Small Company Disclosure Simplification Act

Mr. Speaker, I oppose The Promoting Job Creation and Reducing Small Business Burdens Act, (H.R. 5405). This bill contains 11 separate bills some of which I support and some I oppose. This legislation contains a number of potentially significant deregulatory measures, many of which are being addressed by regulatory action by the Securities and Exchange Commission and Commodities Futures Trading Commission. These bills stop those productive efforts replacing them with sweeping deregulation which I think is worse for investors and the economy.

I specifically wish to draw attention to my concerns with The Small Company Disclosure Simplification Act (H.R. 4164)--Title VII of this bill. This bill would exempt nearly 60 percent of public companies from complying with the EXtensible Business Reporting Language (XBRL) requirement. XBRL is an improvement the Securities and Exchange Commission (SEC) started in 2009 to enable more efficient investing, especially investing in smaller firms. Instead of investors, the public and regulators

reading and analyzing reams of paper filings, the market would be brought into the 21st Century with a searchable electronic database. Clearly, a searchable electronic database on companies' financial statements is much more efficient than requiring investors read reams and reams of documents.

When this bill came before the Financial Services Committee on March 14, 2014, I voted yes on this bill. I was concerned that the SEC was not paying adequate attention to ensure the accuracy of the XBRL database. Since that vote, the SEC has started enforcing the accuracy of the XBRL data format. The SEC sent out letters in July, 2014, to many firms urging they correct inaccurate reporting. The SEC action and my own research into the need for accessible corporate financial information to grow companies has made me oppose this broad exemption.

Congress should encourage, not discourage the move toward data-based financial reporting. An expansion of structured data enable investors to make better and faster decisions, especially related to smaller firms; strengthens the SEC's oversight ability and makes it easier to discover fraud and simplifies compliance responsibilities for firms.

More progress is still needed at the SEC. The agency still collects the same financial statement from each public company twice--once as a document and again as XBRL data. And last July's letters were only a start. To make disclosures more useful to investors and less burdensome to companies, the agency must continue to improve data quality and must combine the two submissions into one. The Small Company Disclosure Simplification Act would prevent the SEC from ever taking these steps. If the agency is legally required to collect only documents, not XBRL data, from a majority of public companies, it will be unable to continue, and complete, the transformation that it began in 2009.

I submit a blog post from the Data Transparency Coalition detailing the ramifications of H.R. 5405 on data transparency.

[From http://datacoalition.blogspot.com/2014/09/new-proposal-includes- xbrl-exemption.html]

New Proposal Includes XBRL Exemption--and Major Setback for Open Data

(Data Transparency Coalition; September 10, 2014)

The Data Transparency Coalition advocates on behalf of the

private sector and the public interest for the publication of

government information as standardized, machine-readable

data.

UPDATE: On September 16, 2014, H.R. 5405 passed the House of

Representatives by a vote of 320 to 102.

A major setback for open government data may be on the

agenda for the U.S. House of Representatives.

Despite the opposition of the tech industry, Rep Robert

Hurt's proposal to direct the Securities and Exchange

Commission (SEC) to stop collecting financial data from most

public companies has been included as part of a new

legislative package--a new bill introduced on Monday, Sept.

8, by Rep. Mike Fitzpatrick and a number of other Republican

members.

The new bill, H.R. 5405, brings together ten previous bills

into a single one. One of those ten is Rep. Hurt's previous

proposal, included in the new bill verbatim. Judging from the

urgency of the current House schedule, H.R. 5405 could see

action by the House of Representatives as early as next week.

Nine out of the ten bills included in H.R. 5405 have

already been approved, as stand-alone bills, by bipartisan

majorities in either the Financial Services Committee or the

full House. (The Financial Services Committee passed Rep.

Hurt's original bill in March 2014.) So it seems clear that

the backers of H.R. 5405 want to craft a bill that will pass

the House easily, without serious opposition.

H.R. 5405's introduction conveys that the bill is non-

controversial by stating three innocuous purposes:

To make technical corrections to the Dodd-Frank Wall Street

Reform and Consumer Protection Act, to enhance the ability of

small and emerging growth companies to access capital through

public and private markets, to reduce regulatory burdens . .

.

But H.R. 5405, if approved by the House, introduced and

passed in the Senate, and signed into law by President Obama,

will dramatically restrict the availability of searchable

corporate financial data to investors--and to the tech

companies building investment tools.

Supporters of open data in financial regulatory reporting

will remember that the SEC collects an open data version of

each financial statement in the eXtensible Business Reporting

Language (XBRL) structured data format, alongside the old-

fashioned plain-text version, from every public company

registered in the United States. Investors, markets, and the

public can use the XBRL version of each financial statement

to create a fully searchable data set of all U.S. public

company databases. XBRL data supports free tools for

investors like RankandFiled.com. It is also used by

infomediaries like Morningstar and Thomson Reuters to enrich

the information they deliver to paying clients.

Rep. Hurt's proposal, now incorporated into H.R. 5405,

would direct the SEC to exempt all public companies with

revenues below $250 million--a majority of public companies--

from the obligation to file an open data version. Supporters

of the exemption claim that XBRL-formatted financial

statements cost ``tens of thousands of dollars'' to create,

but Financial Executive International found a median annual

cost of $2,000 for small companies (page 19) and some

providers offer XBRL preparation services at even lower

prices.

Supporters of the exemption had one valid point last

spring: at that time, the SEC had not taken any steps to

ensure the quality of the XBRL filings. Without assurance

that the open data versions of financial statements were

reliable, investors were reluctant to use them, and relied on

the plain-text versions instead. But last summer, after a

year of advocacy from open data allies in Congress, the SEC

took its first public steps toward enforcing better data

quality. As quality improves, investors and the tech

companies serving them will make more use of the open data

financial statements.

The companies themselves will benefit, too. Open,

structured data delivers information more efficiently to the

markets, which makes it easier for smaller companies to find

eager investors and brings down their capital costs.

H.R. 5405 would cut off such progress by forcing the SEC to

use documents, not open data, to collect corporate financial

information.

Fans of open data should make their opposition to this

portion of H.R. 5405 known.