The XBRL community is launching a new movement to expand corporations’ use of the data-tagging technology to mergers, reorganizations, and similar transactions—even though Corporate America still hasn’t even started complying with a previous mandate to use XBRL in financial statements.
At a summit meeting in New York on May 28, several regulators, financial organizations, and XBRL activist groups announced a new proposal to use XBRL technology to standardize the disclosure of corporate actions. The coalition says many such transactions are fraught with risk because the information from issuers is disseminated to numerous intermediaries (investment managers, broker-dealers, financial custodians, and the like) who repeatedly interpret and re-enter important data. That leaves the process prone to errors, they say, which ultimately drives up the cost for investors.
XBRL U.S., the consortium that maintains and updates XBRL in this country, wants corporations to “tag” those transactions so important pieces of information can be identified—and stay identified—throughout the entire deal. It is collaborating with Depository Trust & Clearing Corp. and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) to develop a taxonomy of terms companies could use in the tagging process.
Donahue
“Leaving each intermediary responsible for interpreting information on corporate actions and translating it into a form that can be communicated to clients electronically, that’s absolute lunacy,” Donald Donahue, the DTCC’s chairman and chief executive, told attendees at the meeting. “It leaves the door wide open to serious risk.”
The project would be similar to what XBRL U.S. has done with the Securities and Exchange Commission for the last several years. The two teamed up to draft a taxonomy of terms used in U.S. Generally Accepted Accounting Principles, and the SEC approved a rule earlier this year requiring corporations to submit financial statements tagged with XBRL technology. The first compliance deadlines for that rule go into effect June 15, when the largest 500 publicly traded companies must start filing XBRL-tagged statements. All other public companies will follow suit by 2011.
Enthusiasm for XBRL has always been tepid at best. Many corporations see it as regulatory busywork and are only embracing the technology because the SEC has told them to do so. Indeed, at last week’s meeting, many attendees said corporations won’t undertake this new effort either, until the SEC throws its weight behind it.
Morgan
“For the most part, standardization of corporate actions is not on most issuers’ radar screens, despite the opportunities a tool like XBRL could bring to the process,” said Jeff Morgan, CEO of the National Investor Relations Institute.
Conference speakers and attendees say standardizing corporate actions using XBRL would significantly reduce the risk of errors in communications on corporate actions. That would bring numerous benefits that improve communications with investors: fewer delays, lower costs, better transparency. For example, standardized disclosure would let issuers provide better information about costly reorganizations, potentially reducing the expenses associated with those events.
From an issuer’s perspective, however, Morgan admitted: “The case to adopt XBRL-tagged corporate actions has yet to be made.” But he does not support yet another regulatory mandate from the SEC.
“Leaving each intermediary responsible for interpreting information on corporate actions and translating it into a form that can be communicated to clients electronically, that’s absolute lunacy.”
—Donald Donahue,
Chief Executive Officer,
DTCC
“Companies are already so under siege with all sorts of additional disclosure, there’s got to be a better way,” he told Compliance Week.
From Steam to Sputter
Schapiro
Under previous SEC leadership, XBRL was a top priority; former Chairman Christopher Cox pushed the technology for years and paved the way for the current mandate. New Chairman Mary Schapiro, however, has made it clear that her priority is fixing the wayward agency’s many operational problems.
William Lutz, director of the SEC’s 21st Century Disclosure Initiative, admitted as much last week when he said, “A lot of the Commission’s resources are turned internally” right now, leaving “limited resources” for XBRL. Lutz added that two projects planned for this year—one to tag the Compensation Disclosure and Analysis and another to tag asset-backed securities—have been put off until next year, at least as far as the SEC’s participation.
Blaszkowsky
Nevertheless, David Blaszkowsky, director of the SEC’s Office of Interactive Disclosure, called corporate actions an “ideal domain in which to deploy XBRL.” He declined to speculate on any specific plans or new rulemaking, but in one panel discussion at the meeting he said the SEC “hoped and expected” that its XBRL mandate would “function as the infrastructure and set the conditions for other private sector-driven development and adoption of XBRL.”
STATEMENT OF DIRECTION
A statement of direction for improving issuer to investor communications for corporate actions—DTCC, SWIFT, and XBRL U.S.:
First, DTCC, SWIFT and XBRL U.S. will support implementation of XBRL for corporate actions data:
DTCC, SWIFT and XBRL U.S. are building an XBRL corporate actions taxonomy
based on, and aligned with, the ISO 20022 repository elements. This will enable
issuers to electronically ‘tag’ data when preparing a prospectus or other form of
announcement for a corporate action. The “tagged” data can then be readily
transformed into the ISO format for consumption by intermediaries servicing
investors in the market to close the gap on STP;
DTCC, SWIFT and XBRL U.S. will leverage the expanding adoption of XBRL in the U.S., a result of the SEC mandate for GAAP quarterly financial reporting starting with the largest 500 public companies in June 2009, to promote the
implementation of the XBRL corporate actions taxonomy;
DTCC will also create a ‘unique ID’ to be associated with each corporate action announcement upon its creation, thus facilitating the identification of an event between all parties and reducing ambiguity in the announcement process, and
XBRL U.S. will include corporate actions in its overall taxonomy maintenance and support function to promote integration within a unified dictionary, and a stable, sustainable process for change management and version release.
Second, DTCC and SWIFT will work together to implement the new ISO 20022 corporate action messages:
DTCC, as an integral part of its wider ‘Corporate Actions Re-engineering’ project,
will adopt ISO 20022 beginning with corporate actions announcement messages;
DTCC will continue to contribute to the ISO 20022 standard process, working
with SWIFT to facilitate inclusion of data elements that are needed for U.S.
corporate actions. As part of this process, DTCC, SWIFT and XBRL U.S. will work
together to ensure the XBRL corporate actions taxonomy and the ISO 20022
corporate actions data repository remain fully synchronized with each other;
All corporate action announcements published from DTCC will be made available
in ISO 20022 format, starting in 2010. All existing legacy publication files will
ultimately be decommissioned (anticipated not later than 2015), converting
DTCC participants and clients to ISO 20022 for these communications, and
SWIFT will leverage these efforts to roll out the new ISO 20022 corporate action messages on a global basis, with the intent to decommission the equivalent ISO 15022 messages at a future date yet to be determined.
Source
XBRL U.S., DTCC, SWIFT Statement of Direction (May 28, 2009).
XBRL U.S. already has a prototype taxonomy for one corporate action already complete, according to Mark Bolgiano, the group’s chief executive; the tags for 56 others are expected to be finished by the end of the year. A working group comprised of issuers, technology companies, and others will determine when the taxonomy will be published for public review.
Bolgiano said the corporate actions taxonomy currently consists of about 200 base elements and uses many of the same elements as the U.S. GAAP taxonomy. The taxonomy is aligned with the ISO 20022 standard managed by the International Organization for Standardization to help encourage global adoption.
DTCC spokesmen also say that the group will create a unique ID number to be associated with each corporate action announcement, and its leadership has committed to making all the corporate action announcements DTCC publishes available in ISO 20022 format by the end of 2010.
Other Plans
Corporate actions aren’t the only area enthusiasts view as ripe for XRBL tagging. Bolgiano noted that XRBL U.S. is also developing a taxonomy for tagging corporate proxy statements. “The SEC has expressed interest in the proxy taxonomy, so we want to make sure that whenever the time is right for the SEC to move forward on XBRL for the proxy that we’re ready,” he said.
The SEC has previously hinted that it could expand XBRL compliance to companies’ disclosures about executive compensation. In 2007, the agency unveiled an Executive Compensation Reader that displayed the Summary Compensation Table disclosures filed in the 2006 proxy statements of the 500 largest companies. In the proposing release on its XBRL rule published last year, the Commission solicited comments on whether it should require or permit interactive data for executive compensation. That idea never made it into the final rule.
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