Let’s Expand Structuring Requirements

Posted on January 15, 2018 by Editor

This is the fourth in a series of guest posts from Mohini Singh, ACA, Director, Financial Reporting Standards, CFA Institute.

With more than 150 million data points in the Securities & Exchange Commission’s structured database, XBRL has the potential to increase the volume, speed, and access to information for policymakers, investors and regulators. Further, there’s ample opportunity to make this data even more productive.

We contend structured reporting is most effective when it is applied broadly to all aspects of reporting—that is, from earnings releases to regulatory filings to proxy statements to tax reporting. This view is informed by what we hear from investors. Specifically, the single most important improvement would be the requirement that earnings releases be filed as structured filings since they represent the start of the information food chain for investors.

There is a sense of urgency in this recommendation. This is because earnings releases and supplemental reporting packages are the documents that most often move markets. Investors with more analytical horsepower have an advantage over other investors.

We believe that requiring companies to tag their earnings releases, as well as requiring them to submit earnings releases to the SEC for dissemination before issuing press releases, will be beneficial for investors. And if earnings releases were produced in an Inline XBRL format (where the machine-readable tags are embedded within the human readable document i.e. as a single document), then users would be able to use that market moving data more directly helping to level the playing field between large and small investors.

Investors and analysts interested in promoting the tagging of data associated with earnings releases can approach the SEC through the comment letter process or by a petition for rulemaking. Contact the SEC here.

Some very rich data also exists in the management’s discussion and analysis (MD&A) section of filings. Unfortunately, the MD&A section falls outside the scope of the current XBRL mandate. Requiring numeric data in this section to be tagged would open up a trove of valuable data for investors.

Furthermore, text block tagging should be required for the management commentary. The XBRL user could then perform text analysis using the text block–tagged information rather than having to resort to a portable document format (PDF), which would increase the usability of the unstructured data.

XBRL data in the US is developing but still offers compelling user advantages. The use of structured data does not diminish the need for financial analysts to use their judgements in decision making, but rather it enhances their ability to do so. Further, it has the potential to expedite the extraction of high-quality data for investor decision making. There is more work to be done, but the potential is huge with the expansion of structuring requirements among SEC filings.

Mohini Singh, ACA, is director of financial reporting policy at CFA Institute.


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