[Federal Register: June 10, 2008 (Volume 73, Number 112)] [Proposed Rules] [Page 32793-32832] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr10jn08-13] [[Page 32793]] ----------------------------------------------------------------------- Part II Securities and Exchange Commission ----------------------------------------------------------------------- 17 CFR Parts 229, 230, 232, 239, 240 and 249 Interactive Data To Improve Financial Reporting; Proposed Rule [[Page 32794]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 229, 230, 232, 239, 240 and 249 [Release Nos. 33-8924; 34-57896; 39-2455; IC-28293; File No. S7-11-08] RIN 3235-AJ71 Interactive Data To Improve Financial Reporting AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: We are proposing rules requiring companies to provide financial statement information in a form that would improve its usefulness to investors. Under the proposed rules, financial statement information could be downloaded directly into spreadsheets, analyzed in a variety of ways using commercial off-the-shelf software, and used within investment models in other software formats. The rules would apply to domestic and foreign public companies that prepare their financial statements in accordance with generally accepted accounting principles as used in the United States (U.S. GAAP), and foreign private issuers that prepare their financial statements using International Financial Reporting Standards (IFRS) as promulgated by the International Accounting Standards Board (IASB). Companies would provide their financial statements to the Commission and on their corporate Web sites in interactive data format using the eXtensible Business Reporting Language (XBRL). The interactive data would be provided as an exhibit to periodic reports and registration statements, as well as to transition reports for a change in fiscal year. The proposed rules are intended not only to make financial information easier for investors to analyze, but also to assist in automating regulatory filings and business information processing. Interactive data has the potential to increase the speed, accuracy, and usability of financial disclosure, and eventually reduce costs. DATES: Comments should be received on or before August 1, 2008. ADDRESSES: Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http:// www.sec.gov/rules/proposed.shtml); or Send an e-mail to rule-comments@sec.gov. Please include File Number S7-11-08 on the subject line; or Use the Federal eRulemaking Portal (http:// www.regulations.gov). Follow the instructions for submitting comments. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number S7-11-08. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments are also available for public inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: James C. Lopez, Legal Branch Chief, Division of Corporation Finance at (202) 551-3790; Mark W. Green, Senior Special Counsel (Regulatory Policy), Division of Corporation Finance at (202) 551-3430; Jeffrey W. Naumann, Assistant Director, Office of Interactive Disclosure at (202) 551-5352; or Melanie Jacobsen, Office of the Chief Accountant at (202) 551-5300, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-3628. SUPPLEMENTARY INFORMATION: We propose to add Rules 405 and 406 to Regulation S-T,\1\ and revise Item 601 \2\ of Regulation S-K,\3\ Rules 11,\4\ 201,\5\ 202,\6\ 305,\7\ 401,\8\ and 402 \9\ of Regulation S-T, Rule 144 \10\ under the Securities Act of 1933 (Securities Act),\11\ and Rules 13a-14 \12\ and 15d-14 \13\ under the Securities Exchange Act of 1934 (Exchange Act).\14\ We also propose to revise Forms S-3,\15\ S- 8,\16\ and F-3 \17\ under the Securities Act and Forms 20-F \18\ and 6- K \19\ under the Exchange Act. --------------------------------------------------------------------------- \1\ 17 CFR 232.10 et seq. \2\ 17 CFR 229.601. \3\ 17 CFR 229.10. et seq. \4\ 17 CFR 232.11. \5\ 17 CFR 232.201. \6\ 17 CFR 232.202. \7\ 17 CFR 232.305. \8\ 17 CFR 232.401. \9\ 17 CFR 232.402. \10\ 17 CFR 230.144. \11\ 15 U.S.C. 77a et seq. \12\ 17 CFR 240.13a-14. \13\ 17 CFR 240.15d-14. \14\ 15 U.S.C. 78a et seq. \15\ 17 CFR 239.13. \16\ 17 CFR 239.16b. \17\ 17 CFR 239.33. \18\ 17 CFR 249.220f. \19\ 17 CFR 249.306. --------------------------------------------------------------------------- Table of Contents I. Introduction and Background A. Introduction B. Current Filing Technology and Interactive Data C. The Commission's Multiyear Evaluation of Interactive Data and Overview of Proposed Rules II. Discussion of the Proposed Amendments A. Submission of Financial Information Using Interactive Data B. Phase-In Under the Proposed Rules 1. Overview 2. Companies and Filings Covered by the Proposed Rules and Phase-In 3. Documents and Information Covered by the Proposed Rules a. Financial Statements and Financial Statement Schedules b. Registration Statements Covered by the Proposed Rules 4. Initial Filing Grace Period 5. Web Site Posting of Interactive Data C. Accuracy and Reliability of Interactive Data 1. Voluntary Program 2. Use of Technology To Detect Errors 3. Integration of Interactive Data and Business Information Processing 4. Continued Traditional Format and Interactive Data Cautionary Disclosure D. Required Items 1. Data Tags 2. Regulation S-T and the EDGAR Filer Manual E. Consequences of Non-Compliance and Hardship Exemption III. General Request for Comments IV. Paperwork Reduction Act V. Cost-Benefit Analysis VI. Consideration of Burden on Competition and Promotion of Efficiency, Competition and Capital Formation VII. Initial Regulatory Flexibility Act Analysis VIII. Small Business Regulatory Enforcement Fairness Act IX. Statutory Authority and Text of Proposed Amendments I. Introduction and Background A. Introduction Over the last several decades, developments in technology and electronic data communication have significantly decreased the time and cost of filing disclosure documents with us. Technological developments also have facilitated greater transparency in the form of easier access to, and analysis of, financial reporting and disclosures. Most notably, in 1993 we began to require electronic filing on our Electronic Data Gathering, Analysis and [[Page 32795]] Retrieval System (EDGAR).\20\ Since then, widespread use of the Internet has vastly decreased the time and expense of accessing disclosure filed with us. --------------------------------------------------------------------------- \20\ In 1993, we began to require domestic issuers to file most documents electronically. Release No. 33-6977 (Feb. 23, 1993) [58 FR 14628]. Electronic filing began with a pilot program in 1984. Release No. 33-6539 (June 27, 1984) [49 FR 28044]. --------------------------------------------------------------------------- We continue to update our filing standards and systems as technologies improve. These developments assist us in our goal to promote efficient and transparent capital markets. For example, since 2003 we have required electronic filing of certain ownership reports \21\ filed on Forms 3,\22\ 4,\23\ and 5 \24\ in a format that provides interactive data, and recently we adopted similar rules governing the filing of Form D.\25\ In addition, recently we have encouraged, and in some cases required, public reporting companies and mutual funds to provide disclosures and communicate with investors using the Internet.\26\ Now, as part of our continuing efforts to assist filers as well as investors who use Commission disclosures, we propose to require that financial statements be provided in a format that makes the information they contain interactive. --------------------------------------------------------------------------- \21\ Release No. 33-8230 (May 7, 2003) [68 FR 25788 and 37044 (correction)] (required electronic filing of ownership reports) and Release No. 33-8891 (Feb. 6, 2008) [73 FR 10592] (required electronic filing of Form D [17 CFR 239.500]). \22\ 17 CFR 249.103 and 274.202. \23\ 17 CFR 249.104 and 274.203. \24\ 17 CFR 249.105. \25\ 17 CFR 239.500. \26\ See, e.g., Release No. 34-56135 (July 26, 2007) [72 FR 42222]; Release No. 34-55146 (Jan. 22, 2007) [72 FR 4148]; Release No. 34-52056 (July 19, 2005) [70 FR 44722]; Release No. 33-8861 (November 21, 2007) [72 FR 67790]; and Release No. 34-57172 (Jan. 18, 2008) [73 FR 4450]. --------------------------------------------------------------------------- Our proposal builds on our voluntary filer program, started in 2005,\27\ that allowed us to evaluate the merits of interactive data. The voluntary program allows companies to submit financial statements on a supplemental basis in interactive format as exhibits to specified filings under the Exchange Act and the Investment Company Act of 1940 (Investment Company Act).\28\ Companies that participate in the program still are required to file their financial statements in American Standard Code for Information Interchange (ASCII) or HyperText Markup Language (HTML).\29\ --------------------------------------------------------------------------- \27\ Release No. 33-8529 (Feb. 3, 2005) [70 FR 6556]. \28\ 15 U.S.C. 80a-1 et seq. \29\ HTML is a standardized language commonly used to present text and other information on Web sites. --------------------------------------------------------------------------- In 2007, we extended the program to enable mutual funds voluntarily to submit in interactive data format supplemental information contained in the risk/return summary section of their prospectuses.\30\ Over 75 companies have participated in the voluntary program. These companies span a wide range of industries and company characteristics, and have a total public float of over $2 trillion. --------------------------------------------------------------------------- \30\ Release No. 33-8823 (July 11, 2007) [72 FR 39290]. --------------------------------------------------------------------------- Financial reporting based on interactive data would create new ways for investors, analysts, and others to retrieve and use financial information in documents filed with us. For example, users of financial information could download it directly into spreadsheets, analyze it using commercial off-the-shelf software, or use it within investment models in other software formats. Through interactive data, what is currently static, text-based information can be dynamically searched and analyzed, facilitating the comparison of financial and business performance across companies, reporting periods, and industries. Interactive data also could provide a significant opportunity to automate regulatory filings and business information processing, with the potential to increase the speed, accuracy, and usability of financial disclosure. Such automation could eventually reduce costs. A company that uses a standardized interactive data format at earlier stages of its reporting cycle could reduce the need for repetitive data entry and, therefore, the likelihood of human error. In this way, interactive data may improve the quality of information while reducing its cost. Also, to the extent investors currently are required to pay for access to annual or quarterly report disclosure that has been extracted and reformatted into an interactive data format by third-party sources, the availability of interactive data in Commission filings could allow investors to avoid additional costs associated with third party sources. We believe that requiring issuers to file their financial statements using interactive data format would enable investors, analysts, and the Commission staff to capture and analyze that information more quickly and at less cost than is possible using the same financial information provided in a static format. Any investor with a computer would have the ability to acquire and download interactive financial data that have generally been available only to large institutional users. The proposed interactive data requirements would not change what is currently reported, but would add a requirement to include financial statements in a new format as an exhibit. Thus, the proposal to require that filers provide financial statements using interactive data will not alter the disclosure or formatting standards of periodic reports, registration statements,\31\ or transition reports,\32\ which would continue to be available as they are today for those who prefer to view the traditional text-based document. --------------------------------------------------------------------------- \31\ Although registration statements can be filed under federal securities laws other than the Securities Act, we use the term ``registration statement'' in this release only to refer to those filed under the Securities Act unless we expressly state otherwise. \32\ Transition reports generally must be filed when an issuer changes its fiscal closing date. The transition report covers the resulting transition period between the closing date of its most recent fiscal year and the opening date of its new fiscal year. Rule 13a-10 [17 CFR 240.13a-10]; Rule 15d-10 [17 CFR 240.15d-10]. Unless otherwise stated, when we refer to Exchange Act reports, periodic reports, or ``reports,'' we mean quarterly and annual periodic reports as well as transition reports. --------------------------------------------------------------------------- Throughout this release, we solicit comment on many issues concerning the use of interactive data, including specifically whether financial information in interactive data format should be required as exhibits to Securities Act registration statements and Exchange Act periodic and transition reports filed with us. We are seeking comment from investors, registrants, accountants, analysts and any other parties or individuals who may be affected by the use of interactive disclosure in Commission filings, and any other members of the public. B. Current Filing Technology and Interactive Data Companies filing electronically are required to file their registration statements, quarterly and annual reports, and transition reports in ASCII or HTML format.\33\ Also, to a limited degree, our electronic filing system uses other formats for internal processing and document-type identification. For example, our system uses eXtensible Markup Language (XML) to process reports of beneficial ownership of equity securities on Forms 3, 4, and 5 under section 16(a) of the Exchange Act.\34\ --------------------------------------------------------------------------- \33\ Rule 301 under Regulation S-T [17 CFR 232.301] requires electronic filings to comply with the EDGAR Filer Manual, and Section 5.1 of the Filer Manual requires that electronic filings be in ASCII or HTML format. Rule 104 under Regulation S-T [17 CFR 232.104] permits filers to submit voluntarily as an adjunct to their official filings in ASCII or HTML unofficial PDF copies of filed documents. Unless otherwise stated, we refer to filings in ASCII or HTML as traditional format filings. \34\ 15 U.S.C. 78p(a). --------------------------------------------------------------------------- [[Page 32796]] Electronic formats such as HTML, XML, and XBRL are open standards \35\ that define or ``tag'' data using standard definitions. The tags establish a consistent structure of identity and context. This consistent structure can be recognized and processed by a variety of different software applications. In the case of HTML, the standardized tags enable Web browsers to present Web sites' embedded text and information in predictable format. In the case of XBRL, software applications, such as databases, financial reporting systems, and spreadsheets, recognize and process tagged financial information. --------------------------------------------------------------------------- \35\ The term ``open standard'' is generally applied to technological specifications that are widely available to the public, royalty-free, at minimal or no cost. --------------------------------------------------------------------------- XBRL was derived from the XML standard. It was developed and continues to be supported by XBRL International, a collaborative consortium of approximately 550 organizations representing many elements of the financial reporting community worldwide in more than 20 jurisdictions, national and regional. XBRL U.S., the international organization's U.S. jurisdiction representative, is a non-profit organization that includes companies, public accounting firms, software developers, filing agents, data aggregators, stock exchanges, regulators, financial services companies, and industry associations.\36\ In 2006, the Commission contracted with XBRL U.S. to develop the standard list of tags necessary for financial reporting in interactive format consistent with U.S. GAAP and Commission regulations. --------------------------------------------------------------------------- \36\ XBRL U.S. supports efforts to promote interactive financial and business data specific to the U.S., including U.S. GAAP. --------------------------------------------------------------------------- Financial reporting in interactive format requires a standard list of tags. These tags are similar to definitions in an ordinary financial dictionary, and they cover a variety of financial concepts that can be read and understood by software applications. For financial statements prepared in accordance with U.S. GAAP, a filer would use the list of tags for U.S. financial statement reporting.\37\ This list of tags contains descriptive labels, definitions, authoritative references to U.S. GAAP and Commission regulations where applicable, and other elements, all of which provide the contextual information necessary for interactive data \38\ to be recognized and processed by software.\39\ --------------------------------------------------------------------------- \37\ Unless stated otherwise, when we refer to the ``list of tags for U.S. financial statement reporting'' we mean the interactive data taxonomy as approved by XBRL U.S. that is based on U.S. GAAP, Commission regulations, and common financial reporting practices used in the preparation of financial statements in the U.S. \38\ The proposed rules would define the interactive data necessary to create human-readable disclosure as the ``interactive data file,'' which would be required with every interactive data submission. The EDGAR Filer Manual would identify any necessary supporting files. \39\ For example, contextual information would identify the entity to which it relates, usually by using the filer's CIK number. A hypothetical filer converting its traditional electronic disclosure of $1,000,000 of net sales would have to create interactive data that identify what the 1,000,000 represents, net sales, and the currency in which it is disclosed, dollars. The contextual information would include other information as necessary; for example, whether it relates to an annual report or quarterly report, the financial reporting period, continuing or discontinued operations, or actual, restated, forecast, pro forma or other type of disclosure. --------------------------------------------------------------------------- Applying data tags to financial statements is accomplished using commercially available software that guides a preparer in mapping information in the financial statements to the appropriate tags in the standard list. Each element in the standard list of tags has a standard label. A company can therefore match the standard labels to each caption in its financial statements. Occasionally, because filers have considerable flexibility in how financial information is reported under U.S. reporting standards, it is possible that a company may wish to use a non-standard financial statement line item that is not included in the standard list of tags.\40\ In this situation, a company would create a company-specific element, called an extension. --------------------------------------------------------------------------- \40\ In other cases, without a relevant and appropriate tag in the list of tags, a company would be required to create an extension in order to provide interactive data that appears the same as the corresponding portion of traditional format filing. --------------------------------------------------------------------------- For example, what a company identifies in its traditional format financial statements as ``operating revenues'' may be associated with an element that has ``net revenues'' as the standard label. In this situation, a company would need to change, or extend, the standard label to become ``operating revenues'' when tagging that disclosure with the element.\41\ --------------------------------------------------------------------------- \41\ Unless otherwise stated, extensions, whether relating to an element or a label, are not part of the standard list of tags. --------------------------------------------------------------------------- A company may choose to tag its own financial statements using commercially available software, or it may choose instead to outsource the tagging process. In the event a company relies upon a service provider to tag the company's financial statements, the company would want to carefully review the tagging done by the service provider in order to make sure that the tagged financial statements are accurate and consistent with the information the company presents in its traditional format filing. Similarly, to create interactive data-formatted financial statements prepared in accordance with IFRS as issued by the IASB, a filer would use the IFRS list of tags.\42\ The IFRS list of tags contains descriptive labels, authoritative references to IFRS where applicable, and other elements and concepts that provide the contextual information necessary for interactive data to be recognized and processed by software. The International Accounting Standards Committee Foundation (IASCF) has developed the IFRS list of tags.\43\ To create interactive data using the IFRS list of tags, an issuer generally would need to follow the same mapping, extension and tagging process as would a company that uses the list of tags for U.S. financial statement reporting. As further discussed below, the IASCF is collaborating with XBRL U.S. and other parties to align practices designed to develop the IFRS list of tags. This collaboration involves the development of the appropriate scope for the IFRS list of tags' content and technology architecture.\44\ --------------------------------------------------------------------------- \42\ Unless stated otherwise, when we refer to the ``IFRS list of tags'' we mean the list of tags for financial statements prepared in accordance with IFRS as issued by the IASB. \43\ See http://www.iasb.org/xbrl/index.html. The IASCF released the 2008 taxonomy (list of tags) on March 31, 2008. See IASB Press Release, The IASC Foundation publishes IFRS Taxonomy 2008, (March 31, 2008). \44\ As previously noted, in 2006 we contracted with XBRL U.S. to develop the standard tags necessary for financial reporting in interactive format consistent with U.S. GAAP and Commission regulations. That contract has been completed. --------------------------------------------------------------------------- Because financial statements in interactive data format, referred to as the interactive data file,\45\ are intended to be processed by software applications, the unprocessed data is not readable. Thus, viewers are necessary to convert the interactive data file to human readable format. Some viewers are similar to Web browsers used to read HTML files. --------------------------------------------------------------------------- \45\ See note 40 above. --------------------------------------------------------------------------- The Commission's Web site currently provides links to four viewers that allow the public to easily read company disclosures filed using interactive data.\46\ These viewers demonstrate the capability of downloading interactive data into software such as Microsoft Excel as well as into other applications that are widely available on the Internet. In addition, we are aware of other applications under development that may provide additional and advanced functionality. --------------------------------------------------------------------------- \46\ See viewers available at http://www.sec.gov/xbrl. --------------------------------------------------------------------------- [[Page 32797]] C. The Commission's Multiyear Evaluation of Interactive Data and Overview of Proposed Rules In 2004, we began assessing the benefits of interactive data and its potential for improving the timeliness and accuracy of financial disclosure and analysis of Commission filings.\47\ As part of this evaluation, we adopted rules in 2005 permitting filers, on a voluntary basis, to provide financial disclosure in interactive data format as an exhibit to certain filings on our electronic filing system. The voluntary program has been based on an earlier version of the list of tags for U.S. financial statement reporting, which does not include a full array of standard elements for financial statement footnotes and schedules. After more than two years of increasing participation, over 75 companies have chosen to provide interactive data financial reporting.\48\ --------------------------------------------------------------------------- \47\ See Press Release No. 2004-97 (July 22, 2004). \48\ A viewer for the voluntary program is available at http:// www.sec.gov/spotlight/xbrl/xbrlwebapp.shtml. This viewer, one of several funded by the Commission to demonstrate interactive data, maintains a running total of companies and filers submitting data as part of the voluntary program. As of April 17, 2008, 78 companies had submitted 350 interactive data reports. --------------------------------------------------------------------------- During this time, we have kept informed of technology advances and other interactive data developments. We note that several U.S. and foreign regulators have begun to incorporate interactive data into their financial reporting systems. The Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) require the use of XBRL.\49\ As of 2006, approximately 8,200 U.S. financial institutions were using XBRL to submit quarterly reports to banking regulators.\50\ Countries that have required or instituted voluntary or pilot programs for XBRL financial reporting include Australia, Belgium, Canada, China, Denmark, France, Germany, Ireland, Israel, Japan, Korea, Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Thailand and the United Kingdom.\51\ --------------------------------------------------------------------------- \49\ Since 2005, the FDIC, Federal Reserve, and the OCC have required the insured institutions that they oversee to file their quarterly Consolidated Reports of Condition and Income (called Call Reports) in interactive data format using XBRL. Call Reports, which include data about an institution's balance sheet and income statement, are used by these federal agencies to assess the financial health and risk profile of the financial institution. \50\ See Improved Business Process Through XBRL: A Use Case for Business Reporting, available at http://www.xbrl.org/us/us/ FFIEC%20White%20Paper%2002Feb2006.pdf. \51\ See XBRL International Progress Report (November 2007), available at http:// www.xbrl.org/ProgressReports/2007--11--XBRL-- Progress--Report.pdf. --------------------------------------------------------------------------- We also have kept informed of relevant advances and developments by hosting roundtables on the topic of interactive data financial reporting,\52\ creating the Commission's Office of Interactive Disclosure,\53\ and meeting with international securities regulators to discuss, among other items, timetables for implementation of interactive data initiatives for financial reporting.\54\ Also, staff of the Commission have attended meetings of the Advisory Committee on Improvements to Financial Reporting (CIFiR) in which the committee discussed proposals for financial reporting using interactive data.\55\ We also have reviewed written statements and public comments received by CIFiR on its XBRL developed proposal.\56\ --------------------------------------------------------------------------- \52\ See materials available at http://www.sec.gov/spotlight/ xbrl/xbrl-meetings.shtml. \53\ See Press Release No. 2007-213 (October 9, 2007). \54\ See Press Release No. 2007-227 (November 9, 2007). \55\ For example, CIFiR conducted an open meeting on March 14, 2008 in which it heard reactions from an invited panel of participants to CIFiR's developed proposal regarding required filing of financial information using interactive data. An archived webcast of the meeting is available at http://sec.gov/about/offices/oca/ cifir.shtml. The March 14, 2008 panelists presented their views and engaged with CIFiR members regarding issues relating to requiring interactive data tagged financial statements, including tag list and technological developments, implications for large and small public companies, needs of investors, necessity of assurance and verification of such tagged financial statements, and legal implications arising from such tagging. Also, CIFiR has provided to the Commission an interim progress report that contains a developed proposal that the Commission, over the long term, require the filing of financial information using interactive data once specified conditions are satisfied. See Progress Report of the Advisory Committee on Improvements to the Financial Reporting to the United States Securities and Exchange Commission (Feb. 14, 2008) (Progress Report), available at http://www.sec.gov/about/offices/oca/acifr/ acifr-pr-021408-final.pdf. CIFiR's developed proposal is discussed more fully in Part II.C.2 below. \56\ The XBRL developed proposal appears in chapter 4 of the Progress Report. Written statements of panelists at the March 14, 2008 meeting and public comments received on the Progress Report are available at http://sec.gov/comments/265-24/265-24.shtml. --------------------------------------------------------------------------- Building on our experience monitoring the voluntary program, and our participation in the other initiatives described above, we are now proposing rules to require financial reporting using interactive data. The proposed rules would apply to domestic and foreign public companies that prepare their financial statements in accordance with U.S. GAAP, and foreign private issuers \57\ that prepare their financial statements in accordance with IFRS as issued by the IASB. Interactive data would be required to be provided on a company's Web site \58\ and with the filer's Securities Act registration statements,\59\ annual reports, quarterly reports if applicable,\60\ and transition reports.\61\ We believe this has the potential to provide advantages for the investing public by making financial data more accessible, timely, inexpensive and easier to analyze. --------------------------------------------------------------------------- \57\ Exchange Act Rule 3b-4(c) [17 CFR 240.3b-4(c)] defines ``foreign private issuer'' as a foreign issuer other than a foreign government that either has 50 percent or less of its outstanding voting securities held of record by U.S. residents or, if more than 50 percent of its outstanding voting securities are held by U.S. residents, about which none of the following is true: (1) A majority of its executive officers or directors are U.S. citizens or residents; (2) more than 50 percent of its assets are located in the U.S.; or (3) the issuer's business is administered principally in the U.S. \58\ The proposed Web site posting requirement would apply only to the extent a filer already maintains a corporate Web site. \59\ Interactive data would be required as an exhibit to a Securities Act registration statement that contains financial statements, such as a Form S-1 [17 CFR 239.11] used in connection with an initial public offering. Interactive data would not be required as an exhibit to a Securities Act registration statement that does not contain financial statements, such as a Form S-3 filed by an issuer that is eligible to and does incorporate by reference all required financial statements from its periodic reports. \60\ Foreign private issuers filing on Form 10-Q would be required to provide financial statements in quarterly reports using interactive data. \61\ The proposed rules would not include any investment company that is registered under the Investment Company Act or any ``business development company,'' as defined in Section 2(a)(48) of that Act [15 U.S.C. 80a-2(a)(48)]. Business development companies are a category of closed-end investment companies that are not required to register under that Act. The proposed rules also would not include any entity that reports under the Exchange Act and prepares its financial statements in accordance with Article 6 of Regulation S-X [17 CFR 210.6-01 et seq.]. The proposed rules would not apply to these entities because the standard list of tags for investment management is not yet fully developed. --------------------------------------------------------------------------- By enabling filers to further automate their financial processes, interactive data may eventually help filers improve the speed at which they generate financial information, while reducing the cost of filing and potentially increasing the accuracy of the data. For example, with standardized interactive data tags, registration statements and periodic reports may require less time for information gathering and review. Also, standardized interactive data tagging may enhance the ability of an issuer's in-house financial professionals to identify and correct errors in the issuer's registration statements and periodic reports filed in traditional electronic format. Filers also may gain benefits not directly related to public financial disclosures. For example, filers that use interactive data may be able to consolidate enterprise financial [[Page 32798]] information more quickly and potentially more reliably across operating units with different accounting systems. However, we recognize that at the outset, filers would most likely prepare their interactive data as an additional step after their financial statements have been prepared. The principal elements of the proposal are as follows: Domestic and foreign large accelerated filers \62\ that use U.S. GAAP and have a worldwide public common equity float above $5 billion \63\ as of the end of their most recently completed second fiscal quarter would provide to the Commission a new exhibit.\64\ The exhibit would contain their financial statements,\65\ and any applicable financial statement schedules in interactive data format. The requirement would apply beginning with fiscal periods ending on or after December 15, 2008.\66\ --------------------------------------------------------------------------- \62\ Exchange Act Rule 12b-2 [17 CFR 240.12b-2] generally defines ``large accelerated filer'' as an issuer that has common equity held by unaffiliated persons with a value of at least $700 million, has been subject to the Exchange Act's periodic reporting requirements for at least 12 months, has filed at least one annual report, and is not eligible to use the disclosure requirements available to smaller reporting companies for its periodic reports. \63\ As of the end of 2006, the $5 billion cutoff would establish a category of approximately 500 filers. \64\ The exhibit would be required with such filers' registration statements, quarterly, if applicable, and annual reports, and transition reports. \65\ When we refer to financial statements, we mean the face of the financial statements and accompanying footnotes. The face of the financial statements refers to the statement of financial position (balance sheet), income statement, statement of comprehensive income, statement of cash flows, and statement of owners' equity, as required by Commission regulations. References to the financial statements as required for interactive data reporting include any required schedules to the financial statements, unless we expressly state otherwise. \66\ The proposed schedule is premised on the rules being adopted this fall in time for affected filers to implement this schedule, and could be adjusted depending on when the Commission adopts any final rules. --------------------------------------------------------------------------- All other domestic and foreign large accelerated filers using U.S. GAAP would be subject to the same interactive data reporting requirements the following year, beginning with fiscal periods ending on or after December 15, 2009. All remaining filers using U.S. GAAP, including smaller reporting companies,\67\ and all foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB,\68\ would be subject to the same interactive data reporting requirements beginning with fiscal periods ending on or after December 15, 2010.\69\ --------------------------------------------------------------------------- \67\ Item 10(f)(1) of Regulation S-K [17 CFR 229.10(f)(1)], Rule 405 under the Securities Act [17 CFR 230.405] and Rule 12b-2 under the Exchange Act [17 CFR 240.12b-2] define the term ``smaller reporting company,'' in general, as a company that has common equity securities held by non-affiliates with a market value of less than $75 million or, if that value cannot be calculated, had less than $50 million in revenue in the prior fiscal year. \68\ The proposed rules would not require foreign private issuers that prepare their financial statements in accordance with a variation of IFRS as issued by the IASB to provide interactive data. \69\ We do not propose to require foreign private issuers to provide in interactive data format interim financial information contained in Form 6-K or any financial information prepared in accordance with non-U.S.GAAP that must be reconciled to U.S. GAAP in the foreign private issuer's Exchange Act reports. --------------------------------------------------------------------------- Filers providing financial statements in interactive data format would be required to use the most recent and appropriate list of tags released by XBRL U.S. or the IASCF as required by the EDGAR Filer Manual. Filers also would be required to tag a limited number of document and entity identifier elements, such as the form type, company name, and public float. As with interactive data for the financial statements, these document and entity identifier elements would be formatted using the appropriate list of tags as required by the EDGAR Filer Manual.\70\ --------------------------------------------------------------------------- \70\ The appropriate list of tags for document and entity identifier elements would be a list released by XBRL U.S., but would not be specific to U.S. GAAP or IFRS as issued by the IASB and would be required to be used by all issuers required to submit interactive data regardless of whether reporting in U.S. GAAP or IFRS as issued by the IASB. --------------------------------------------------------------------------- A filer required to provide financial statements in interactive data format to the Commission also would be required to post those financial statements in interactive data format on its corporate Web site on the same day it filed or was required to file the related registration statement or report with the Commission, whichever is earlier.\71\ --------------------------------------------------------------------------- \71\ The day the registration statement or report is submitted electronically to the Commission may not be the business day on which it was deemed officially filed. For example, a filing submitted after 5:30 p.m. generally is not deemed officially filed until the following business day. Under the proposed rules, the Web posting would be required to be posted at any time on the same day that the related registration statement or report is deemed officially filed or required to be filed, whichever is earlier. --------------------------------------------------------------------------- The proposed rules would not alter the requirements to provide financial statements and any required financial statement schedules with the traditional format filings.\72\ --------------------------------------------------------------------------- \72\ When we established the voluntary program, we stated in the adopting release that the interactive data submission would be supplemental to filings and not replace the required traditional electronic format of the financial information it contains. We also said that volunteers would be required to continue to file their traditional electronic filings. See Part II.D of Release No. 33-8529 (Feb. 3, 2005) [70 FR 6556, 6559]. --------------------------------------------------------------------------- Financial statements in interactive data format would be provided as exhibits identified in Item 601(b) of Regulation S-K and Form 20-F. Financial statement footnotes and financial statement schedules initially would be tagged individually as a block of text. After a year of such tagging, a filer also would be required to tag the detailed disclosures within the footnotes and schedules. Viewable interactive data as displayed through software available on the Commission's Web site, and to the extent identical in all material respects to the corresponding portion of the traditional format filing, would be subject to all the same liability provisions of the federal securities laws as the corresponding data in the traditional format part of the official filing. Data in the interactive data file submitted to us generally would be subject to the federal securities laws in a manner similar to that of the voluntary program and, as a result, would be [cir] Excluded from the officer certification requirements under Rules 13a-14 and 15d-14 of the Exchange Act; \73\ --------------------------------------------------------------------------- \73\ 17 CFR 240.13a-14 and 17 CFR 240.15d-14. --------------------------------------------------------------------------- [cir] Deemed not filed for purposes of specified liability provisions; and [cir] Protected from liability for failure to comply with the proposed tagging and related requirements if the interactive data file either [ballot] Met the requirements; or [ballot] Failed to meet those requirements, but the failure occurred despite the issuer's good faith and reasonable effort, and the issuer corrected the failure as soon as reasonably practicable after becoming aware of it. The proposed rules would require the financial information and document and entity identifier elements to be tagged according to Regulation S-T and the EDGAR Filer Manual.\74\ --------------------------------------------------------------------------- \74\ Proposed Rule 405 of Regulation S-T would directly set forth the basic tagging requirements and indirectly set forth the rest of the tagging requirements through the requirement to comply with the EDGAR Filer Manual. Consistent with proposed Rule 405, the Filer Manual would contain the technical tagging requirements. --------------------------------------------------------------------------- The initial interactive data exhibit of a filer would be required within 30 days of the earlier of the due date or filing date of the related report or registration statement, as applicable. In year two, a filer would have a similar 30 day grace period for its first interactive data exhibit that includes detailed tagging of its footnotes and schedules. All other interactive data exhibits would be required at the same time as the rest of the related report or registration statement. [[Page 32799]] Filers that do not provide or post required interactive data on the date required would be deemed not current with their Exchange Act reports and, as a result, would not be eligible to use the short forms S-3, F-3, or S-8, or elect under Form S-4 or F-4 to provide information at a level prescribed by Form S-3 or F-3. Similarly, such filers would not be deemed to have available adequate current public information for purposes of the resale exemption safe harbor provided by Rule 144.\75\ A filer that was deemed not current solely as a result of not providing an interactive data exhibit when required would be deemed current and timely upon providing the interactive data. Therefore it would regain the ability to incorporate by reference, short form registration statement eligibility, and current status for purposes of determining adequate current public information under Rule 144. As such, it would not lose its status as having ``timely'' filed its Exchange Act reports solely as a result of the delay in providing interactive data. --------------------------------------------------------------------------- \75\ 17 CFR 230.144. --------------------------------------------------------------------------- Although we have not proposed at this time to require interactive data for executive compensation disclosure because a definitive list of tags for this purpose is not yet completed, we are soliciting comment on the usefulness to investors and others of such interactive data, as well as the extent of the related costs and associated questions. We anticipate that if the proposed rules become effective, companies that are not required to provide interactive data until a later time would have the option to do so earlier. We also anticipate that the voluntary program would be modified, if the proposed rules are adopted, to permit investment companies to participate, but to exclude non-investment company participation. As a result, the voluntary program would continue for the financial statements of investment companies that are registered under the Investment Company Act, and business development companies and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X. The voluntary program also would continue for the risk/return summary section of mutual fund prospectuses.\76\ --------------------------------------------------------------------------- \76\ See Release No. 33-8823 (July 11, 2007) [72 FR 39290]. On May 21, 2008, the Commission voted to propose rules that would require interactive data for the risk/return summary section of mutual fund prospectuses. See Press Release No. 2008-94 (May 21, 2008). --------------------------------------------------------------------------- II. Discussion of the Proposed Amendments A. Submission of Financial Information Using Interactive Data For several years XBRL U.S. and its related entities have developed and refined the list of tags to classify and define financial information in accordance with U.S. financial reporting practices and Commission regulations.\77\ Many investors, auditors, accountants, and others, including companies that have been providing interactive data disclosure in the voluntary program, have helped in this process. --------------------------------------------------------------------------- \77\ See Press Release No. 2006-158 (Sept. 25, 2006). --------------------------------------------------------------------------- Interactive data financial statements using the list of tags for U.S. financial statement reporting have been submitted voluntarily to us by over 75 companies, some of which have done so since the start of the voluntary program approximately three years ago. The list of tags for U.S. financial statement reporting has improved significantly since the original version available for the voluntary program.\78\ During this period, there has been a growing development of software products for users of interactive data, as well as of applications to assist companies to tag their financial statements using interactive data.\79\ The growing number of software applications available to preparers and consumers is helping make interactive data increasingly useful to both institutional and retail investors, as well as to other participants in the U.S. and global capital markets. On this basis, we believe interactive data, and in particular the XBRL standard, have become widespread and that the updated list of tags for U.S. financial statement reporting is now sufficiently advanced to require that U.S. GAAP-reporting companies provide their interactive financial statements in interactive data format.\80\ --------------------------------------------------------------------------- \78\ When we adopted the voluntary program, the list of tags for U.S. GAAP financial statement reporting contained approximately 4,000 data elements. The list of tags released on April 28, 2008 contains approximately 13,000 data elements, with the most significant additions relating to the development of elements for standard U.S. GAAP footnote disclosure. \79\ See Press Release No. 2007-253 (Dec. 5, 2007). \80\ As previously noted in Part I.C, however, the proposed rules would not apply to investment companies registered under the Investment Company Act and other entities. See footnote 61 above. --------------------------------------------------------------------------- With respect to the list of tags for IFRS financial reporting, the IASCF has, over several years, developed a list of tags designed to classify and define financial information in accordance with international accounting standards as promulgated by the IASB. Over the course of the past year, the IASCF has worked to strengthen the development of its list of tags by forming an XBRL Advisory Committee and an XBRL Quality Reporting Team, both consisting of international representatives from investors, auditors, accountants, regulators and others. On March 31, 2008, the IASCF published a near final version of the list of tags for IFRS financial reporting,\81\ which is subject to public comment through May 30, 2008.\82\ In addition, the IASCF is collaborating with XBRL U.S. and other parties to align practices designed to develop the IFRS list of tags. This collaboration involves the development of the appropriate scope for the IFRS list of tags' content and technology architecture. On this basis, we believe that the updated IFRS list of tags will be sufficiently advanced to require that foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB provide their financial statements in interactive data format under the phase-in schedule we are proposing. --------------------------------------------------------------------------- \81\ Unless stated otherwise, when we refer to the ``list of tags for IFRS financial reporting'' we mean the interactive data taxonomy that is based on IFRS as issued by the IASB. \82\ See Press Release, The IASC Foundation publishes IFRS Taxonomy 2008 (March 31, 2008), available at http://www.iasb.org/ News/Press+Releases/ The+IASC+Foundation+publishes+IFRS+Taxonomy+2008.htm. --------------------------------------------------------------------------- As discussed in more detail below, our proposed rules would set forth a phase-in period beginning with domestic and foreign large accelerated U.S. GAAP filers with a worldwide public common equity float above $5 billion as of the end of their most recently completed second fiscal quarter. These large accelerated filers would be subject to the proposed rules beginning with their Securities Act registration statements, periodic reports, and transition reports that contain financial statements for fiscal periods ending on or after December 15, 2008. Although it would not be required, we encourage other U.S. GAAP filers to provide financial information in interactive data format during the phase-in period. We also encourage foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB to provide financial information in interactive data format during the phase-in period. In each instance, these filers' voluntary interactive data submissions would be under the proposed rules instead of the existing rules of the voluntary program. [[Page 32800]] We are proposing that filers be required to provide the same information in interactive data format that companies have been providing in the voluntary program,\83\ together with the following items: The footnotes to the financial statements; any applicable schedules to the financial statements; financial statements for Securities Act registration statements; and document and entity identifier tags, such as company name and public float. As was the case in the voluntary program, the proposed requirement for interactive data reporting is intended to be disclosure neutral. We do not intend the rules to result in companies providing more, less, or different disclosure for a given disclosure item depending upon the format whether ASCII, HTML, or XBRL. --------------------------------------------------------------------------- \83\ Unlike the voluntary program, unless otherwise stated, an interactive data file would be required to be provided with the traditional format filing to which it relates. Companies would not be permitted to provide the interactive data file with a Form 8-K or 6-K. --------------------------------------------------------------------------- We propose to continue requiring the existing electronic formats now used in filings because we believe it is necessary to monitor the usefulness of interactive data reporting to investors and the cost and ease of providing interactive data before attempting further integration of the interactive data format. However, the proposed rules would treat viewable interactive data as displayed through software available on the Commission's Web site, and interactive data generally,\84\ as part of the official filing, instead of a supplement as is the case in the voluntary program. Further evaluation will be useful with respect to the availability of inexpensive, sophisticated interactive data viewers. Currently there are many software providers and financial printers that are developing interactive data viewers. We anticipate that these will become widely available and increasingly useful to investors. --------------------------------------------------------------------------- \84\ As further discussed below in Part II.C, interactive data generally would be deemed not filed for purposes of specified liability provisions. --------------------------------------------------------------------------- We expect that the open standard feature of XBRL format will facilitate the development of applications and software, and that some of these applications may be made available to the public for free or at a relatively low cost. The expected continued improvement in this software would give the public increasingly useful ways to view and analyze company financial information. After evaluating the use of the new interactive data technologies, software, and lists of tags, we may consider proposing rules to eliminate financial statement reporting in ASCII or HTML format. Or we may consider proposing rules to require a filing format that integrates ASCII or HTML with XBRL. We believe XBRL is the appropriate interactive data format with which to supplement ASCII and HTML. Our experience with the voluntary program and feedback from company, audit, and software communities point to XBRL as the appropriate open standard for the purposes of this rule. As a derivative of the XML standard, XBRL data would be compatible with a wide range of open source and proprietary XBRL software applications. As discussed above, many XBRL-related products exist for analysts, investors, public and private companies, and others to more easily create and compare financial data; still others are in development, and that process would likely be hastened by public company reporting using interactive data. Comments on our 2004 concept release and proposed rules in 2004 and 2007 generally supported interactive data and XBRL in particular.\85\ Several other factors support our views regarding XBRL's broad and growing acceptance, internationally as well as in the U.S. For example, as noted above, in addition to the use of XBRL by other U.S. agencies,\86\ several foreign securities regulators have adopted voluntary or required XBRL financial reporting.\87\ We understand that several U.S. public and private companies use XBRL in connection with financial reporting or analysis.\88\ --------------------------------------------------------------------------- \85\ Release No. 33-8497 (Sept. 27, 2004) [69 FR 59111] (Concept Release); Release No. 33-8496 (Oct. 1, 2004) [69 FR 59098]; Release No. 33-8781 (Feb. 12, 2007) [72 FR 6676]. See, e.g., letter from Deloitte & Touche LLP regarding the Adopting Release and letter from PR Newswire Association LLC regarding the Concept Release. We also note that participants in the voluntary program provided positive feedback with respect to possible required use of XBRL. For example, the vast majority of voluntary program participants that submitted responses and views to a questionnaire answered in the affirmative to the question ``Based on your experience to date, do you think it would be advisable for the Commission to continue to explore the feasibility and desirability of the use of interactive data on a more widespread and, possibly, mandated basis?'' See question V.f in the Interactive Data Voluntary Program Questionnaire available at http://www.sec.gov/cgi-bin/XBRL--Questionnaire. \86\ See note 49 above. Also we note CIFiR's support of XBRL as referenced above in Part B.2 \87\ For example, such countries include Canada, China, Israe