The SEC’s New IDEA to Help Investors

The SEC’s New IDEA to Help Investors

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With so many investors now suspicious of Wall Street, government is looking for ways to restore faith in the system–and spur the economy.

One way to do that is to help investors make better decisions for themselves. On June 15th, in keeping with President Barack Obama’s mantra of openness and transparency, the Securities and Exchange Commission will unveil a new financial reporting system that it claims will lend clarity to public financial filings and make it easier, quicker, and cheaper for investors to access tangible data about the companies and funds in which they’re invested.

The new online system, known as Interactive Data Electronic Applications, or IDEA, will replace the SEC’s rather clunky and dated Edgar system, which has been used to store public financial documents for more than 30 years. Under the current filing system, documents are often lengthy and lack standardization. Finding key figures or specific facts is a difficult and time-consuming task for investors. Many stockholders end up making investment decisions based on the limited information that is more readily available such as stock price, price-earnings ratios and profit-loss statements. The new system promises to make it far easier to take the financial pulse of any public company or mutual fund.

With IDEA, the SEC will require public companies and mutual funds to file financial documents electronically using a standardized format called XBRL (Extensible Business Reporting Language). XBRL is a computer language used for electronic transmission of business data. Its purpose is to standardize the automation of business information. The IDEA creates computer readable tags, which allow investors to search for key terms such as “revenue” or “cost of sales.”