Saying that it will "let the sun shine in as never before," Securities and Exchange Commission chairman Christopher Cox announced last month that the SEC had voted unanimously to propose a rule that will require companies — by as early as next year — to file financial statements in an "interactive data" format.
That move seems certain to breathe new life into XBRL (extensible business reporting language), the data-tagging scheme for financial reports that Cox has long trumpeted but that few CFOs seem to care about — or even know about.
The plan would initially require companies with market caps of more than $5 billion to file financial statements in XBRL beginning in the fiscal periods ending in late 2008; those statements would become public in that format in 2009. The following year all other firms that use U.S. GAAP would have to follow suit, while international companies that file with the SEC using international financial reporting standards would adopt XBRL a year after that.
Advocates of XBRL say it could be a boon to investors and analysts, who would be able to more easily search and compare companies' financial statements. CFOs have seen little incentive for their companies, and surveys continue to find them indifferent, or worse. One recent survey, conducted just prior to the SEC's announcement, found that most expected to have years to comply.
Anticipating questions about the cost of complying, the SEC said that in a pilot program the average cost was $30,000. That cost is expected to be less for smaller companies and to decline as companies develop templates and as software improves.
SEC commissioner Kathleen Casey said the organization is building a framework but that market innovation will be needed for XBRL to reach its full potential. A market for XBRL software and services is evolving, and may accelerate now that the SEC has put a stake in the ground. The SEC will accept comments on its proposal through mid-July.