Participants in a Securities and Exchange Commission roundtable discussed how the credit crisis would affect the SEC's plans for an improved financial disclosure system.
The SEC unveiled plans in June for a 21st Century Disclosure Initiative that would upgrade its old Edgar database with interactive data-tagging technology (see SEC to Study Overhauling Financial Disclosures). The roundtable examined ways to modernize the financial filing system and how it might help companies cope better with the crisis.
The data tagging will rely on Extensible Business Reporting Language technology, which promises to make it easier for investors and accountants to compare data across and within companies. Alfred Berkeley, chairman of XBRL US, described how the XBRL data could make it easier for analysts to value securities. On his train ride to Washington, he met someone who was trying to analyze a 2,200-page-long document describing a complex mortgage-backed security. The key information, he noted, was "trapped in an iceberg of data."
"If we could just tag that data, the iceberg would melt and the data would be accurate and timely and comparable," he said. He believes that data tagging would help buy-side firms and credit-rating agencies to understand the underlying value of a security. "Without those details, you'll never understand what you own," he said.
Stanford Law School Professor Joseph Grundfest recommended the SEC should impose standards on companies that trade complex securities. "My suggestion would be to grab the bull by the horns and have the SEC and the other regulatory agencies cooperate and get out there with standards that would be voluntarily adopted by the industry and make the voluntary mandatory," he said. "If they didn't cooperate, there would be hell to pay."
Paul Haaga Jr., vice chairman of Capital Research and Management, pointed out the problems with mailing printed reports year after year to shareholders. "We mailed 18.2 million pounds of paper, or 262 tractor trailer loads," he said. "We killed 161,000 trees printing and mailing things to people that did not change very much, that were repetitive and could have been read up on the Web site. While we're having this roundtable, we'll kill 250 trees. Two or three fell while I'm answering this question."
"The real issue isn't disclosure as much as intelligibility," said EDventure Holdings chair Esther Dyson. "You need to ensure that the important data is disclosed. In time, you want to bring more of the footnotes into the structured data."
Johnson & Johnson senior counsel Douglas Chia won't miss the old Edgar system. "For the record, I don't love Edgar," he said. "Edgar, like a lot of national treasures out there, at some point needs to be moved into the Smithsonian."
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