SEC Mandates XBRL on All Documents

It may not make revenue recognition any easier to decipher among some software companies’ documents, but a new rule requiring public companies to tag their data could usher in true interactivity to publicly filed documents.

The rule, approved by the Securities and Exchange Commission, mandates the use of the XBRL (Extensible Business Reporting Language) format with documents filed with the SEC.

The SEC said the proposed rule would require all U.S. companies to provide financial information using interactive data beginning next year for the largest companies, and within three years for all public companies.

This means that documents such as form 10Q for quarterly results and 10K for annual reports will be filed with tags using the XBRL standard. Its use, the commission said, promises to get important information to investors faster, more reliably and at a lower cost.

Many major companies, including IBM, have been voluntarily filing their public documents with the SEC using the XBRL format since 2005. But with today’s ruling, the SEC makes it official in order to bring all U.S. public companies in line with the rule and usher in a new era of truly interactive financial documents by publicly traded companies.

“This is all about bringing investors better, faster, more meaningful information about the companies they own,” SEC Chairman Christopher Cox said in a statement. “It would transform financial disclosure from a 1930s form-based system to a truly 21st century model that taps the power of technology for the benefit of investors.”

The SEC said the proposed rule, which is now open for public comment for 60 days, would require companies using U.S. Generally Accepted Accounting Principles with a worldwide public float over $5 billion (approximately the 500 largest companies) to make financial disclosures using interactive data formatted in XBRL for fiscal periods ending in late 2008.

Once the rule goes into effect, the SEC said the first interactive data provided under the new regulations would be made public in early 2009. The remaining companies using U.S. GAAP would provide this disclosure over the following two years.

Think of it as adding bar coding for financial documents, explained Sunir Kapoor, a board member of XBRL US, an organization dedicated to advancing the understanding and use of XBRL standards.

”This really is a revolution in how that data can be viewed and used,” said Kapoor, who is also the CEO of UBmatrix, which specializes in the technology.

Not only will the use of tagging with the XBRL format help the SEC regulate companies, but it will help the companies manage their internal controls with their own financial data, as well as help investors use the documents more effectively. In addition, it will help the companies make better investing decisions.

[Before] today, all you could do was download a company’s PDF or HTML document [from the SEC’s Web site]. With XBRL, Kapoor added, you can really do more with the tagging in the financial documents it in a granular way.

The SEC’s rule is the latest in a line of regulatory agencies globally that are mandating reporting in XBRL format, he added, following the FDIC and many European Central Banks. “XBRL software makes it much easier for regulators and companies to collect, manage and share financial data and information, and that fact is driving the SEC’s decision,” he said.

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