SEC CONNECT

October 7, 2008

... and unless you’re an SEC wonk, chances are you haven’t, the SEC is moving closer to requiring public companies to file their financial statements in XBRL, or extensible business reporting language. XBRL uses digital tags (think barcodes) attached to each piece of financial data, allowing investors to easily find and compare key financial figures. The XBRL documents are proposed to be filed as an exhibit to public company reports filed via EDGAR, the SEC’s Electronic Data Gathering, Analysis and Retrieval system that’s been around since 1984. However, that’s not what this Newsletter is about.

What the SEC is proposing, or at least starting to seriously consider, is deep sixing EDGAR entirely and replacing it with an altogether new disclosure and filing system, called IDEA – for Interactive Data Electronic Applications. The “idea” initially is to launch IDEA as a new searchable, interactive database to host XBRL documents. IDEA is intended to initially coexist along with EDGAR, but will ultimately replace EDGAR, according to the SEC’s Chairman, Christopher Cox. What this means to public companies and the current process for filing periodic and other reports with the SEC has apparently not been determined, although the SEC has established the 21st Century Disclosure Initiative with the directive to produce a comprehensive blueprint for overhauling completely the SEC’s current form-based filing system.

While drawing any conclusions regarding what may happen to the current system is entirely speculative, at least two influential SEC alumni have weighed in with their thoughts. Former SEC commissioner and Stanford Law professor Joseph Grundfest, and the former director

of the SEC’s Division of Corporation Finance, Alan Beller, have published a summary paper proposing a single web-based questionnaire to replace the myriad of forms currently filed by public companies with the SEC’s EDGAR system. Their views seem to be inconsistent with the approach taken by Chairman Cox, which is to make extensive use of XBRL and interactive data delivered via IDEA. How all this plays out remains to be seen. However, don’t expect any changes in the near term, as the Commission is likely to be preoccupied with the call for a regulatory response to the crisises facing our financial and credit markets. And it remains to be seen whether the new Chairman appointed by the next President has the same zeal for technology as Chairman Cox. While the Commission may be distracted, however, the 21st Century Disclosure Initiative is expected to produce its blueprint for review by a Federal Advisory Committee, which will make recommendations to the Commission for consideration. Given the number and diversity of stakeholders involved, and the anticipated revolutionary changes likely to be proposed, any specific recommendation is likely not going to affect public companies for the foreseeable future.

The timing of any changes remains far off, and is uncertain. However, one thing we can be sure of is that the next few years will bring lots of meetings, roundtable discussions, opportunity for comment and public debate regarding the future of the current disclosure system. These developments will be closely watched by SEC Connect, on behalf of our clients, our colleagues, as well as our friends, and will be a focus of our Inaugural Disclosure and Filing Institute to be held in Aspen, Colorado on September 18, 2009. Until then, stay tuned…

SEC Connect is on a mission to change the way public companies, their officers, directors and investors file their periodic and other reports with the Securities and Exchange Commission. Find out more regarding how you can benefit from our revolutionary approach to filing.

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MD&A is SEC Connect’s way of keeping you apprised of the ever changing rules and regulations affecting smaller reporting companies, their officers, directors and investors. MD&A is written by our founder Daniel W. Rumsey a experienced securities lawyer, business executive and advisor to public companies and their boards of directors.