By Evan Condran. About a month ago, Representative Robert Hurt re-introduced into Congress an updated version of the Small Company Disclosure Simplification Act (H.R. 1965). This bill seeks to exempt emerging growth companies and issuers with total annual gross revenues of less than $250 million from the requirements to use eXtensible Business Reporting Language (XBRL) for financial statements and other mandatory periodic reporting filed with the Securities and Exchange Commission (SEC). XBRL standardizes the way companies communicate and present business information by applying computer readable tags to information across public financial documents.
In this bill, the main opposition to XBRL is cost, but the benefits far outweigh the cost. PTC Therapeutics CFO Shane Kovacs, testified in congress that his company spends $50,000 annually on XBRL. Since then, the AICPA has published research stating that only 8% of companies paid more than $25,000 in annual costs, and no company’s annual cost exceeded $50,000. PTC Therapeutics is obviously the exception to the rule, as 70% of companies pay $10,000 or less.
Bifurcating public company reporting requirements may appear to be a means to simplify the process for smaller filers, but in some ways this bill will diminish the value of the stock of emerging growth companies and issuers with revenues under $250 million. Companies that are just shy of the $250 million dollar threshold will suffer the greatest detriment, as their financial disclosures will not be easily comparable to those public companies that exceed the $250 million dollar mark. To exempt small public company filers from submitting XBRL will reduce the company’s exposure to SEC analysts and investors.
Financial reporting standards should be standard across the board - regardless of size. Comparability and transparency are relevant whether you are a $30 million public company or a $300 million public company. As the adoption of XBRL continues to grow, smaller filers who have been exempt from filing XBRL will be left behind – and likely will need to catch up. The roadmap for utilizing XBRL includes reporting to lenders, IRS and other regulating bodies. XBRL allows companies to organize, analyze and share important data easier, and the efficiencies of XBRL are a benefit to accountants, government agencies and analysts & investors. Watch our XBRL 101 on-demand webinar to learn more about how XBRL improves data comparability and transparency.