SEC’s big IDEA — put EDGAR out to pasture and modernize

Once considered the gold standard of web-based financial reporting technology, EDGAR, the Securities and Exchange Commission’s long-serving form-based corporate filing system, is to be replaced.

Last week, SEC Chairman Christopher Cox proudly unveiled a timeline for EDGAR’s replacement during a press conference in Washington that was also broadcast online.

The new system, IDEA, short for Interactive Data Electronic Applications, will incorporate extensible business reporting language (XBRL) and advanced database design and other technologies that will it make highly interactive — far beyond the capabilities of the now-antiquated EDGAR platform, according to Mr. Cox.

EDGAR stands for Electronic Data Gathering, Analysis and Retrieval.

“EDGAR dates back to the era of mainframe computing. It is being strained and it is time to move forward,” Mr. Cox said during the briefing.

EDGAR was put into operation back in 1984. Two years ago, the SEC announced contracts totaling $54 million to be used for maintaining and upgrading EDGAR, for the building of tools that could use interactive data and for creation of an XBRL taxonomy.

Some $48 million of that total was awarded to Keane Federal Systems Inc. for a six-year contract to “operate, maintain, modernize and ultimately replace EDGAR,” according to statements from both the company and agency.

Keane is a wholly owned subsidiary of Keane Inc., headquartered in San Ramon, Calif.

With the old system’s successor coming sooner than initially expected, Mr. Cox said that the two would continue along a parallel development path, with EDGAR being supported for an as-yet-undetermined period of time while IDEA is being built.

DON’T TRY THIS AT HOME

In the conference, Mr. Cox demonstrated the laborious, multistep process required to pull detailed data out of the EDGAR system on a PC. As an example, he compared two mutual funds: searching for the forms, searching the forms for the data using a Windows search, and then manually copying and pasting the data into a spreadsheet for comparison.

“It’s little wonder that not too many investors do this at home,” Mr. Cox said.

He then segued into a discussion of what the future holds with the new, highly interactive and supposedly much more searchable IDEA system.

Being built from the ground up to make the most efficient use of interactive data, IDEA will allow users to search among thousands of data points on any given company and — perhaps more importantly — allow such data to be compared among companies.

The news was welcomed by many advisers.

“I think the biggest impact will be at the retail level, due to the higher level of simplicity this technology will afford,” said Derek Shanahan, a Chicago-based certified financial planner and adviser with Raymond James Financial Services of St. Petersburg, Fla.

“People will start to feel more confident in searching out concrete data and information,” he said.

Mr. Shanahan agreed that the current form-based EDGAR system lacks transparency and is too cumbersome.

While this is a widely held view, some industry experts are a bit reserved in their outlook.

“There’s a learning curve ahead for all parties involved,” said Glenn Doggett, a chartered financial analyst with the CFA Institute Centre for Financial Market Integrity, the New York-based advocacy arm of the CFA Institute of Charlottesville, Va.

“It all comes down to the final ruling of the SEC regarding required filing of corporate data in interactive format and its implementation in the new system,” he said.

Mr. Doggett’s duties include keeping a watchful eye on financial reporting and disclosure proposals from both national and international bodies, including the SEC.

He said that he and the other members of his XBRL working group in the institute were perplexed with interactive tools put up on the SEC website last year as a pilot program, prior to announcement of IDEA.

“We will be glad to see [the SEC] move past the tools that are on the site now that provide little more than a one-off format,” Mr. Doggett said, referring to the interactive financial report viewer currently available on the SEC site for demonstration purposes.

The viewer (http://216.241.101.197/ viewer) has been provided for users to “interact with XBRL filings made as part of the SEC’s voluntary-filing program,” according to the site.

With the viewer, users can compare filing data, selected based on periodic filings and report type, from two companies at a time.

There were 90 companies and 432 filings available at press time.

KUDOS AND CONCERNS

The two-month comment period asking for feedback on the proposed rule requiring companies to file in interactive format drew praise as well as concerns.

Those commenting included individuals, law firms, companies and corporations, as well as industry organizations.

Some feared that corporate filers might be given too much leeway in creating their own XBRL extensions — customized business-specific tags — in addition to the 14,000-tag taxonomy that the SEC has adopted.

“With that many tags, you shouldn’t have too many things that are unique to a particular filer,” Mr. Doggett said, adding that a given company should be able to find a tag to fit most any data point they’d like to report within the confines of the taxonomy without having to create their own tags.

“We believe that if the SEC can pull that off, it should provide a very high level of comparability across companies,” he said.

Ultimately, ease of accessing and comparability will be the key that will allow advisers, investors, analysts and others to unlock the potential of interactive data touted by Mr. Cox.

Some initial pieces of the IDEA system will be available by the end of the year, and “it will be fully up and running in three years and mature in five,” he said at the conference.

E-mail Davis. D. Janowski at [email protected].

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