US looks to integrate and fully digitise corporate reporting

Posted on March 2, 2017 by Editor

Securities and Exchange Commission, SEC, Building in Washington DC.  The SEC regulates stocks and bonds and related financial activities.

As expected, on Wednesday the US SEC met and approved a Proposed Rule to switch US listed company filings to Inline XBRL.  In his opening statement, Acting Chairman Michael Piwowar described some of the advantages of structured XBRL filings, including:

Structuring financial information can also assist in automating regulatory filings and business information processing.  In particular, by tagging the numeric and narrative-based disclosure elements of financial statements and risk/return summaries in XBRL, those disclosure items are standardized and can be immediately processed by software for analysis.  This standardization allows for aggregation, comparison, and large-scale statistical analysis that is less costly and more timely for data users than if the information were reported in an unstructured format.

At the same time, he also pointed out, US SEC filings tend to be criticised in terms of cost of preparation, and for data quality.

To help overcome these problems, the SEC is now proposing to switch to Inline XBRL, or iXBRL, which combines human readable HTML and machine readable XBRL in a single report.

The SEC released a video explaining the “viewer” functionality that they have developed to allow users to better understand and carry out in-depth analysis of individual filings.

What does this mean?

If adopted, it means that it will be easier to access and easier to understand, consume and analyse quarterly and annual financial statements in the United States.

It will also mean the end of “dual filing” that has existed in that country since 2009, in which a plain, unstructured HTML version of the disclosure was filed at (more or less) the same time as an structured XBRL version was submitted. This causes difficulties for all kinds of reasons, including the challenge of rendering the XBRL document and, of course, opening up the possibility that there will be inconsistencies between the two filings.

It means that the SEC in the US joins other major securities regulators including the JFSA in Japan, and ESMA, which governs disclosure regulation across Europe, in moving to use iXBRL to make fundamental data more suitable for the digital age. Consistency is helpful! No doubt other securities regulators are watching closely.

Readers should also keep an eye out for:

  • forthcoming guidance from the XBRL International Entity Specific Disclosure Task Force, which has been working to analyse issues associated with company extensions and develop consistent international approaches that should help resolve them; and
  • the forthcoming xBRL-JSON specification, already in draft, which, once it reaches Recommendation status will be an additional, and very simple way to make XBRL data easier to consume.

Why a “proposed rule”?

The SEC is seeking comments on their revised rule, and they seek answers to a number of questions, including how appropriate the shift is as a way to meet the needs of smaller companies. XBRL US will be co-ordinating the development of a comment letter, although we fully expect a number of our members and other stakeholders will also develop their own.

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