Today we sent this letter to Congressman Hurt regarding his proposed legislation to exempt companies with less than $250 million in revenues from filings their financial statements in XBRL. If passed, we believe this will negatively impact the very companies Rep. Hurt is trying to help by reducing their shareholder base and increasing the cost of capital.
March 12, 2014
The Honorable Robert Hurt
Unites States House of Representatives
Washington, DC 20515
Dear Mr. Hurt:
I recently became aware of the pending legislation to exempt companies with less than $250 million in revenue from the SEC’s XBRL mandate. While I applaud the effort of reducing the regulatory burden on small companies, I believe the end result would be detrimental in the long-run for these very companies, their shareholders and employees. Tagged financial data is the future of securities analysis and exempting this group of emerging companies would harm them through decreased visibility in the capital markets and, ultimately, more expensive capital costs. Tagged data, correctly implemented, levels the playing field for investors and increases their ability to analyze smaller companies that do not have coverage from Wall Street analysts. High quality, timely information in the hands of all investors results in good companies being rewarded with capital and bad companies being starved. Without good data, arriving at that determination will continue to be a challenge. When investors cannot understand a company or group of companies, they take their capital elsewhere. I believe these smaller companies will benefit from tagging their data much more than the larger, more visible companies.
XBRL for all companies is critical to our business model because it allows us to collect data efficiently, with unprecedented accuracy and timeliness. XBRL for all companies allows us to democratize financial data, offering lower prices for the same financial data used by the largest investors. I co-founded TagniFi in 2012 to build a high-quality financial database that would be affordable to ordinary investors and app developers, with the hope that it would provide a catalyst for new ways of analyzing all companies regardless of their size. Before XBRL, neither of these groups could afford access to quality financial data, which can run from $20,000 to over $100,000 per year from traditional sources. XBRL is absolutely critical to allowing us to deliver a low-cost, high-quality product to the people and companies who need it most. Removing a large segment of XBRL data from the marketplace will prohibit these investors and startups from obtaining the information they need to compete with their larger counterparts. If your legislation succeeds, the result will be the continuation of a “pay to play” situation where small investors and startups need to write a large check to efficiently analyze data from thousands of companies, a process that is not possible without quality standardized financial data made possible with XBRL.
In a recent blog post on our company’s web site at www.tagnifi.com I stated that XBRL is in its second inning and compared our progress to the semiconductor and aviation industries in their infancy. Here is an excerpt:
“XBRL has come a long way in recent years, but it’s clear there is still a long way to go. I believe we are in the second inning of the game. Here is something to help put that statement into perspective. Next month will mark the 4th anniversary of the SEC’s XBRL mandate. Imagine how much advancement has occurred in microprocessors since 19721, four years after their invention in 1968. Imagine how far airplanes have progressed since 19072, four years after the Wright brothers’ first flight in 1903. XBRL is still in its infancy and the next 10 years will determine the technology’s long-term trajectory. If we work together to leverage XBRL’s strengths while addressing its weaknesses, there is no stopping the spread of timely, accurate and transparent financial data.”
The roll-out of XBRL has not been perfect. It’s taken my company two years to release a beta version when it should have taken us six months because of poor data quality and structure. These issues can all be fixed, and when they are it will lead to continued innovation in the financial markets, where the ability to invest based on timely and accurate data is not based on the ability to write a large check to the established data providers. I believe an alternative approach would be to push for improvements in how the SEC is handling their XBRL mandate. All XBRL data should be validated by the SEC upon filing or they should be enforcing data quality standards to provide an incentive for companies to deliver quality XBRL data into the marketplace. We are spending a significant amount of time and resources fixing errors in financial reports that are being disseminated by the SEC. Reducing this error rate will give investors the confidence needed to use the data being tagged by small companies directly and through services such as ours.
Please take the opportunity this week to make XBRL more useful to small investors and startups by requesting that the SEC deliver clean XBRL data to the marketplace and not reduce the number of companies filing in XBRL. I also believe requiring companies to tag their earnings releases and proxy statements would also improve access to the capital markets for the smaller companies. Currently, only large investors have access to earnings releases immediately after their release. Please level the playing field for all investors by supporting XBRL for all companies and requesting that the SEC mandate the tagging of earnings releases and proxy statements.
C. Chad Sandstedt, CFA
Chairman and CEO
1 In 1972 Intel released the 8008 microprocessor with a speed of 0.5 MHz. In 2013 Intel will release their latest microprocessor with a speed of 3.5 GHz and 4 cores, 28,000 times more powerful than the 8008.
2 In 1907 the world records for an airplane were an airspeed of 37.85 mph, range of 24.2 miles, and a maximum altitude of 82 feet above the ground. In 2012 Gulfstream announced the G650 which is capable of traveling 7,000 miles at mach .85. This is 292 times the range of the 1907 world record at 15 times the airspeed.