transformation for the federal government's own spending information.