U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

Speech by SEC Staff:
2004 Thirty-Second AICPA National Conference on Current SEC and PCAOB Developments


Joel Levine

Associate Chief Accountant, Division of Corporation Finance
U.S. Securities and Exchange Commission

Washington, D.C.
December 6, 2004

As a matter of policy, the Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the SEC staff.

Note: View the slides referenced in this speech.

This afternoon I will be speaking on the Commission's Tagged Data Initiative.

The Commission has continually sought to make its filings, information collection, and disclosure processes more useful to the investing public through, among other ways, keeping pace with technological change. In connection with this objective, on September 27th of this year, the Commission issued a concept release seeking public comment on the use of tagged data as a means to improve the timeliness, accuracy, and analysis of financial and other filed information.

In concept, data tagging uses standard definitions to translate text-based information, such as information currently contained in EDGAR filings, into machine-readable data files that can be searched, retrieved, and analyzed using computer software tools. Data tagging could be a meaningful step toward enabling investors and other market participants to more efficiently and effectively analyze information from different sources, and automatically exchange that information across various software platforms, including web services. Tags, along with their standard definitions, are contained in a vocabulary listing called a Taxonomy - and I'll talk more about these later.

XBRL, which stands for "eXtensible Business Reporting Language," is a specific data tagging language that appears to be gaining prominence as a format for enhancing financing and business reporting. Proponents of the XBRL reporting standard assert that it offers benefits for all participants in the financial information supply chain; from registrants (who would benefit from improved transparency of their filings, resulting in broader analyst coverage, more market exposure, and greater investor confidence) to regulators and investors, who would benefit from ready access to tagged financial data for analytical and review purposes.

One way to understand XBRL's potential benefit is to think about investors or financial analysts who want to analyze specific financial information across a number of companies. For example, say they want to perform a trend analysis for sales, profit margins, and operating income for the last 3 years. Currently, they would search the desired information from the companies' EDGARized financial statements, or other publicly available financial statements, which would be in a text-based language like HTML or ASCII, or maybe PDF. Then, they would copy that information onto some sort of spreadsheet or other database. That process alone is often time-consuming, costly, and prone to human error, particularly if the analysis spans many periods and many companies. In an attempt to accomplish this with limited resources, some investors currently rely on other parties to search, aggregate and analyze registrant information; but the fundamental issues of time, cost, and accuracy still ultimately exist. Proponents tout that through the use of data tagging technologies such as XBRL and related software tools, information that is properly tagged could be efficiently and accurately searched, retrieved, and analyzed across multiple companies and time periods. With appropriate software, that information also could be presented in any desired format, such as in charts and graphs.

Also on September 27, the Commission issued a rule proposal to establish a program that would allow registrants to voluntarily furnish their financial statement information in XBRL format. We proposed this program at this time believing it would permit the staff, other users of financial information, and registrants to see and test first hand how tagged data and the related technologies actually work. By registrants tagging their financial information and transmitting it through the EDGAR system, we also will be able to better understand the benefits, and challenges, of XBRL and the supporting software.

Now, I'd like to spend a little time discussing the concept release and the rule proposal, and sharing some of the comments we've received on them.

First, the concept release. In this, we sought comment from investors, registrants, accountants, and any other interested party, to enable us to learn more about the capabilities of data tagging and the ramifications of accepting XBRL-formatted data in SEC filings. For example, the release solicited comment on the adequacy of XBRL as a format for reporting financial information, the types of information and the types of filings appropriate for tagging, as well as the sufficiency of the standard taxonomies.

At this point, let me tell you more about what a Taxonomy is. A Taxonomy is basically a standard vocabulary of financial reporting elements, or terms, that the financial community generally agrees to use for tagging financial information. It lists the individual elements and information about those elements, such as their definition and cites to authoritative GAAP literature. Some elements in the taxonomy will be associated or tagged with a monetary value, like the amount for revenues and SG&A. Other elements will be tagged with text, such as descriptions contained within the financial statement footnotes, like the consolidation accounting policy. The U.S. GAAP standard taxonomies were developed by US members of a collaborative consortium of organizations, which was formed to build the XBRL language and promote its adoption.

Along these lines, the concept release also solicited comment on the Commission's role in taxonomy development and maintenance, and a registrant's ability to develop and use its own company-specific extended taxonomy. We also asked for views on the availability of software tools to tag data and to retrieve and analyze that data, and how tagged data could impact investors, registrants, and accountants. Speaking of accountants, we asked about the impact on their internal control testing and whether they should attest to the accuracy and completeness of the tagged data; and if so, what form the attestation should take.

The comment period for this release ended November 15th. Overall, commenters were supportive of the notion that data tagging using XBRL will promote greater transparency and comparability of financial information through use of standard taxonomy elements, and will provide all user groups more efficient access to financial information.

While many observers thought that the XBRL standard has matured to a level that is sufficient for tagging information in Commission filings, commenters pointed out the technical complexity of XBRL, and suggested a need for additional development of XBRL-enabled software tools, particularly in order to utilize XBRL on a large scale. Some noted development efforts that are currently in process.

Commenters generally believe that tagging financial statement information is a good way to test the implementation of XBRL, and that over time as taxonomies and technologies are further developed, a broader range of information contained in registrant filings would be suitable for tagging as well

Many stated their belief that standard taxonomies should be developed and maintained by a private sector entity using a standards development process that would include formal public review and comment, and that the Commission should oversee that process. One commenter expanded on this theme and suggested the Commission approve any proposed changes to the standard taxonomies, and another suggested the FASB have approval authority with respect to the GAAP portions of the taxonomies.

The impact on registrants - most believe registrants will encounter a learning curve when they go through the initial process of tagging their financial statements. They'll need to become familiar with data tagging concepts and special software tools. They'll have to figure out what extensions are necessary or desirable. After initial startup, the actual tagging effort will become a routine part of their normal accounting process; but, they'll need to continuously evaluate software enhancements and taxonomy changes.

As to the impact on accountants, commenters suggested that tagging has the potential to improve the quality of analytical reviews and risk assessments, which, in turn, would allow accountants to more quickly identify unusual transactions or fluctuations, ultimately resulting in more effective and efficient financial statement audits. Also, once XBRL is integrated into accounting systems, internal control testing could be conducted more efficiently.

As far as whether accountants should attest to the accuracy and completeness of a registrant's tagged data, commenters responding to this stated that such attestation will build investor confidence and enhance marketplace trust in the reliability of tagged data, and they believe the guidance included in the AICPA's Interpretation to Section 101 of the Standards for Attestation Engagements currently provides sufficient guidance in this area.

Okay, moving onto the companion rule proposal that describes the Commission's proposed rule amendments to permit registrants to voluntarily submit their tagged financial information using the XBRL format in their EDGAR filings. The purpose of such a program would be to further the Commission's ability to gather and analyze data to assess the feasibility and desirability of using tagged data on a more widespread and, possibly, mandated, basis in the future. Under the proposed rule, participating registrants could tag their financial statement information contained in their '34 Act or '40 Act filings using one or more of these U.S. GAAP standard taxonomies:

  • Investment Management,
  • Insurance,
  • Banking and Savings Institutions, or
  • Commercial and Industrial.

The next two slides recap some of the significant features of the proposed rule. Many are designed to encourage registrant participation in the voluntary program.

  • The XBRL information would be supplemental to the official EDGAR filing. Volunteers would submit their XBRL-related documents as Exhibit 100 to their Exchange Act or Investment Company Act filings. These XBRL documents would not replace the required HTML or ASCII version of the financial information they contain. The registrant's XBRL information would be merely incremental to their official filings.
  • The XBRL information would be deemed furnished, not filed, for purposes of Section 18 of the Exchange Act, Section 16 of the Public Utility Holding Company Act, Section 323 of the Trust Indenture Act, or Section 34(b) of the Investment Company Act. The XBRL documents would be subject to all other liability and anti-fraud provisions of these Acts.
  • Volunteers would be able to provide their XBRL information as an exhibit to the initial filing, say on Form 10-K for example, or later in an amendment to that filing. Alternatively, companies could choose to submit the XBRL information in an exhibit under cover of Form 8-K (Item 8.01) that references the related filing. Foreign private issuers may submit the information on Form 6-K.
  • The XBRL documents must reflect the same financial information as contained in the official filing - for example, it should include the registrant's complete set of financial statements. Not to do so might cause confusion by users of the XBRL data.
  • Certifications under Section 302 would not extend to the XBRL documents.
  • Audit opinions and interim review reports would not accompany the XBRL documents. Volunteers would label their XBRL documents as either unaudited or, for quarterly financial statements, unreviewed.
  • If adopted by the Commission, volunteers could begin submitting their XBRL documents beginning with their year-end December 31, 2004 filing on Form 10-K, or at any time thereafter. For example, they can decide to start with their first quarter 2005 10-Q, or their second quarter 2005 10-Q. Volunteers would be free to submit the XBRL information regularly or from time to time and could stop and start as they choose. Volunteers would not need to notify the staff of their intent to start or stop their participation in the volunteer program.

The proposed program does not have an end date. If the Commission adopts the program and we gain experience working with XBRL and the related software tools, the range of possibilities for the program might include:

  • Leaving it in place as is indefinitely.
  • Making a change to require that the XBRL information be furnished supplementally as an exhibit.
  • Making a change to require that the XBRL information be filed as part of the official filing, perhaps replacing the current text-based information.
  • Making some other sort of change to the program.
  • Terminating the program entirely.

The rule proposal release sought comment on a myriad of issues, and this slide highlights some of them.

The comment period ended November 1st.

Commenters were generally supportive of the creation of a voluntary XBRL program and, for the most part, of the specific provisions as proposed. They believe that the proposed features of the program, like the reduced legal liability and the flexibility as to how and when the XBRL data could be submitted, will encourage filers to participate. It was observed by some, however, that such a voluntary program may not identify all important issues in the development, processing, and use of XBRL formatted data if a broad enough spectrum of filers don't participate. And so the benefits to be derived from such a program will be highly affected by the level of participation.

I'll mention just two specific areas that generated a fair amount of comments:

  • On the subject of taxonomies, some comments were along these lines:
    • The U.S. GAAP standard taxonomies that are currently available for participants to use are sufficiently developed for purposes of the program, particularly with respect to the basic financial statements. Footnote tags may need further development. The program will generally expose the need to refine and extend the standard taxonomies.
    • While many companies will develop their own taxonomy extensions to add items not in the standard taxonomies, the need for company-specific extensions will most likely taper off as standard taxonomies mature and industry-level extension taxonomies are developed.
    • The most difficult aspect for volunteers will be learning how the standard taxonomies are organized and constructed, and how to create and integrate extension elements.
  • Regarding software tools to support XBRL, commenters noted that:
    • Volunteers will likely rely on software tools to build their company extensions and their instance document (which is the electronic summary of a company's tagged data). Software products to accomplish these tasks have been developed to varying degrees and are available to users; however, they may be difficult and complex to use, and may not fully satisfy end-user functionality for widespread adoption among filers. Thus, technical support will be necessary.
    • The software market in this area is still relatively immature, and products will continue to be developed that will be much simpler to use.

I've given you a very brief overview of these releases and the comments we've received on them. For a more complete understanding of the views expressed by the commenters, I encourage you to read their letters, which are posted on our website at www.sec.gov under "regulatory actions."

We are currently analyzing the comments on the releases and determining the appropriate form of an adopting release to present to the Commission.

We're enthusiastic about the prospects of testing the XBRL tagging system, evaluating the extent to which it improves the transparency, and enhances the analysis, of information filed with us, and assessing the impact on registrants, investors, analysts, the staff, and others. We hope you embrace the opportunity to participate in any voluntary program ultimately adopted.

Finally, please know that there's a "Bonus Post-Conference Optional Session" devoted to Business Reporting in XBRL scheduled for 3:15 on Wednesday that will cover many technical aspects of XBRL, including supporting software tools. Refer to your conference brochure for more information.

Thank you. This concludes my prepared remarks.


Modified: 04/13/2005