Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

Next XBRL Frontier: Fund Disclosures


One year into the Securities and Exchange Commission's XBRL pilot program, participants say it's not as scary as it might sound.

But, they warn, it's not exactly a cinch, either.

"It's not easy, it's not cheap, and as for the tools available, rudimentary is probably as good a word as any," said David Copenhafer, director of EDGAR services at Bowne & Co., a New York-based company that specializes in financial documentation, and is itself a pilot participant.

It is also the new wave in financial reporting and disclosure, and it's here to stay. Now it's time for investment advisors to get ready, because regulators plan to focus on mutual fund disclosure documents for the next phase of the program roll-out.

The long name for this data-seekers' shortcut is Extensible Business Reporting Language (XBRL). It requires companies to classify and then tag certain types of data in Federal filings. What it yields, according to regulators and enthusiasts, is an industry-wide system of classification that promises greater efficiency, better access to information for analysis, and increased transparency. The goal is to help investors make better decisions, program advocates say.

Companies can use the system to their advantage, too. One participant, United Technologies, for example, has included auditors' comments in its filing. Although not required, this allows investors to instantaneously compare what the company reports to third-party onlookers' caveats before deciding whether to buy or sell. Such transparency may help assuage investor concerns about a company like the Hartford, Conn.-headquartered aerospace and transportation machinery manufacturer, which in recent years has undergone rounds of layoffs, faced fallout from troubles in the commercial airline industry and countered class-action lawsuits from employees suffering a type of brain cancer.

On June 12, the SEC will host a roundtable at its Washington headquarters to discuss how such interactive data can help investors and to hear from the pioneering companies that have already adopted it on how it could be improved. The upcoming discussion will also be fodder for what Federal regulators say is the next frontier in its XBRL initiative: mutual fund disclosures.

Focusing on funds makes sense to regulators, because it is the market that serves as most Americans' entree to investing. "Millions of Americans invest in mutual funds to finance their retirement, their children's education, their healthcare, and their other basic needs," said SEC Chairman Christopher Cox.

The Investment Company Institute of Washington has also signaled its support of the initiative, pushing for all disclosures to be XBRL-ready.

"I think the SEC has signaled that they see a lot of promise working with the ICI as well as individual fund companies to find a way to use XBRL to help a large number of investors make some meaningful comparisons across funds," Copenhafer said.

While this coding is good for straightforward financial filings, the classification and coding system is even more useful in disclosure documents where the really critical information might be buried in a footnote or in a table in the appendix.

Because XBRL requires companies to put universal tags on certain types of information, investors will no longer have to sift through lengthy documents.

"With XBRL, even if I have a 200-page prospectus, if I have a question about X', I will be able to get through that data quickly and efficiently," said Thomas Barrett, an investment management partner with the global leadership team at PricewaterhouseCoopers of New York.

The uniform system also helps investors compare apples to apples, even if one company buries its Granny Smith in a footnote, while another puts its Golden Delicious data right in the narrative.

"You're tagging data to a global standard that drives financial reporting comparability. And comparability is critical," said Sherad Cravens, director of brand strategy at R.R. Donnelley, a financial services printing and data preparation consulting company based in Chicago, as well a member of the SEC's XBRL pilot program.

Taxonomy, or the classification of data, is the biggest obstacle facing fund companies as they introduce XBRL to disclosure documents, experts said.

"The experience on the fund side has been very limited, and that's one of the things that needs to come out at the roundtable," Copenhafer said. "Who are the beneficiaries on the fund side? What should be the focus of the tagging structure? All of that needs to be thoroughly vetted," he said.

Among the dozen or so companies that have begun filing XBRL financials, only one, the Cleveland-based Allegiant Advantage Fund, is an investment company. The company did not return calls for comment by deadline.

"It's not the label that's important. It's the definition of each label," said Cravens, whose company assisted Allegiant with its XBRL filings. "It's not just the tagging, but it's the thinking about the accounting principles behind those tags."