Hinman: Inline XBRL rule to be finalized within a year

The Securities and Exchange Commission (SEC) is planning to finish its rules requiring public companies to embed interactive data directly into their financial statement within the next 12 months, according to William Hinman, the Corporation Finance Division director.

In March 2017, the market regulator proposed the rule in Release No. 33-10323, Inline XBRL Filing of Tagged Data, in an effort to streamline public companies’ use of the eXtensible Business Reporting Language (XBRL). XBRL is a machine-readable data format allows regulators, investors, and academics to more efficiently analyze and compare companies’ financial results. The proposal in Release No. 33-10323 would require companies to use inline XBRL, in which the financial statements for a regulatory filing are prepared in an interactive data format, as opposed submitting XBRL financial statements as exhibits that are separate from the main part of the regulatory filing.

The rule is “something we’re actively working on,” Hinman testified during an April 26, 2018, hearing before the House Financial Services Committee’s Capital Markets subcommittee. “I do expect to get something out in the next 12 months in that area.”

Hinman was responding to a question from Rep. Randy Hultgren, an Illinois Republican, an advocate of inline XBRL requirements.

Last year, Hultgren, along with Reps. Carolyn Maloney, a New York Democrat, and Darrell Issa, a California Republican, jointly authored a comment letter supporting the SEC proposal in Release No. 33-10323, arguing it would “drive a number of efficiencies in the disclosure process and our financial markets.”

“Data standardization would make it easier to analyze large bodies of information, which would improve the quantity and quality of information available to investors,” the lawmakers wrote. “We recognize there may be a cost in making the transition to inline XBRL, but we believe these are likely outweighed by the benefits for most companies.”

The current two-stage process has contributed to tagging errors, inconsistencies, and other problems that undermine the quality of the data, the SEC has warned. Inline XBRL will also be required for mutual fund risk and return summaries under the proposal.

Hinman’s remarks came during a hearing for which he was the sole witness and touched on a wide range of issues, including expanding exemptions for auditor attestation requirements under the Sarbanes-Oxley Act of 2002, completing the unfinished Dodd-Frank rules, relaxing communication restrictions on pre-IPO companies, and cybersecurity.

With regard to cybersecurity, lawmakers pressed Hinman about the SEC’s guidance issued in February, with one Democrat framing the document as inadequate.

The commission issued the update in Release No. 33-10459, Commission Statement on Guidance and Public Company Cybersecurity Disclosures, which built upon the SEC’s 2011 guidance in Disclosure Guidance: Topic No. 2, Cybersecurity.

The new commission-level guidance came, at least in part, as a response to criticisms that the seven-year-old document had failed to keep pace with an increasingly complex landscape of corporate cyber breaches and related disclosure requirements.

The fact that the full commission issued the new guidance gives it “more weight,” Hinman said. He said the document reminds companies of the importance of taking cyber risk into account when looking at their disclosure controls, and reminds them to enforce insider trading policies following a hack.

Rep. Stephen Lynch, a Massachusetts Democrat, said problems persist around the definition of materiality as it pertains to attacks on computer systems, arguing that hacked companies are widely failing to file 8-K reports because reporting breaches is “still fairly discretionary.”

Without SEC reforms, “there’s no price to pay, there’s no accountability, companies will not improve their cyber protections and we’ll keep seeing the volume of these hacks continue,” Lynch said.

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