The Securities and Exchange Commission Chairman Christopher Cox last week unveiled the successor to the agency’s 1980s-era EDGAR database, which will give investors far faster and easier access to key financial information about public companies and mutual funds. The new system relies on statutory filings made in XBRL and makes a decision to adopt interactive data a near certainty by the end of the year. Gary Simon, FSN’s managing editor explains the latest development.
The new system announced earlier this month is called IDEA, (Interactive Data Electronic Applications). It is based on a completely new architecture and is expected to run in parallel with the eighties EDGAR system for a period of about three years before the old system is phased out.
The decision is a profound change of direction for the SEC, replacing the highly manually intensive EDGAR system from which it is difficult for investors and other market participants to extract data to an interactive environment over the web in which investors can help themselves to key financial data and use it to compare company performance. It marks a continuing drive by the SEC to make the information they hold freely available to investors to give them better and more up-to-date financial disclosure in a form they can readily use.
Although SEC Chairman Cox says “We are not going into business to sell information” there are expectations in the marketplace that there will be a modest fee for accessing registered information. According to Cox, there will also be one-off costs in the first year as companies tag their data for the first time. In subsequent years he expects costs to reduce significantly unless there is a material change to the chart of accounts through.
However some market participants see problems ahead. John Turner, Chair of the XBRL Standards Board, and CEO of CoreFiling which provides XBRL consulting services, told FSN, “The depth and spread of XBRL is unstoppable but there is simply not enough expertise available in the short term. Expertise is needed to extend taxonomies to fit individual companies and to tag data. You also need expertise in XBRL itself. It requires a combination of technical accounting and XBRL skills that are very scarce. Those 500 large filers who will be required to submit XBRL statements next year are running around looking for resource.”
Currently, most SEC filings are available only in a fixed government-prescribed format through EDGAR. Demonstrating the drawbacks of the old EDGAR system Chairman Cox showed how investors looking for information must sift through one form at a time, and then re-key the information into a spreadsheet to derive even the most basic of comparative reports. Unveiling a prototype of the new IDEA system, Cox showed on a webcast how investors can retrieve filed information from the SEC’s database, for as many companies (or mutuals) as they wish and generate comparative reports. These can then be exported to Excel. Cox said, “With IDEA, investors will be able to instantly collate information from thousands of companies and forms, and create reports and analysis on the fly, in any way they choose.” There is no need for an intermediary to stage data.
The decision to reveal IDEA this month makes the adoption of XBRL a virtual certainty. Earlier this year the SEC set out its proposals requiring all U.S. companies to provide financial information using XBRL beginning next year for the largest companies, and within three years for all public companies. But the IDEA programme is predicated on interactive data and it is difficult to see how XBRL will not become mandatory, particularly as the SEC is in ‘catch-up’ mode. China, Japan, Korea, Singapore and Spain all require listed companies to submit data in XBRL format.
The ease with which interactive data will make financial information available also is expected to generate many new Web-based services and products for investors. The new IDEA logo will begin to appear immediately on the SEC’s Web site as the agency transitions to making IDEA the new primary source for all SEC filings. Companies’ interactive data filings are expected to be available through IDEA beginning late this year.
Investors and others who currently use EDGAR will be able to continue doing so for the indefinite future. During the transition to IDEA, investors will be able to take advantage of new interactive, IDEA-like features that will be grafted onto EDGAR in the short term. This will make it possible for investors to tap IDEA’s advanced search capabilities, and to use the information from EDGAR within spreadsheets and analytical software – something that was never possible with EDGAR. The EDGAR database also will continue to be available as an archive of company filings for past years.
“When Congress created the SEC, and even when EDGAR was launched, the markets worked on paper and by mail. Today, the marketplace works online and by e-mail,” explained disclosure and transparency expert Dr. William D. Lutz, who is leading the SEC’s 21st Century Disclosure Initiative. “Companies and investors alike compile, analyse, and produce information and reports electronically. With the move to an electronic data-based filing system, the SEC will not only keep pace with the markets, but will provide investors with a dynamic system they can use to get the information they need, rather than having to wade through an avalanche of paper forms, legalese, and doublespeak.”
David Blaszkowsky, Director of the SEC’s Office of Interactive Disclosure, added, “After 75 years of document-based static financial reporting, whether in paper documents or in electronic equivalents, it is exciting to see the SEC poised to cross the 'data threshold' and help investors receive financial information that is dynamic, usable and ready to go as they make their investment decisions. And when the investor wins, so does the public company, fund, or other filer who simultaneously benefits from greater transparency and trust in our markets. By tapping the power of interactive data to tear down barriers to quick and meaningful investment information, markets can become fairer and more efficient while investors can possess far better quality data than was ever possible before.”
