Investor Advocate Rick Fleming, in remarks at a recent XBRL U.S. investor forum in New York, said the SEC has made great strides in its use of structured data to enhance the disclosure of information to investors, but he offered a wish list of additional steps it could take. Fleming would like to see the SEC embrace the Legal Entity Identifier in order to make SEC disclosures interoperable with the disclosures of other reporting regimes, require block tagging of narrative text disclosures, and require detail tagging with narrative text disclosures. He believes these initiatives would benefit both companies and investors, but acknowledged that it may take time before participants and policymakers see that the benefits would justify the costs.
Benefits of structured data. Fleming made the case for expanded access to disclosures through structured data, beginning with enhanced search capabilities. He noted that service providers already give investors access to platforms for analyzing financial statements in the EDGAR XBRL data, including data for smaller companies that other data aggregators have not historically included.
Some service providers also allow investors to combine EDGAR XBRL data with publicly available information from other sources so they can cross-reference the information, reducing the amount of time consuming research. Fleming said that using software that automates different types of analyses also makes it easier to identify numbers that don’t add up. As the use of this software increases, he said it will be harder for companies to get away with reporting deficiencies, and maybe even financial fraud.
Fleming said he believes that by prioritizing structured data, and particularly the tagging of text, the SEC could drive even greater innovation in cost-effective enhancements for the packaging and delivery of information. As analytical tools become more accessible, Fleming suggested it could lead to better pricing of securities, to the benefit of all investors.
Cost concerns. Companies raise concerns about the costs of reporting in structured data without appreciating the benefits, in Fleming’s view. He said the costs and benefits are largely related to how the tagging is implemented. He agreed that having a financial printer apply the tags at the end of the report preparation process can be costly, and proposed as an alternative that companies standardize their data within their internal systems. The traditional process of manually assembling the Form 10-K and 10-Q could be replaced with automated systems for data aggregation, he explained, which would shorten the timeframe for preparing and publishing the reports.
The SEC filing process could also be more efficient, in his view. He suggested a system in which companies file a set of data files that include financial statement data and block tagged sections of narrative text which could be generated into a report similar to how tax preparation software works to compile a Form 1040.
Fleming said the efficiencies and cost savings through the use of structured data may even improve the liquidity of shares, particularly those of smaller companies, since it allows the automation of financial analysis. However, in order to achieve the benefits, he said the SEC must closely monitor the accuracy and comparability of the data.
Inline XBRL. The SEC recently began allowing companies to voluntarily file structured data financial statements in a format known as inline XBRL, Fleming noted, which could decrease filing preparation costs, improve the quality of structured data, and increase the use of XBRL data by investors and other market participants. As people view these filings and identify common tagging errors, companies may be incentivized to make improvements.
Fleming highlighted the use of smart data in a number of countries which has led to increased efficiency and productivity. These success stories should make the U.S. more confident about the possibilities for smart data, he said. The future for smart data looks promising, in his view.
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