Brave new world
Michael Becker, Director of global disclosure, BusinessWire
I think it is widely accepted that the use of technology and electronic filing is going to become the norm before too long. The SEC has been very vocal about the tagged data initiative – and XBRL in particular – and has asked companies like Microsoft and Oracle to build an XBRL facility into their offerings. XBRL is an important topic when talking about Edgar filings in 2006.
The SEC has put together a voluntary filing program through which companies are offered limited liability for filing reports (such as 8K and 10Q) with XBRL documents attached. To date, there have been a little over 20 filings of this type from the voluntary group.
Shareholders benefit greatly not only from the fast dissemination of data over traditional wire services, but also by being able to extract specific elements and get those to the right areas at the right time. And fast information is always a good thing for the market.
From a technological standpoint, there is actually very little that needs to be done on the part of the issuers. They can continue to submit forms in their current format, and the filing agent will then take care of the tagging – or the agent can assist companies with operating the system in-house.
At the moment, the lion’s share of Edgar business is done via the traditional financial printing service firms, so annual reports and proxies moving to an online format will open the door for new services to capture a larger piece of the market. It is also likely that we will see the traditional firms starting to offer new services like XBRL tagging in order to keep up with the market.
Michelle Savage, Vice president of IR services, PRNewswire
The two biggest changes that we are going to see for 2006 are non-financial business reporting, where companies are encouraged to report so-called intangible factors that help explain the true value behind the company, and XBRL.
These are challenges insofar as anything new is a challenge, and there is going to be a learning curve. But it is also a real opportunity because it is a great chance to provide more transparency to the marketplace, which ultimately can help small companies get noticed and help investors make better decisions.
XBRL is in its infancy, but it is growing. There are a lot more companies that need to get involved before it really gains traction. For companies that have not yet gotten started, there is a lot they need to do. The first time a company files with XBRL is a significant undertaking, but subsequent quarters become much easier.
Going forward, I think we’ll see that the filing agent is still going to have a very big role in the process. They will be the ones helping companies prepare that XBRL document, but in the short term there will also be a need for an outside consultant to assist with implementation.
I don’t think the SEC is likely to come out in the next twelve months and say, ‘XBRL is now mandatory,’ but it is possible that they will make it an alternative to HTML or Ascii some time in the next couple of years.
The Edgar database will remain an important source of historical data, but when it comes to more real-time news, the wire services are going to continue to be the most important conduit. It is really the only way to get a coherent message out there in a timely fashion.
Shai Stern, CEO, Vintage Filings
There have been some interesting developments at the SEC in terms of proposed rule changes, but it is unlikely that these will have any immediate effect on the filing industry. Obviously the SEC and the exchanges are in favor of expanding electronic filing, but the reality is that paper filings and Edgar are the standard, and this will continue to be the case for some time.
With this in mind, I think issuers will be looking for service providers that offer the full range of services. As the number and type of filings increase, it will be important to have a system in place that allows everything to be done as smoothly as possible. On this front, technology improvements are being made to improve efficiency, speed and cost. From our perspective, expansion of typesetting and financial printing services will be an important issue this year.
Of course, one of the other popular topics at the moment is XBRL and the effect it may have. It is an interesting topic, but there are very few issuers actually using the technology. It is attracting a lot of noise, and I know the SEC has come out in favor of the idea, but it is unlikely to become widely adopted for some time. Having said that, we, like many others in the industry, are looking at the technology and will be prepared to implement something should it become the standard.
Flexibility is going to be the key factor going forward. It is important for companies to be able to continue filing as they are, and do so through Edgar, but still be ready to take advantage of any technological advancements that are made and to respond to regulatory changes.
Andrew Neblett, EVP and COO, EdgarFilings
What we are seeing now in terms of the SEC’s stance on electronic filing is more a case of following a trend rather than creating one. The market is already starting to adopt the concept on its own.
Some companies are being very proactive about encouraging people to read materials electronically and discard the hard copy. Coca-Cola, for example, gives its investors the option not to receive paper filings at all and points out that this will increase shareholder value because of the considerable cost savings.
One of the drivers for wider use of electronic filings is likely to be XBRL. We are working with regulators (the SEC and FDIC) and focus groups like XBRL.org to get this system implemented. I think there will be a great deal more interest in this field as 2006 progresses and more people become comfortable with the way the system works.
One other important area is Section 404 and the whole internal compliance and certification process. This will be significant as companies continue automating their programs, and there will be filing implications as a result of this.
There is likely to be a need for companies to adopt some new technology, but this should not be too onerous. Many of the existing products are very complicated, and as we move forward with electronic filing and data extraction and the various systems used for compliance management, it will be necessary to make the technology more intuitive and easier to use. This will help kick-start the process and encourage wide acceptance and use of electronic data tagging.
Elmer Huh, executive director of equity research, Morgan Stanley
XBRL is probably the most important development in the reporting field right now. The SEC is supportive of the idea, but the challenge is getting more companies involved. A lot of companies are trying to strike a balance in their reporting and reduce costs, and some think that producing a PDF of their filings – versus printing and delivering paper documents – is sufficient. This is where tagging data becomes so important. It greatly increases the speed and accuracy of the analysis the Street is performing.
Many companies outsource the process, and as with any new technology, there will be a start-up cost, but I would be willing to bet that they will find this to be the easiest way to go about financial data extraction.
It doesn’t matter what software vendor you use, because XBRL is a universal language. Investors and analysts can extract the information they want from the SEC site, one of the Edgar sites or the company web sites themselves for free and put together their own analysis.
Some people ask what the difference is between that and Reuters or one of the other news services. One big thing is cost. Some of these licenses are very expensive, and this can be reduced to almost a third using XBRL. It is at the point where a number of large investment banks are on the verge of using this technology – and when that happens, there will be a huge movement toward this getting adopted faster.
It is not going to happen overnight, but it will happen. It might be only two or three years when electronic filing becomes so mainstream that it becomes an afterthought.