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Issues will Bubble Up to FASB from Financial Data Transparency Act’s Impact on Companies

Denise Lugo  Editor, Accounting and Compliance Alert

· 6 minute read

Denise Lugo  Editor, Accounting and Compliance Alert

· 6 minute read

The Financial Data Transparency Act (FDTA) will impact corporate SEC Registrants’ digital reporting and therefore that law should be kept on the FASB’s radar as issues will likely emerge, according to a “fireside chat” between board Chair Richard Jones and former SEC chief accountant Wes Bricker.

The Act passed into law in December 2022, covering eight financial regulatory agencies, including the SEC, with a goal for regulators to achieve digitization of current regulatory filings.

Jones, who initially thought the Act would fall under the GASB’s jurisdiction on setting accounting standards for municipal borrowing issues, said he is “hearing some other things now.” Therefore, getting feedback from companies about potential emerging issues would be helpful to the FASB because “from a standard-setter’s perspective the hardest thing to really gauge is silence,” he said on April 11, 2023.

The Act delves into digitization, directing the SEC to make rules that adopt data standards for a whole range of disclosures, the discussions revealed.

“As preparers of filings look at the full scope of things they’re doing, ask the first question, ‘is there something that I’m doing today that may be in paper-based form that’s covered by this rule, and I need to begin to prepare for it?’” said Bricker, vice chair US/Mexico Trust Solutions Co-Leader at PwC. “The second thing to focus on in terms of the allocation of impact – the SEC has probably the most comprehensive impact from that legislation.”

Companies are already familiar with financial statement disclosures but the Act expands tagging to other current reports. “Think 8-Ks and proxy statements and the context within those,” said Bricker. “That’s happening because in the U.S. like many other jurisdictions, the capabilities, the possibility for digital structured data is only going up,” he said. And “governments have noticed and so the opportunity for governments to impact the quantity and the quality of disclosure that flows into their regulatory agencies that’s the opportunity to continue to digitize.”

The SEC has a four-year window to implement most of the pieces. “But I would anticipate a couple of things to do now,” said Bricker. “One is to monitor; two is to understand the impact on a given company’s compliance obligations; and three is to be prepared to provide feedback because all of this really benefits from coordination, collaboration including for the market so that we land on rules that ultimately produce a much better user experience for users of those reports.”

Bricker was SEC chief accountant from 2016 to 2019 and is now also the current chair of XBRL International Inc. Jones has been FASB chair since 2020. The accounting standard-setting board was elected decades ago by the SEC to develop U.S. Generally Accepted Accounting Principles (GAAP) for public and private companies, not-for-profit organizations, and employee benefit plans.

Under its trustee organization the Financial Accounting Foundation, the FASB is also responsible for maintaining the GAAP Financial Reporting Taxonomy. The discussion was part of a FASB-hosted GAAP and SEC taxonomy webinar.

Interoperability Across Regulatory Agencies?

Also addressed was the issue of interoperability in relation to financial regulatory data sharing across regulatory agencies.

“How do you think about this interoperability concept?” Jones asked.

“I think about it from a broad perspective,” said Bricker, adding he views it as different domains of knowledge coming together to create new innovations, new technology, new sustainable ways of creating value for businesses.

At the crux is how investors and other financial statement users digest information, he said. And eXtensible Business Reporting Language (XBRL) tagging has gone beyond financial statements to statistical information – both of which underlie SEC proposals going back to the beginning of 2022 where a dozen rule proposals with different context were issued.

“Here’s what’s interesting: each of those [SEC] rule proposals have included XBRL tagging of nonfinancial information or statistical information,” said Bricker. “Why is that? It’s because users [do not want to spend] 90 percent of their time wrangling data…they want to spend 90 percent of their time on analysis, maybe 10 percent or even less on wrangling data,” he said. “And tagging helps improve the efficiency of data use.”

All of that work also improves the traceability of the data, enabling users to better understand what they are looking for, the discussions indicated.

“Maybe it’s in pricing a security, maybe it’s in monitoring whether to sell the security; maybe it’s even to evaluate how they’ll vote on matters coming before them like a board slate, like a shareholder proposal,” Bricker said. “All of those things are not without their challenges—it’s an area of continued growth but narrative disclosure, statistical information, not financial information, building on top of the legacy is really where I see the SEC rule proposals continuing to move.”

ChatGPT Coming to Accounting?

Another aspect of the discussion focused on artificial intelligence (AI) and the emerging use of ChatGPT, a chatbot, which Bricker speculated will bring together a language model and the mathematical side of finance and accounting.

His remarks were in response to Jones’s questions on whether he thinks “we’re going to see an AI powered tool that’s going to help auditors and investors analyze financial reports?” and what “that means for XBRL?”

The topic surrounds the level of impact that will emerge for accountants, some fearing job loss as many traditional functions would be automatized. A similar concern was raised in 1962 in relation to large-scale computerization of corporate records at the beginning of large-scale enterprise resource planning (ERP) systems, according to the discussion.

“The question was ‘will that render accountants obsolete?’ It turns out as John Carey predicted in his book in 1962, [it] would accelerate the need for accountants,” said Bricker. “That’s what I think as well here,” he said. “Will it change the mix of skills? of course; will it change where accountants spend their time? absolutely, but with more information, with greater capacity still requires the things that people do best – people do some things best like ‘understanding context.’”


This article originally appeared in the April 13, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.

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