The Securities and Exchange Commission has officially adopted a rule requiring public companies to begin filing their financial statements in an interactive data format, starting next year.
The technology, known as Extensible Business Reporting Language, or XBRL, promises to make the information easier for investors to analyze and compare across companies. SEC Chairman Christopher Cox (pictured) has made XBRL a special priority and wanted to get the rule passed before the end of the year.
"It's a triumph for SEC Chairman Christopher Cox, who played a pivotal role in ensuring the modernization of IT infrastructure of the EDGAR filing system based on XBRL - an initiative that may be his most lasting legacy and a final feather in his cap," said Diane Mueller, a member of the XBRL International Steering Committee and vice president of XBRL development at JustSystems.
The commission voted 4-1 to require the 500 largest public companies, those with a worldwide public float of over $5 billion, to begin filing their financial statements in XBRL for fiscal periods ending on or after June 15, 2009.
There would be a three-year phase-in schedule. In the first year, the rules apply only to domestic and foreign large accelerated filers that use U.S. GAAP and have a worldwide public float above $5 billion. In the second year, all other domestic and foreign large accelerated filers using U.S. generally accepted accounting principles would be subject to interactive data reporting. In year three, all remaining filers using U.S. GAAP, including smaller reporting companies, and all foreign private issuers that prepare their financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board would be subject to the same interactive data reporting requirements, starting with fiscal years ending on or after June 15, 2011. Primary financial statements, footnote disclosures and financial schedules will be required to be tagged. Tagging of other narrative disclosures will be optional under the rules.
"We are grateful to SEC Chairman Chris Cox for his great leadership with this proposal to enhance transparency in U.S. financial markets through the use of interactive financial reporting data, or XBRL," said AICPA president and CEO Barry Melancon in a statement. "The proposed rule set forth by the SEC to phase in use of XBRL will help investors and other users of financial information access data more efficiently."
The SEC also voted 4-1 to mandate that mutual funds report their risk and return information in XBRL format. The lone dissenting vote for both XBRL mandates was commissioner Luis Aguilar, who criticized the rules for protecting companies from liability when they start using the technology, saying it would "put investors at greater risk for misleading disclosures and for suffering losses."
Companies have also worried about the high costs of converting to XBRL, but the technology's proponents and XBRL vendors hailed the decision.
"Interactive data or XBRL is bringing a revolution to the transparency of public financial information," said Sunir Kapoor, a board member of XBRL US and CEO of UBmatrix in a statement. "Such democratization of information can only lead to a more informed public and investment community."
