The House voted Wednesday to approve legislation rolling back a variety of financial regulations on business, including a requirement for companies with less than $250 million in annual revenue to file their financials in Extensible Business Reporting Language format with the Securities and Exchange Commission.
The legislation, H.R. 37, the Promoting Job Creation and Reducing Small Business Burdens Act, includes the Small Company Disclosure Simplification Act, which would exempt an estimated 60 percent of public companies from filing searchable financial data in XBRL format with the SEC.
H.R. 37 combines the text of 10 other bills with the Small Company Disclosure Simplification Act, which was originally introduced by Rep. Robert Hurt, R-Va., and Terri Sewell, D-Ala., during the 113th Congress in March of last year and passed the House in September. However, the legislation failed to advance in the Democratic-controlled Senate.
This year the bill was incorporated into H.R. 37 and approved Wednesday by the House by a vote of 271 to 154, including 29 Democrats who voted to support it. The legislation will now move on to the Senate, where it is more likely to be approved since Republicans took control this term. However, the White House has threatened to veto the bill, saying it contains a number of provisions that would undermine the Dodd-Frank Wall Street Reform and Consumer Protection Act, including a delay of the Volcker Rule that limits proprietary trading by big banks.
“Overregulation of small businesses undoubtedly stands in the way of job creation across Virginia and across our great nation,” Hurt said in a statement Wednesday. “At a time when millions of Americans are out of work, we must be laser-focused on enacting policies that will spur job creation, and I am pleased that one of the first bills that the House of Representatives passed this Congress continues that important work. The Promoting Job Creation and Reducing Small Business Burdens Act is a vital step in removing unnecessary federal regulations and allowing small companies to innovate and expand, creating the jobs we so desperately need.”
The Data Transparency Coalition, an industry trade group that advocates in support of XBRL, lamented the House’s passage of the bill. “This bill will deal a major setback to data transparency in financial regulation if it becomes law,” executive director Hudosn Hollister said in a statement. “The primary purpose of the SEC is to oversee our capital markets to promote fair dealing and the disclosure of important market information, and to prevent fraud. The House of Representatives just approved a measure that will make that job harder.”
The SEC has required public companies in recent years to file their financial statements in XBRL format, which provides data tags that are supposed to make it easier for investors and analysts to compare financial information across different companies and industries. The Financial Accounting Standards Board maintains a U.S. GAAP financial reporting “taxonomy” in XBRL format. But the technology has proven difficult for many companies and investors to use. The SEC has encountered problems with the quality of the XBRL filings submitted by companies, and companies have complained about the extra costs.
Hollister acknowledged that there are some problems with the XBRL requirement. “Rep. Hurt is, unfortunately, quite right that the SEC has done a poor job of integrating data into its corporate disclosure system,” he said. “The fact that the agency still collects two versions of each financial statement from public companies—once as a document and once as data—makes companies costs' higher than they should be. And because the agency has not fully enforced the quality of the data version, investors are finding the data difficult to use. But Congress should be directing the SEC to fix these problems—not simply eliminating data reporting altogether for most companies. If the SEC is forced to stop collecting searchable data from the majority of public companies, it will be unable to use data tools to illuminate potential fraud and protect investors. As the bill moves on to the Senate, we will work tirelessly to alert Senators to the wide-ranging ramifications of the Hurt provision and the damaging affect it will have on data transparency in financial regulation. We’ll ask that they stop the regressive action that H.R. 37 puts in motion.”
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