Public Companies to Provide Hyperlinks in Exhibits

The Securities and Exchange Commission (SEC) has approved a final rule requiring public companies to include hyperlinks to the exhibits in regulatory filings. Here are the details, including how the new requirement will help investors search through a public company’s previous filings. 

Searching today

Currently, investors who want to find exhibits to filings must check the exhibit index and search through the company’s previous filings to find and review the exhibit in the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) filing system. The exhibits may supplement a company’s registration statement or quarterly and annual reports with information about, say, a significant contract, tax opinion or merger.

Many investors find this search process to be cumbersome and time-consuming. So, last August, the SEC proposed a rule that would require public companies to include hyperlinks to the exhibits of their financial statements and other regulatory filings. On March 1, 2017, the SEC finalized its new rule, based on positive feedback from investors and other stakeholders. 

“Today’s action will bring the commission further into the 21st Century by harnessing technology to improve the manner in which investors can access public company disclosure,” said SEC Acting Chairman Michael Piwowar. “For any person using the Internet, it is nearly unthinkable for a Web page to indicate that more information is available and not to include a hyperlink to such information.”

Incorporating change for tomorrow

The SEC’s new requirement will mean that exhibits are always just one click away, no matter which registration statement or report they were filed with or how long ago the filing was made. The hyperlinks must be incorporated into registration statements and financial reports submitted through the EDGAR filing system and formatted in the HyperText Markup Language (HTML), not the American Standard Code for Information Interchange (ASCII) text format. The latter has been in use by some companies, but it doesn’t support hyperlinks.

For now, these requirements don’t apply to the electronic exhibits for asset-backed securities offerings filed on the SEC’s Form ABS-EE, “Form for Submission of Electronic Exhibits for Asset-Backed Securities,” or exhibits filed in the eXtensible Business Reporting language (XBRL). The SEC specifically excluded the exhibits filed with Form ABS-EE because the form doesn’t currently permit exhibits to be incorporated by reference and is filed in unconverted code. Likewise, XBRL exhibits are similarly filed in unconverted code.

Coming soon

The SEC’s final rule goes into effect on September 1, 2017. But companies classified as nonaccelerated filers (with publicly traded shares worth less than $75 million) won’t have to meet the requirements until September 1, 2018.

In addition, the SEC plans to upgrade the EDGAR system so that it can accept hyperlinks in filings for a Form 10-D or Form ABS-EE. The agency plans to publish a separate notice in the Federal Register once it makes the necessary modifications to EDGAR.

Next generation financial reporting: Inline XBRL

What is eXtensible Business Reporting Language (XBRL)? It’s a machine-readable format that allows regulators and investors to analyze and compare companies’ financial results more efficiently. 

Under final rules adopted by the Securities and Exchange Commission (SEC)  in 2009, companies have been required to submit XBRL statements as separate exhibits to financial statements. Companies have also been required to post interactive data files on their websites. The two-stage financial statement process contributes to tagging errors, inconsistencies and other problems that undermine the quality of the data.

On March 1, the SEC approved a proposal that would require public companies to use inline XBRL. In other words, they must embed interactive data directly into their financial statements. The proposal would also call for the use of inline XBRL in mutual fund risk and return summaries. 

The SEC hopes that inline XBRL will give companies more control over the presentation of the XBRL disclosures within a filing formatted in the HyperText Markup Language (HTML), as well as help investors review XBRL data more efficiently. “This one format should improve data quality while reducing the cost and burden of preparing public reports,” SEC Commissioner Kara Stein said.

If the rules are adopted, there will be a phased-in approach depending on the company’s size. Large accelerated filers (companies with more than $700 million in public float) will have to begin complying in the second year after changes become effective. Smaller public companies will get extra time to implement the changes to their reporting systems.

© 2017