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Small Company Disclosure Simplification Act

The new proposed legislation “Small Company Disclosure Simplification Act” threatens to significantly diminish the benefits of financial reporting transparency and standardization brought about by XBRL. Although it seems to address the concerns of small filers who have to carry the extra burden of preparing additional XBRL reports, in my opinion it significantly overestimates that burden and underestimates the negative consequences of such Act.

 

Really small companies have very simple Financial statements and do not spend so much money and time on their XBRL reports. Once their reports are tagged for the first time (and it has already been done for ALL of them since 2011), it is a very cheap process to update XBRL reports every following period. Also, the small companies could definitely benefit in the capital markets from making their reports easily analyzed and followed by analysts using XBRL based software. This is what the small companies have been missing on the capital markets in order to attract investors.

 

On the other hand, companies with obscure/complex financial structure fall exactly under the category of filers with less than 250M in revenue. They may spend more money and time on choosing and extending XBRL tags for their complex footnotes. XBRL filing is a difficult process for them, because it forces companies to be clear and transparent in their reporting. However, these are not small companies and their attractiveness to investors and analysts could only improve with better representation of their real financial position in XBRL filings.

 

With the reasoning of helping small companies and by increasing the revenue cap to $250M, the Act may remove the benefits that the small companies could have from XBRL data and hamper the evolution towards clarity and transparency in financial reporting.

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