In an effort to improve the quality of data regarding financial firms that is available to investors and market participants, the SEC proposed a rule on March 1 that would require firms to submit financial statements and mutual fund summaries using inline XBRL.
Extensible Business Reporting Language (XBRL) is a machine-readable format for filing financial information. In 2009, the SEC adopted rules that required operating companies and open-end management investment companies to file certain information using XBRL in addition to their HTML filings, and to post the XBRL information on their websites.
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Under the proposed rule, firms would use inline XBRL to embed financial data directly into their HTML filings rather than submit them as a separate document. Inline XBRL can be read naturally by investors without having to refer to a separate document, and electronically by machines. The proposal also removes the requirement that firms post XBRL files on their websites.
The SEC noted in the rule proposal that it has “identified a number of data quality issues associated with financial statement information” filed by operating companies using XBRL, and that is has received comments expressing concern over the quality, use and cost of creating that data.
The proposal referred to a 2013 study by the Financial Executives Research Foundation that found it took companies a median of 25 hours to prepare XBRL data and 15 hours to review it. Firms that outsourced their XBRL responsibilities paid between $8,000 and $10,000.
In addition to improving the quality of data available, the SEC believes the cost of preparing data for inline XBRL would decrease over time.
The SEC has allowed firms to voluntary file reports using inline XBRL since June 2016 as a way to test is usefulness to investors and companies, and to develop preparation and analysis tools. As of Feb. 27, 35 companies had voluntarily filed using inline XBRL, according to the SEC.