By Mark S. Nelson, J.D.
In remarks to the XBRL US Investor Forum 2021, a conference subtitled “Data that Delivers,” SEC Commissioner Caroline Crenshaw suggested that the Commission’s nearly 16-years-worth of experience with XBRL, a form of structured data, had largely been a positive one but that significant gaps remain and filers can do more to prevent tagging errors. She also said in her remarks that future expansion of the use of XBRL for SEC filings could include basic tagging for narrative disclosures, including those regarding ESG and SPAC disclosures.
Who uses XBRL data? Crenshaw said there is wide diversity of purpose among end-users of XBRL-tagged SEC filings, including institutional investors, retail investors, academics, media, and the SEC and other government regulators. Crenshaw also said the presence of XBRL for financial data in SEC filings had improved transparency and market efficiency by, among other things, reducing informational gaps between insiders and non-insiders and by lessening local bias (with respect to local bias, one academic article cited by Crenshaw in a footnote suggests that an institutional investor's portfolios tend to favor the securities of firms within the institutional investor's geographic locale).
Other potential benefits of XBRL filings include lessening the disadvantage of individual investors as compared to institutional investors. She also suggested that XBRL can lower the cost of capital, especially for smaller companies, as well as increase analyst coverage of companies that embrace XBRL.
But the benefits of XBRL also come with costs, such as tagging and other errors, and it may be possible to achieve still more benefits from structured data by expanding the use of XBRL to non-financial sections of SEC filings.
Errors. With respect to XRBL tagging errors, several areas where errors occur are of prime importance to Crenshaw, including errors regarding revenues, net income, assets, and scaling. Although all parties involved in using and maintaining XBRL data sets play a role in ensuring accurate data, Crenshaw said the primary responsibility remains with filers. Crenshaw noted that filers can use a variety of tools offered by validation services to help catch tagging errors before they are propagated across EDGAR, and that XBRL US publicly identifies errors in filings.
Another area of concern for Crenshaw is the proliferation of custom tags. According to Crenshaw, filers should limit themselves to using standardized tags unless no standard tag would apply to a specific situation.
Narrative disclosures. Crenshaw and fellow Commissioner Allison Herren Lee have spoken, often jointly, during the past year or so on the need for more ESG disclosures. For Crenshaw, structured data is a logical application for ESG data.
But Crenshaw also said that another logical extension of structured data could involve narrative disclosures. Here, Crenshaw suggested that simple “block tagging” of management discussion and analysis, earnings reports, and executive compensation could provide investors with greater insight on companies’ filings. Crenshaw further suggested that block tagging of non-structured disclosures could apply to ESG and SPAC disclosures.
XBRL US, writing in a comment letter to a previously proposed revision of Regulation S-K and cited by Crenshaw in her remarks, said of block tagging: “The cost and effort involved would be minimal for issuers because they already have the tools and the processes to prepare XBRL-formatted data. The benefit to investors, companies conducting peer analysis, and other data users, however, would be significant, outweighing the additional effort.”
A last area where Crenshaw sees the potential for further improvement is legal entity identifiers (LEIs). Crenshaw said the SEC’s forms and companies’ filings should use LEIs “wherever it makes sense to do so.”