Will your company issue a 10-K next year? Probably, but investors may not look at it. And in the future, if Securities and Exchange Commission Chairman Christopher Cox has his way, such forms could become moot altogether.
At a press conference Monday, Cox told reporters that investors will no longer be restricted to using Form 10-Ks or Form 8-Ks once the SEC fully implements its interactive data project for filing corporate financial statements.
Asked whether the project would be phased in by form — that is, 10-Ks, then 10-Qs, then 8-Ks, etc. — Cox responded that “data itself would not be restricted by forms.” Instead, he said, investors “could put together their own form on the fly.” To that end, Cox announced that the SEC awarded three contracts, worth $54 million, to transform the 20-year-old EDGAR database that now houses corporate regulatory filings, into an interactive database that uses the XBRL programming language, within a year.
Cox also said that once the interactive system is fully functional, companies would have no barriers for adopting the XBRL programming language. However, he said that it’s premature to assume that the SEC would mandate that filers use XBRL.
XBRL, an Internet-language method of tagging financial data, has been championed by Cox, who has argued it would make the financial statements of public companies easier for investors to examine and compare.
The commission aims to “use honey not vinegar” for attracting companies to the pros of XBRL so they’ll make the switch. That is, says Cox, the SEC’s goal is to make sure the benefits of using XBRL outweigh the costs.
He cited United Technologies as one example of a company that switched to XBRL for a relatively small cost. According to Cox, the $43 billion (in sales) conglomerate spent only $40,000 to covert its financial reporting system to an XBRL system, and “they expect to recoup that [expense],” he added.
For smaller companies, tagged data could lead to more coverage from analysts since they would theoretically have more time, and better tools, to ferret through company data. For larger companies, XBRL would create a common international platform upon which comparative performance could be easily, and quickly, measured, suggested Cox. One of the more immediate results of the XBRL project will be an almost “immediate price cut” for EDGAR subscribers, by about 37 percent, emphasized the chairman.
The SEC handed a $48 million contract to Keane Federal Systems to update the EDGAR database to use interactive data, as well as maintain the new system. The interactive system will also likely get a new name—and Cox welcomes suggestions. As part of the contract, Keane will partner with Bearingpoint, Microsoft, Rivet Software, EMC, and Akamai on the modernization project.
The SEC awarded a second, $5.5 million XBRL code writing contract to XBRL US Inc., aimed at finishing what the SEC started in terms of writing XBRL taxonomies for all U.S. industries. Taxonomies are the computer labels for the data needed to run XBRL. The European Union has already invested $1 million into its taxonomy project, and Cox said that to stay competitive within the global markets, the U.S. would have to put money and effort into its XBRL taxonomy project as well.
A third, $500,000 contract was awarded to Rivet Software and Wall Street on Demand, to provide a new generation of interactive investor tools on the SEC’s website. The software will use as much open-source code as possible so software developers can be more innovative about creating new tools going forward, underscored Cox.
The new tools should allow investors to view and analyze a company’s financials that are filed in XBRL, and let them search more quickly and efficiently. The new system and tools will also eliminate the re-keying of data into tools used by investors and analysts. Re-keying introduced myriad errors into documents, said Cox. He pointed to the banking industry, which already uses XBRL for its regulatory filings, noting that the error rate dropped from 34 percent to nearly zero since the financial institutions adopted XBRL.
The SEC plans to convert all of the existing corporate financial filings in its existing EDGAR database into XBRL within a year, and have the new interactive tools ready for use by that time, as well. However, Cox said that the SEC is not going into the software development business, nor is it competing with analysts or intermediaries that take raw data and “do interesting things with it.”
“EDGAR had a pretty good run,” commented Cox. EDGAR is one of the largest U.S. government presences on the Internet, with over 700,000 documents and data sets filed on the system each year. Still, Cox reiterated that although EDGAR is computer based, it does not take advantage of interactive technology. “It’s about time to retire EDGAR, and thank it for its good and faithful service.”