SEC to Shed EDGAR for New IDEA

As companies await a final Securities and Exchange Commission rule that will force them to use XBRL technology in their financial filings as soon as next year, the SEC has unveiled an XBRL push of its own: scrapping the EDGAR database in favor of a new system to handle “interactive data” filings.

The SEC held a news conference Aug. 19 to herald the new system, known as IDEA for Interactive Data Electronic Applications. The Commission even posted the IDEA logo, a video clip, and an “SEC Spotlight” item touting IDEA on the SEC Website, just to show the agency means business.

Cox

SEC Chairman Christopher Cox stressed that the new disclosure system “is not just renaming EDGAR,” which stands for Electronic Data Gathering, Analysis and Retrieval. Rather, he said it marks “a fundamental change in the ways the SEC collects, manages, and distributes information.”

Unlike the text-based EDGAR, which has been around since the 1980s, Cox said IDEA’s architecture for disclosure “is based on information, not forms and transactions.” IDEA will be built to take full advantage of interactive data, or XBRL, which uses “tags” similar to bar codes to identify individual items of data in a company’s financial disclosures.

Cox says IDEA will give investors “better, faster, and cheaper” access to information, allowing them to compare information from thousands of companies and forms instantly.

William Lutz—a Rutgers University professor, former securities lawyer, and “plain English expert” who is chairing an SEC task force reviewing how the SEC collects and disseminates information to the public—says the goal of IDEA is “to provide data in a way people can access it and create the information they want.”

Lutz

Lutz compared the current EDGAR system to a Ford Model T automobile: “It was reasonable, reliable, dependable, and it got you there … but I wouldn’t want to drive a Model T today, and I don’t think we want to use EDGAR in an era of instantaneous global disclosure,” he said. “We’re not getting rid of the [EDGAR-era] forms; the forms will simply die.”

Cox said the use of interactive data tags will eliminate the need to translate financial reports from many spoken languages into English, since more than 40 languages will be supported by XBRL with translation built-in to data tags. The new system will also eliminate the need for intermediaries to mine and scrub data from the SEC database.

While IDEA will supplement and eventually replace EDGAR as the primary source for all SEC filings, the SEC has vowed that EDGAR will continue to exist as an archive of company filings for past years. “If you want to keep using EDGAR like you’ve always used it, there will probably no change in your life,” Cox said.

What Comes Next

The IDEA announcement comes as companies await a final SEC rule mandating that companies include “interactive data exhibits”—that is, XBRL filings—along with their regular financial reports when filing to the SEC. A separate proposal would require mutual funds to submit their risk-return summary information in interactive data format.

INTRODUCING IDEA

The following excerpt is from an SEC press release announcing its new system for interactive data filings, also known as, “IDEA.”

Securities and Exchange Commission Chairman Christopher Cox today unveiled the successor to the agency’s 1980s-era EDGAR database, which will give investors far faster and easier access to key financial information about public companies and mutual funds.

The new system is called IDEA, short for Interactive Data Electronic Applications. Based on a completely new architecture being built from the ground up, it will at first supplement and then eventually replace the EDGAR system. The decision to replace EDGAR marks the SEC’s transition from collecting forms and documents to making the information itself freely available to investors to give them better and more up-to-date financial disclosure in a form they can readily use.

Currently, most SEC filings are available only in government-prescribed forms through EDGAR. Investors looking for information must sift through one form at a time, and then re-keyboard the information — a painstaking task. With IDEA, investors will be able to instantly collate information from thousands of companies and forms, and create reports and analysis on the fly, in any way they choose.

IDEA will ensure that both the SEC and the investors who rely upon the financial reporting the agency demands are ready for the new world of financial disclosure that will soon arrive when financial information is presented in interactive data format. The SEC has formally proposed requiring U.S. companies to provide financial information using interactive data beginning as early as next year, and separately has proposed requiring mutual funds to submit their public filings using interactive data.

“IDEA will ensure that the SEC continues to stay ahead of the needs of investors,” said Chairman Cox. “This new SEC resource powered by interactive data will give investors far faster, more accurate, and more meaningful information about the companies and mutual funds they own. IDEA’s launch represents a fundamental change in the way the SEC collects and publishes company and fund information – and in the way that investors will be able to use it.”

Interactive data relies on computer “tags,” similar in function to bar codes, which identify individual items in a company’s financial disclosures. With every number on an income statement or balance sheet individually labeled, information about thousands of companies contained on thousands of forms could be easily searched on the Internet, downloaded into spreadsheets, reorganized in databases, and put to any number of other comparative and analytical uses by investors, analysts, journalists, and financial intermediaries.

The ease with which interactive data will make financial information available also is expected to generate many new Web-based services and products for investors.

As he unveiled the new IDEA platform at a Washington news conference today, Chairman Cox announced that the IDEA logo will begin to appear immediately on the SEC’s Web site as the agency transitions to making IDEA the new primary source for all SEC filings. Companies’ interactive data filings are expected to be available through IDEA beginning late this year.

Investors and others who currently use EDGAR will be able to continue doing so for the indefinite future. During the transition to IDEA, investors will be able to take advantage of new interactive, IDEA-like features that will be grafted onto EDGAR in the short run. This will make it possible for investors to tap IDEA’s advanced search capabilities, and to use the information from EDGAR within spreadsheets and analytical software – something that was never possible with EDGAR. The EDGAR database also will continue to be available as an archive of company filings for past years.

Source

SEC Press Release on IDEA (Aug. 19, 2008).

The SEC is proposing that the 500 largest U.S. public companies would begin tagging data for fiscal years ending on or after Dec. 15, 2008, with other companies phased in over the next two years. Companies would tag their footnotes as a single block of information during their first year using interactive data. After that all data, including data in footnotes, would be tagged individually.

Companies’ chief complaint about the proposal is the timeline, which many say is too aggressive. Commenters also had differing views about whether auditor attestation of tagged financials ought to be required. The SEC’s proposal doesn’t require it, but it sought comment on the question.

The comment period on the proposal, which drew more than 80 letters, ended Aug. 1. Cox said the SEC should “know by the end of year precisely what the phase-in for the requirement … is going to look like.”

Purnhagen

Gary Purnhagen, an independent consultant, says the SEC may retreat from having the 10-K as the first XBRL-tagged report, and instead have companies start tagging with their 10-Q. Even if that doesn’t happen, he says those companies that would have to comply first “have had plenty of time to prepare.”

Ed Hodder, senior analyst, strategic marketing at financial printer Bowne, says the news shouldn’t mean dramatic changes for companies that report to the SEC. It is more likely to affect consumers of financial information: investors. “As far as timelines and impact on reporting workflows, we’ll wait for more formal announcements of the system for a real gauge on timing and impact to reporting processes,” he says.

Purnhagen agrees. He says last week’s announcement “rightly positions XBRL as an enabling technology.”

“Yes, [IDEA] is another push for XBRL, but it really puts it into a larger context,” Purnhagen says. “What Cox and the SEC at large have in mind here is moving away from the form-based system that EDGAR is.”

The adoption of interactive data has been a top priority for Cox since he took the helm of the SEC in 2005. Since then, the SEC has expanded its voluntary XBRL filing program and released a family of free XBRL reader programs on its Website in hopes of prodding the development of other interactive data applications.

The SEC expects filings to be available through IDEA beginning late this year. Meanwhile, an SEC press release says some “IDEA-like features will be grafted onto EDGAR in the short run.” Exactly what features those are wasn’t specified. Cox said the system will be “fully up and running in three years and mature in five years,” with funding to come from the SEC’s existing technology budget.

Purnhagen says that timetable makes sense, given that, under the rule proposal, all companies would be required to tag their data in XBRL in three years. He suspects that within five years companies will no longer need to submit filings in HTML or ASCII, the computer formats used now. “I think we’ll see a very different interface,” he says.

IDEA will also be the platform for the SEC’s 21st Century Disclosure Initiative being headed by Lutz. Hodder says the recommendations coming out of that “could be very dramatic. We’ll have to wait until the end of the year to see what comes from that effort.”

Meanwhile, Cox said the SEC will host a roundtable discussion related to that effort on Oct. 8th at SEC headquarters in Washington D.C.