U.S. House panel probes obsolete technology at SEC
WASHINGTON (Reuters) - A U.S. House of Representatives committee is investigating whether federal securities regulators are using last century's tools to review corporations' books despite a rule that requires them to use 21st century technology.
House Oversight Committee Chairman Darrell Issa sent a letter on Tuesday to Securities and Exchange Commission Chair Mary Jo White asking for an explanation of why the regulator has been so slow to embrace the use of eXtensible Business Reporting Language, or XBRL, even as she seeks more funds to hire additional staff.
"Interactive data in financial reporting offers the opportunity for increased speed, accuracy and usability through automation," Issa wrote to White.
"Given the SEC's awareness of interactive data's potential, it is surprising that the SEC has not yet integrated interactive data into its internal review processes to improve efficiency or reduce costs," Issa wrote adding that the regulator was relying on "printouts, pencils and calculators".
An SEC spokeswoman declined to comment on the letter. To see the letter, click on: 1.usa.gov/1aAaUVf
In late 2008, the SEC adopted a rule mandating companies and mutual funds submit XBRL versions of their financial statements in addition to routine text format. The open-standard software labels financial statements with computer-readable tags that can be read like barcodes to help investors more easily find and compare information about companies.
The rule was championed by then-SEC Chair Chris Cox, and supervised by White's husband John, who served as the SEC's director of corporation finance and helped oversee the drafting of the new regulation.
But a Republican committee aide said former SEC staffers told the panel that the commission fails to utilize the information it gets and instead resorts to pencils and calculators.
"Rather than use the wealth of structured financial data it is already collecting to automate any level of review, the SEC continues to ask Congress for more money to pay for increased staff," Issa wrote.
In some cases, the SEC has spent money to gain access to commercial databases like Yahoo! Finance, which contain the same data being provided by companies to the agency for free, Issa wrote.
Moreover, the letter said the SEC has failed to take steps to correct "significant errors" often contained in companies' XBRL filings.
Errors, omissions or potential problems with company disclosures are typically addressed by the SEC's Corporation Finance Division.
"The SEC has not issued even one comment letter on any of the more than 1.4 million errors identified," Issa said.
In his letter, Issa asks the SEC to provide his committee staff with a briefing on the issue of implementing and enforcing the interactive data rule.
He also said he wants the agency to provide documents showing how much the SEC has spent to purchase to outside databases and internal memos relating to policies and guidance on the use of XBRL.
Despite Issa's complaints, there are at least some corners of the SEC that are actively seeking to use XBRL to improve oversight of companies' financial statements.
Late last year, the SEC's Chief Economist Craig Lewis announced the SEC had developed a new model designed to mine corporate filing data to test whether companies may be inflating or deflating the numbers to make things appear rosier.
"We are mining that rich vein of information...to develop various ways to evaluate registrant filings and search for potential areas of risk," Lewis said at the time.
The new model is still in beta testing mode.