Lou Rohman, Vice President, XBRL Services, Merrill Corporation | November 22, 2016
SEC representative: structured data has tremendous benefits to companies—not just investors
Rick Fleming of the SEC gave an interesting talk at a recent XBRL US event in New York City. He covered the wide-ranging potential benefits of structured data and most notably stressed that these gains aren’t just for investors—companies stand to benefit, too. The message to companies: invest in improving the quality of your structured data today and reap the long-term benefits, from operational efficiencies to new growth opportunities.
SEC using structured data in big ways
Rick’s talk was another opportunity to hear firsthand how the SEC is using structured data in powerful ways. The Division of Enforcement uses a new tool to detect anomalous patterns in disclosures for further investigation. Several groups within the Commission use the Financial Statement Query to search financial statement data and footnotes. Across the board, the SEC uses text analytics to examine narrative disclosures to find patterns and identify inconsistencies with numerical information.
“Wish list” gives sneak peek at coming SEC changes
Rick also gave us some great insight into where the SEC is heading with future structured data requirements. He outlined a “wish list” of three things:
1) Adopt the Legal Entity Identifier to make public company disclosures to the SEC interoperable with other reporting agencies.
2) Require block-tagging of narrative text disclosures.
3) Require detail-tagging within narrative text disclosures.
Structured data is a “win-win” for investors AND companies
We’re all familiar with the push-pull of investor and filer interests when it comes to new disclosures: investors want maximum disclosure, while filers worry about additional costs and burdens. However, Rick called structured data a “win-win,” and urged companies to consider the many potential benefits—instead of considering structured data a pure “add-on” cost.
How does structured data benefit companies?
I though Rick did a great job of breaking down the business value inherent in shifting to structured data disclosures:
- Automated data aggregation: By standardizing data within its systems, a company can eliminate the tedious, manual gathering of information from disparate sources and document formats. Instead, data aggregation becomes a highly automated process. Documentation is completed faster, with fewer errors, and reporting personnel can focus on high-level review and analysis.
- Automated audit activities: Just like data aggregation, standardized, structured data allows auditors to automate many tasks—speeding the audit timeline and significantly reducing audit costs.
- Simpler filing process: Filers don’t need to worry about packaging documentation in consistent and compatible formats—they just submit the standardized data.
- Greater liquidity of shares in the marketplace: Automated data analysis will allow analysts to review a larger number of companies, including small companies not traditionally covered by aggregators and analysts. Rick suggests this wider analysis “should improve the liquidity of shares in the marketplace, particularly for smaller companies.” In essence, analysts have the time to find more small companies with big potential—and investors will be more likely to consider smaller companies, as automated analysis means lower research costs.
Invest in high-quality structured data today—reap the long-term benefits
Rick stressed that most of the value to companies won’t be immediate and direct—companies need to keep their eye on the big picture and see the long-term impacts. I want to echo Rick’s call for companies to prioritize investing in high-quality structured data today in order to realize these future gains. As I’ve talked about consistently on this blog, data quality is critically important to maximizing the potential of structured data. Better data is more usable data, and above all, data must be usable to deliver on its potential.