(The article featured below is a selection from SEC Filings Insight, which is available to subscribers of that publication.)

SEC Approves Interactive Data for Filings

The Securities and Exchange Commission has voted to require public companies and mutual funds to use interactive data for financial information, which the agency believes has the potential to increase the speed, accuracy and usability of financial disclosure and eventually to reduce costs for investors. The vote was made during a December 18 Commission meeting. SEC Commissioner Troy Paredes noted that for disclosure to work, it must be in a format that allows investors to use it effectively. The new requirements will, he believes, increase the usability and value of the disclosed information. Commissioner Luis Aguilar voted against the new rule and expressed concerns that the limited liability provisions do not provide enough investor protection.

The new requirements call for the use of interactive data in the extensible business reporting language ("XBRL"). The rule applies to domestic and foreign companies using U.S. GAAP and will eventually apply to foreign private issuers using Int'l. Financial Reporting Standards ("IFRS"). The interactive data will be required for a company's periodic annual and quarterly reports, transition reports for a change in fiscal year, reports on Forms 8-K and 6-K that contain updated or revised versions of financial statements that appeared in a periodic report, and finally, 1933 Act registration statements. This interactive data will need to be posted on the company's Web site, if the company has one. The staff noted during the meeting that this interactive data will supplement, but will not replace or change, disclosure using the traditional electronic filing format of ASCII or HTML.

Filers will supply the new interactive data by a new exhibit to their financial statements, including the footnotes and schedules to the statements, in interactive data format. Companies will need to define, or tag, their financial statements using elements and labels from the appropriate standard list of tags. The face of the financial statement will be tagged in each filer's first year of interactive data reporting. The financial statement footnotes and financial statements schedules will be tagged in each filer's first year, but in block text only. After the first year of such tagging, a filer would then be required to tag the detailed disclosures within the footnotes and schedules. The staff made a change from the original proposal, and now the tagging of narrative disclosures is permitted but not required.

The rule has a phase-in schedule for three groups of companies. In the first year, the new procedures will apply only to domestic and foreign large accelerated filers that use U.S. GAAP and that have a worldwide public float above $5 billion, which the staff estimates will cover about 500 companies. For year two, all other domestic and foreign large accelerated filers using U.S. GAAP will be subject to the interactive data reporting. For year three, all remaining filers using U.S. GAAP, including smaller reporting companies, and all foreign private issuers that prepare their financial statements in accordance with IFRS, will be subject to the same interactive data reporting requirements.

Companies will need to provide interactive data to the Commission and on their Web sites at the same time that the related report or registration statement is done, with two exceptions. There is a 30 day grace period for the first interactive data exhibit of each filer. There is also a 30 day grace period for the first interactive data exhibit that is required to include the footnotes and schedules tagged in detail. The Web site information must remain for 12 months, according to the rule.

If filers do not provide or post required data by the required date, they will be deemed not current with their 1934 Act report and as a result will not be eligible to use short form registration and will not be deemed to have available adequate current public information for purposes of the resale exemption safe harbor provided by Rule 144, until they make the required filing or posting.

According to the staff, the interactive data that is submitted to the Commission will be subject to liability similar to that of the voluntary program for such disclosure, and as a result will be subject to only limited liability. SEC Commission Luis Aguiler opposed the rule over his concern that the limited liability provisions erode investor protection. The limited liability provisions differ from the original proposal in that under the rule they will be phased-in over a two-year period for each company. The limited liability provision will terminate on October 31, 2014. Interactive data files will be excluded from the officer certification requirements under the 1934 Act rules, and issuers will not be required to obtain auditor assurance on their interactive data exhibits.

In expressing his opposition, Commissioner Aguilar warned that the new provisions significantly weaken the liability provisions of the SEC's disclosure regime that he believes "have effectively protected investors for decades." While he believes that interactive data can provide benefits, this will only be the case if investors and other users have confidence in the quality of the disclosure. The liability provisions of the securities laws are an important means of providing this confidence, according to Aguilar. The limited liability provisions "puts investors at greater risk of receiving misleading disclosures and suffering the losses caused by such disclosures."