As more and more companies get onboard to provide their investors with a better way to obtain company information using financial and other business reporting data standards (i.e., XBRL), users of business information are benefiting from more easily accessible and reusable disclosures. Currently, the U.S. Securities and Exchange Commission (SEC) Rules require that all public companies (under a phased in approach) tag their financial statements and footnotes and submit XBRL files along with their traditional quarterly and annual reports. However, narrative management discussion and analysis (MD&A) disclosures outside of the financial statements are currently not permitted under the SEC's mandate. The information included in the MD&A section of corporate reports is very important in that it provides an opportunity to understand management's objectives, strategies and risks. Research conducted under a grant by the FINRA Investor Education Foundation (PDF) has shown that in some cases investors prefer to read the MD&A rather than the notes to the financial statements to obtain certain relevant information. MD&A represents Management's portrayal of the company's past and future performance, and is the vehicle for them to communicate such information to shareholders. However, today the only way to access these valuable disclosures is for investors and users to manually cull and read through a profuse amount of information within the MD&A sections of corporate reports to first find, and then extract and analyze, the specific disclosures they are seeking. The ability to automatically access and reuse narrative MD&A disclosures in a common electronic format would demonstrate XBRL's transparency enhancements for the market.
XBRL can also benefit those that provide business information. Those companies that have begun to implement XBRL earlier into their systems have achieved efficiencies by streamlining their reporting processes and eliminating manual and duplicate processes. In countries where standardized business reporting is being implemented, companies are benefiting from reduced compliance reporting burdens. Companies that had previously redundantly submitted many common disclosures on separate forms to multiple regulators have been able to reduce their compliance efforts by structuring their disclosures once, and submitting the necessary information once for use by each of the separate agencies. As the U.S. gears up for the financial overhaul that will be needed to comply with the new financial reform laws, legislators are considering a new bill that will require all financial regulatory agencies, including the SEC, to collect all information required under the laws in a structured format. The provisions of this recent bill, H.R. 6038 "Financial Industry Transparency Act of 2010", had been adopted unanimously by the House during the House-Senate Conference of the Dodd Frank Wall Street Reform Act but were eliminated from the final version that was signed into law. Enacting this bill would provide regulators with the ability to more effectively perform their responsibilities of collecting, analyzing and publicly providing important information.
The Enhanced Business Reporting Consortium (EBRC) is a collaborative, market-driven initiative that provides an opportunity for users and providers of capital to work together to improve the quality of information provided to and used by capital markets. The EBRC is aligned with the goal of increasing the transparency, accessibility and usefulness of information upon which investors rely. In particular, the EBRC is working on enhancing the reporting model to focus not only on financial information, but also on a range of contextual and nonfinancial information that provides an enriched understanding of company performance, value drivers, strategies, and key performance indicators. More about the EBRC's ongoing activities can be found here.
The EBRC encourages the use of data standards for the non-financial and narrative information provided in business reports and to facilitate this, has drafted an updated taxonomy for tagging the Management Discussion and Analysis (MD&A) section of company reports. In order to accomplish this, the EBRC reviewed actual company submissions of tagged MD&A disclosures from the SEC's Voluntary Financial Reporting Program (VFP). This new taxonomy expands the existing taxonomy into a more simplified structure and provides more detailed tags for many of the required disclosures under Regulation S-K. Due to the limited amount of tags available in the existing taxonomy, those companies that had provided MD&A in their submissions under the VFP created many extensions in order to accurately tag their information. By reviewing these extensions, the EBRC created new disclosure elements to reflect common disclosures found in the actual MD&A disclosures and restructured the taxonomy based on the actual filings. The EBRC plans to expand the taxonomy further and improve its usefulness, by inviting open collaboration so that more detailed disclosure elements can be developed that will enable companies to fully structure their disclosures, thereby providing easier access for users of this information.
The new MD&A taxonomy can be accessed here. Comments on the taxonomy and individual elements and definitions are welcome. Registration on the site will be necessary to provide and view all comments.
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