Washington — Some of the biggest U.S. companies will have to file their financial results next year with digital tags aimed at making it easier for investors to analyze the data, under a proposal put forward by the U.S. Securities and Exchange Commission last week.
About 500 of the largest public companies would begin filing their financial data in XBRL (extensible business reporting language) in early 2009 as part of the SEC's proposed timetable.
Most of the remaining companies would have to comply within the following two years, the SEC said.
XBRL electronic tags are like bar codes, and can be attached to each piece of financial data. The SEC has a voluntary pilot program in which more than 70 companies file their financial data in XBRL.
China, Japan, the Netherlands and some other countries already require the use of XBRL, or are about to do so.
"Interactive data will let the sunshine in as never before," SEC Chairman Christopher Cox said at a meeting where he and the other two Republican commissioners voted for the proposal.
Cox also noted the potential for investors and analysts to use XBRL tagging to compare financial figures for specific companies over time or across industries. Further, XBRL could give smaller companies more exposure because industry analysts will be able to do their jobs more efficiently, he said.
The initial annual cost to companies will likely be in the thousands of dollars, but that will drop as more software products become available, he said.
"(The cost) will be almost not noticeable after Year One for most companies," Cox said.
However, before requiring many smaller companies to adopt XBRL, the SEC is prepared to conduct a cost-benefit analysis after the second year of mandatory implementation by larger companies, Cox said.
THE ROAD AHEAD
In addition to concerns about the cost of adopting XBRL tags, many companies also face a steep learning curve.
A study released by accounting firm Grant Thornton LLP, Chicago, found only 55% of chief financial officers and senior comptrollers were familiar with XBRL. The lack of knowledge "will pose a challenge" for the SEC as it tries to move forward with a mandatory program, the firm said.
"We have essentially all of 2008 to have a public discussion about it in a way that will undoubtedly get more attention," Cox said.
The SEC plan means companies must file quarterly and annual financial data in XBRL format, as well as accompanying notes.
According to the SEC proposal, the first set of companies required to use XBRL will be those using U.S. Generally Accepted Accounting Principles (GAAP) with a market capitalization above $5 billion.
The remaining companies using GAAP would adopt XBRL over the next two years. Companies using International Financial Reporting Standards (IFRS) would be required to comply beginning in early 2011.
At a May 21 meeting, SEC commissioners will consider a similar mandatory plan for mutual funds to file their risk and return summary data with XBRL tags. About 20 funds voluntarily use it.
The SEC has already launched online tools to help investors compare and analyze XBRL data from companies and mutual funds.
The agency will accept suggestions from companies, business groups and others on its proposal until mid-July. After reviewing public comments, the SEC will finalize its plan.
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