Coming Soon (With Your Help): The Interactive SEC
from January/February 2008
by Peter Galuszka
Let’s say you are a director whose company is in turmoil. You have a crucial meeting and need facts quickly. Ever wish you could simply log on to your computer, go to a website, and in mere seconds have all the key financial results you want, plus a look at how an unwanted suitor is faring?
You will soon be able to, if Christopher Cox, chairman of the Securities and Exchange Commission, has his way. He’s backing a push to digitize routine SEC filings such as 10-Ks, 10-Qs, and proxy statements, as part of a plan in which all 10,000 publicly held companies in the U.S. will eventually file their documents in digital form. That will give visitors to the SEC’s website fast access to data of all types, including returns on equity, earnings per share, operating margins, and the pay levels of top officers. The SEC is investing $54 million to get the system, called Interactive Data, up and running.
Corporate reports have been available online through the SEC’s EDGAR system for years, of course, but they come in bulk. Make that extreme bulk: Users have to scroll through hundreds of pages of information to find what they need. Not so with Interactive Data. Its users need only type in specifically what they want, such as the latest operating margins, and the system will retrieve it in seconds. And comparative analysis, such as the benefits competitors pay their top officers, will lie just a mouse-click away, says Mike Willis, a partner at PricewaterhouseCoopers, which is working on the digitization project. “In executive compensation and other high-level board responsibilities, this will relate to better and increased transparency over relevant information within the enterprise,” he says.
The consensus among the 50 companies involved with the SEC in an Interactive Data pilot program—Comcast, Ford Motor, General Electric, PepsiCo, 3M, and United Technologies among them—is that the system will save a lot of money. United Technologies found it could shave 160 hours a quarter from the 845 man-hours that the company usually needs to prepare a 10-Q statement, says John Stantial, assistant controller of financial reporting and analysis at UT.
The core of the system is a computer language called XBRL, short for “extensible business reporting language,” that electronically tags the financial data in SEC reports so they can be retrieved and displayed as desired. The SEC and XBRL-US, a nonprofit company dedicated to promoting the use of XBRL in the United States, spent months developing so-called taxonomies, “dictionaries” that digitally define parts of a financial report in ways that are in sync with generally accepted accounting principles. “Every line in a financial statement has to have an identity and a mathematical relationship,” explains Corey Booth, chief information officer at the SEC. One of the big challenges in developing taxonomies was to ensure that definitions were consistent. Corporations often write footnotes in different ways, for example, yet many of these notes contain important data.
The China Securities Regulatory Commission has mandated XBRL filings for all public companies, and Japan’s regulators have incorporated the system into their financial reporting. Other countries far along in using it include the Netherlands, South Korea, and Spain.
The key question is whether the SEC will make XBRL mandatory for all publicly held U.S. companies. “An awful lot of them want to wait on the sidelines,” says United Technologies’ John Stantial. His company’s approach is to embrace digitization as a way to get a jump on the learning curve. Some believe that interactive data won’t become mandatory, Stantial says, “but we are betting that it will.”
