Financial Data 'on Steroids'
SEC to Junk Paper Filings, Require Interactive Online Reports

By Christopher Twarowski
Washington Post Staff Writer
Tuesday, August 19, 2008; D01

In the realm of quarterly filings, David Blaszkowsky takes the long view. He's quick to mention that the earliest form of record keeping was on tablets in the ancient Middle Eastern civilization of Sumer. Now, he says, the financial world is about to discover yet a new way.

The Securities and Exchange Commission plans in the coming months to require that all publicly traded U.S. companies and mutual funds prepare their financial filings using a new interactive system that allows the information to be viewed and analyzed online as never before.

"We're adding a new dimension," said Blaszkowsky, the SEC's director of interactive disclosures.

Within two years, the SEC will require all corporations and mutual funds to file using a technology called XBRL (extensible business reporting language) with the first wave beginning in December. This transition coincides with the agency's plan to replace its document-based system, for collecting, analyzing and retrieving data, known as EDGAR, with an Internet-based platform, IDEA, short for Interactive Data Electronic Applications.

While advocates say the new system will eventually save companies money because of the speed and ease of preparing disclosures, some critics complain about the initial expenses of making the transition, a burden that is particularly unwelcome during an economic slowdown.

To illustrate the system during a recent interview, Blaszkowsky sifted through volumes of financial information with a few clicks of his mouse, extracting data from several companies and creating a multicolor bar graph to compare the figures. Then he exported the data into an Excel spreadsheet. What took Blaszkowsky only seconds could have cost hours for a reader of current SEC filings.

"The centerpiece of our regulatory approach is giving investors the information they need to make wise decisions," said SEC Chairman Christopher Cox. "We have an opportunity to exponentially improve the way we perform that mission."

EDGAR lists data in blocks of text. Financial statements for one company in a single year can amount to hundreds of pages and be laden with legalese and business-speak. There can be pages and pages of footnotes alone. Searching for financial details can be a chore.

Under the new system, filers will make their data interactive by "tagging" financial line items, such as a company's net income, with unique identification codes. There are three ways filers can do this: Manually, inputting the data into a computer program; hiring a company to do the tagging through automation; or using a computer program to convert data into tags.

Once filed in this format, financial disclosures would look like current balance sheets and other financial statements, with a list of line items on the left and their respective values across from them. But by clicking on an item, a user could get a definition, for example. The line items could also be downloaded, searched and analyzed in myriad ways by anyone from investors to analysts to investigative journalists.

XBRL works similarly to the bar code system at a grocery store. Once tagged, line items can be read by computer programs, just as scanners read bar codes. The result is a universal language of "interactive data" that can be read across different systems and applied to various uses, for instance downloaded into spreadsheets or reorganized in databases.

The technology is being developed by an international nonprofit consortium of more than 450 companies, organizations and government agencies, called XBRL International. The United States is not the first, or the only, country to adopt XBRL.

"XBRL is hyperlinks on steroids," said Liv Watson, formerly of EDGAR Online and an XBRL International board member. Watson is one of the founders of XBRL and a board member of Iris India, a company that builds XBRL applications. "It's like setting data free."

Proponents of the technology list a plethora of benefits. Filing with interactive data cuts costs, they say. The start-up period may run companies a few thousand dollars, but once a template is established, those costs decrease because future information is simply added to the existing code. There are also savings from not having to print all the pages associated with the current filings. XBRL can also cut costs by reducing the time to prepare disclosures.

The technology also makes it harder for companies to make financial errors in their filings, whether by accident or manipulation, advocates say. XBRL detects numbers that don't add up.

The loudest criticism among companies, as evident in e-mails posted on the public comments section of the SEC's Web site, concerns software availability, the timeline and start-up costs.

"This is a lot of work being added to the current company workload, and much of this work will be manual, as there is very little software available to assist," wrote Robert Gilmore, an accountant and IT engineer, on July 31.

The SEC is analyzing suggestions and making tweaks to the proposal. The agency expects final approval in the fall.

As the proposal stands, compliance would be phased in over two years for companies. The 500 largest companies would need to comply starting Dec. 15. The data would become available to the public in early 2009. A second group, about 1,200 companies, would have until Dec. 15, 2009. All other companies would have until the end of 2010 to file with interactive data.

In the first year of compliance, companies would have to submit their primary financial disclosures -- balance sheets, income statements, cash-flow statements and statements of equity -- in XBRL, along with the traditional block text. Notes and schedules would be included as blocks of text. In the second year, all material must be submitted under the new system.

Mutual funds would be required to provide interactive data beginning with registration statement filings that become effective after Dec. 31, 2009.

The SEC proposal would also require all filers to post their interactive financial disclosures on their Web sites.

For filers that choose to tag their own data, the software ranges from $1,000 to $2,000. The SEC estimates that it would take a company about 100 hours to complete the initial tagging. According to Robert Blake, senior director for interactive services at Bowne & Co., one of the largest preparers of financial filings, the time is closer to 30 to 60 hours.

Companies that offer a XBRL conversion service for primary financial disclosures charge $3,000 to $10,000 for each filing. It can take as little as a few hours.

The SEC has considered shifting to this technology for years. In 2004, the agency proposed a voluntary program for companies that wished to file using XBRL. To date, 89 companies have voluntarily filed under this program, and those filings are accessible through the agency's Web site.

"We're replacing the family station wagon with a Ferrari," Cox said.