An IDEA to replace SEC forms?


New York – Yesterday, the SEC unveiled with great fanfare its proposed replacement to EDGAR – the Interactive Data Electronic Applications (IDEA) database. The IDEA system runs on XBRL, an implementation of XML designed for the reporting of financial data.

The hope is that XBRL will address many of the shortcomings of the current financial reporting system. The SEC is acting with good intentions here – the transition from forms to XBRL has the potential to make it trivially easy to extract accurate, cross-comparable data from large numbers of corporate filings, eliminating several intermediary steps of parsing and manual data entry. The fact that XBRL is language-agnostic means that it will be much easier to understand financial filings from other countries that also report in XBRL. Properly implemented, XBRL will boost analyst productivity and should, in theory, make equity markets more transparent and efficient. However, the past example of Reg FD has shown that ideas that sound good from a 30,000-ft view of the markets do not necessarily improve conditions on the ground.

The first obstacle is adoption by companies. According to a survey by Compliance Week quoted in the FT, nearly 80 per cent of companies polled had little or no familiarity with XBRL. The SEC has now put in place a “non-binding” regulatory mandate for large companies to begin reporting in XBRL format; however, for there to be any realistic hope of achieving this by the stated deadline of early 2009 , we presume that corporations will have to scramble to get up to speed and hire consultants who understand XBRL inside out. The most likely scenario is that a small number of savvy IR departments will take the lead, and the rest will follow in coming years.

A few companies, like SavaNet, are positioned to gain significantly from the SEC’s focus on XBRL; other firms, like 10K Wizard, may see at least some of their data extraction services become redundant with this new format.

The second major obstacle is the development of end-user interfaces that make full use of XBRL’s power. What XBRL needs, and lacks at this point, is a “killer app”. Until someone, perhaps including the SEC itself, designs a very compelling tool that lets investors make full use of the power and flexibility of XBRL, the change in reporting language will likely remain a moot point.


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