A group of technology companies sent a letter Wednesday to leaders of the House Financial Services Committee objecting to legislation that would exempt companies with under $250 million in annual revenue from existing requirements to file financial statements as machine-readable open data.
The committee approved the legislation in March, but it has not yet been passed in the House (see House Panel Approves Bill Exempting Small Companies from XBRL Requirement). The financial tech companies include Edgar Online, Calcbench, Enigma, FindTheBest and Tagnifi. They have united under the umbrella of a lobbying group called the Data Transparency Coalition. In the letter, they called on the House Financial Services Committee to direct the Securities and Exchange Commission to fully enforce the quality of the financial disclosure data it collects, rather than eliminate open data reporting for most public companies.
“H.R. 4164 is based on a flawed diagnosis that blames open data tools for the symptoms of poor data quality,” said Data Transparency Coalition executive director Hudson Hollister. “Instead of decimating this critical data set, Congress should direct the SEC to stop accepting inaccurate submissions, so the data set becomes useful. Once the data set can be analyzed without costly corrections, analysts will be able to expand their coverage, and smaller public companies will get more attention. Our capital markets want quality data—not less of it.”
Under H.R 4164, the Small Company Disclosure Simplification Act, the SEC would stop requiring financial reports formatted in Extensible Business Reporting Language, or XBRL, from companies under $250 million in annual revenue, going back to a document-based system. The exemption would remove about 60 percent of publicly traded companies from the XBRL requirements, which the SEC originally mandated in 2009 in phases and now cover all U.S. public companies and issuers.
Wednesday’s letter asks House Financial Services Committee chairman Jeb Hensarling, R-Texas, and ranking member Maxine Waters, D-Calif., to modify the proposal to direct the SEC to enforce data quality. If the SEC delivered more reliable data, the coalition contends, companies would be able to benefit from expanded and more cost-effective coverage.
“If the quality of the data improved, investors and markets could use it without extensive correction and small issuers would benefit from expanded analyst coverage,” said the letter from the coalition. “We hope the Committee will consider such an approach before H.R. 4164 is considered on the floor of the House.”
The group noted that throughout the world, governments are adopting structured data formats such as XBRL to allow disclosure information to flow automatically into analysis systems, without needing to be expensively re-keyed or optically recognized.
“Investors and markets are demanding information as structured, open data rather than disconnected documents,” said the coalition, pointing out that last month Congress unanimously passed the Digital Accountability and Transparency Act, or DATA Act, into law, requiring the federal government to adopt structured data formats for its own financial information (see Congress Passes DATA Act). President Obama signed the bill into law on May 9.
“To be useful to investors and markets, however, structured data must be accurate,” said the group. “The SEC adopted XBRL for financial statements in 2009, but still has not begun requiring filers to address material errors in these filings. Inadvertent yet damaging errors, such as flipped positive and negative signs and misplaced decimal points, are common throughout the SEC’s XBRL data set. The data set requires extensive correction before it is useful. Thus, the chief advantages of structured data over document-based disclosure—automated usability and large-scale investment analysis of large and small companies—have not been realized in the United States.”