SEC strategy sees XBRL for CEO pay, other niches

Dominic Jones

IN WHAT could be a clever strategy to boost adoption of eXtensible Business Reporting Language (XBRL), the U.S. Securities and Exchange Commission (SEC) appears to be focusing on using interactive data for high-demand investor information.

The full commission yesterday voted to approve a proposal to test XBRL filings for the risk/return summary found at the front of mutual fund prospectuses. The summary, which research suggests is the most heavily used part of the documents, includes the fund’s investment objectives, investment strategies, risks, performance history, and fee table.

At the same meeting, SEC chairman Christopher Cox said a similar approach could be used for other high-use, high-interest information. He said the new summary tables on executive pay were a “tailor-made opportunity” to be tagged.

Niche targeting strategy suggested last May

Although the SEC is spending millions to finance the development of a full XBRL taxonomy for U.S. GAAP reporting, many observers have complained about the complexity of reporting in XBRL. This is seen as a major stumbling block to widespread adoption of interactive data.

The idea of limiting XBRL to high-use documents as a strategy to ease issuers into using the technology has been floated by SEC chief information officer Corey Booth. In a presentation last May, he suggested that focusing XBRL on “the most critical leverage points” or niches would help to drive adoption. He mentioned earnings releases and mutual fund information as obvious targets.

Yesterday’s mutual fund developments are interesting because they could lead mutual fund services and finance websites to demand that mutual fund companies provide XBRL-tagged information to them. Since much of the information in the risk/return summaries is vital to selling funds, mutual fund companies would feel pressure to comply with those requests.

Tagged information will dramatically reduce the need for firms like Morningstar to manually update basic information on funds. A small taste of XBRL information could lead them to demand more information in the format, such as holdings updates and voting records.

Give investors a taste of XBRL and they’ll want more

Encouraging or even mandating that companies tag their summary compensation table data in XBRL could have a similar effect on corporate issuers. Once investors get a taste for using XBRL in limited applications, they could quickly demand the format for other information, such as earnings releases or insider filings information.

In the same speech last May, Booth said he personally believed that much more experience and wider market adoption of the format was needed before the SEC could mandate the use of XBRL.

“I believe we have not yet reached an inflection point where there is significant critical mass and knowledge of the XBRL standard, and so for now I think we can do better by aiming for a market-driven transition to XBRL rather than a regulatory mandate,” he said.

One way to encourage market-driven adoption of the technology would be to target niches in the reporting chain, he said.

Related posts:

1. SEC mandates XBRL for financial statements
2. SEC calls meeting for final XBRL rule
3. Ex-SEC leaders challenge Cox’s interactive data initiative
4. As XBRL mandate looms, SEC seeks urgent help with software
5. SEC unveils IDEA — and that’s all it is for now

Please Support Our Work
Email your friends about us. Subscribe to our paid publication Online IR Trends Quarterly. Get us to recommend improvements to your IR website (we're really good at it).