Dear Commissioner Kara M. Stein of the SEC,
Recently you spoke about the need to bring financial disclosure into the digital age. idaciti couldn’t agree more. And here’s what we’re doing to reimagine how companies use financial data.
Commissioner Stein, in your speech delivered at the Rocky Mountain Securities Conference in Denver, you recognized that 10Ks, 10Qs, and proxy statements are no longer the complete view of a public company’s health. You said: “First, it’s important to note that studies indicate investors are looking for better, not less, disclosure. This is not a question of “overload,” it is a question of quality. If companies want investors’ money, they need to be nimble and responsive. Companies must be prepared to offer investors the fair, neutral, and decision-useful information they want in order to part with their hard-earned capital.”
You note that standard disclosures are failing investors for a variety of reasons:
10K/10Q/Proxy statements may be standard, but they also need to be structured. Better disclosure starts with standard reporting across all companies, but it should also be structured so information can be compared, searched and found more easily.
Overload isn’t the answer. In its current format, the most important data is buried in footnotes or under pages and pages of reporting. This makes information hard to discover and practically unusable.
Financial data isn’t the only data. In today’s world, companies and investors alike are mining large data sets to derive new insights about consumer behavior, competition, and new market and investment opportunities. It’s becoming more apparent that it is the combination of financial and non-financial data that drive value. Yet, current disclosure is focused only on financial data.
It’s true - the disclosure system worked well before the age of greater data access and searchability, but it’s time to change for the benefit of companies, investors, and any group that relies on public financial data for competitive/benchmark analysis or research. Luckily, idaciti is one of the solutions that has been bringing these improvements to market already. How?
(Average Monthly Active Users - Key Metric for Social Media Companies)
More structure to the data: idaciti heard from our customers that they want structure from all aspects of financial disclosure, including MD&A and other key parts of the disclosures that are currently not tagged (and therefore, unstructured). So we’re actively incorporating XBRL tags to create a structured framework for all available financial and non-financial data (like the monthly average active users for social media companies, above). That means it’s even easier to compare and find data in filings on mergers and acquisitions, commitments and contingencies, risk factors and management discussions
(Apple Common Size Income Statement)
(Unremitted Foreign Earnings From Footnotes)
More ability to see the insights: idaciti makes it easy to find what you’re looking for, even if you don’t know what that might be. Our Decision Categories give you automatic selections on profitability, liquidity, valuation and other KPI groups, while our textural search on footnotes and other items allow users to quickly scan the text of filings for key search terms (like unremitted foreign earnings, above). And our textual search allows you to see when companies receive an SEC comment, or if they have licensing agreements with universities for research and development. You can see new relationships in the financial data that may surprise you.
(Wells Fargo -- Consumer Financial Protection Bureau - CFPB - data combined with key financial metrics)
More data than just the financial numbers: idaciti also includes data from FRED, FDA, Consumer Financial Protection Bureau or even ESG (environmental, social and governance) data that focuses on the sustainability practices or mismanagement that has a material impact on the profitability of a company but aren’t found in financial disclosure (for example, the BP Deepwater Horizon lawsuit isn’t disclosed in the 10K filings, but has profound ramifications for that company’s brand). This data, cross-referenced with standard financial data will provide the intricate, rich portrait of a public company that disclosure was originally meant to provide.
And this is just the beginning. Our next post will address the technological limitations of the current disclosure system, and how both the SEC and users are demanding a new platform in which to consume information across devices and operating systems.
It’s true - today’s EDGAR is being improved, but it is still a legacy system that isn’t fully satisfying the marketplace when it comes to timely, simplified, insightful and robust public data. Luckily, platforms like idaciti are rising to the challenge, and providing investors and business users with an easier way to get the insights they need on the companies they care about.
To read our first blog on updating disclosure for the digital age, click here.
To read more about idaciti’s Decision Categories, click here.
To schedule a customized demo for your business, contact us here.