The Securities and Exchange Commission (SEC) recently amended its rules to require that four new forms, schedules, and statements soon be tagged in machine-readable formats. The new requirements represent incremental change, but taken together, they signal that a future in which data triumphs over documents is on its way to becoming a reality.
Practically speaking, issuers need to stay abreast of amendments to know how forms are filed in order to prepare for changes ahead. As law firm Covington wrote in a February 7th alert, public companies must "anticipate that the SEC will significantly expand the information to be reported in machine-readable format over the next few years."
What are the benefits to the SEC’s Modernization
On December 23, 2022, President Joe Biden signed into law the Financial Data Transparency Act (FDTA) as part of the National Defense Authorization Act. The FDTA is designed to modernize the collection and dissemination of financial data by federal regulators, making that information more accessible, more uniform, and ultimately more useful to regulators, investors and consumers. With the adoption of standardized data, RegTech applications and Artificial Intelligence (AI) will have more trust and transparency for the ecosystem of financial reporting and analysis. A little more than one year after the FDTA became law, the SEC has produced two of its required biannual reports to Congress, showing a trend towards modernizing how filings are accepted. In the first of these reports, which was issued in June 2023, the SEC wrote: “Issuers have, in some instances, benefitted from decreased audit fees and increased timeliness of audit and financial reports as a result of machine-readable disclosures.”
In its December 2023 report, the SEC noted that 42 of its 54 forms, schedules, and statements will require some machine-readable data, while around one-quarter (12) at this time do not. These numbers include the four forms and schedules —Forms N-8B-2 and S-6, as well as Schedules 13D and 13G — that are slated to introduce structured data-tagging requirements in the coming months.
The number of forms, statements, and schedules requiring structured data is only one measure of progress. In its December report, the SEC also noted that the availability of machine-readable data submitted to the government led to the uncovering of potential accounting-related disclosure irregularities.
With structured data, Enforcement staff could review thousands of public issuers’ financial data. As a result, the SEC charged six public companies and a number of related individuals for violations of securities laws when making their companies appear to have met or exceeded consensus earnings-per-share estimates.
Both reports are available in their entirety here: June 2023 and December 2023.
A Closer Look at Modernizing Fee Exhibits
One of the latest SEC rule changes that issuers are grappling with is the new requirement that all fee-bearing forms, schedules, and statements will soon need to be submitted in an Inline XBRL structured format in a new fee exhibit.
Beginning in 2022 all filers submitting fee-bearing submissions were required to include the fee data in a new fee exhibit table. In the fall of 2023, in an effort to assist filers with preparing for the upcoming mandate the SEC initiated a beta Filing Fee Exhibit test environment to gather feedback. The mandate for Inline XBRL tagging for large accelerated and accelerated filers begins July 31, 2024. For all other filers, the mandate begins July 31, 2025.
As the effects of the FDTA continue to be felt on both SEC and FSOC filings, issuers and the ecosystem of disclosure management products like DFIN’s ActiveDisclosure software are rising to the challenge.
DFIN actively participated with the SEC’s Filing Fee Exhibit Modernization BETA, and continues to lead in all modernization efforts, providing comments and developing service tools to seamlessly meet the impending Inline XBRL filing mandate. We will continue to provide information about rule amendments as they arise. We are always ready to file newly machine-readable forms with the SEC in compliance with the FDTA.
