[House Report 114-399]
[From the U.S. Government Publishing Office]


114th Congress }                                            { Report
                        HOUSE OF REPRESENTATIVES		
 2d Session    }                                	    { 114-399

======================================================================
 
		SMALL COMPANY DISCLOSURE SIMPLIFICATION ACT

                                _______
                                

January 28, 2016.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1965]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1965) to exempt smaller public companies from 
requirements relating to the use of Extensible Business 
Reporting Language for periodic reporting to the Securities and 
Exchange Commission, and for other purpose, having considered 
the same, report favorably thereon without amendment and 
recommend that the bill do pass.

                          PURPOSE AND SUMMARY

    Introduced by Representative Hurt on April 22, 2015, H.R. 
1965, the Small Company Disclosure Simplification Act, provides 
a voluntary exemption for all Emerging Growth Companies and 
other issuers with annual gross revenues under $250 million 
from the Security and Exchange Commission's (SEC's) 
requirements to file their financial statements in an 
interactive data format known as eXtensible Business Reporting 
Language (XBRL). The exemption would extend for either five 
years or two years after the SEC establishes that the benefits 
of XBRL to smaller issuers outweigh the costs, whichever occurs 
first. H.R. 1965 directs the SEC to conduct an economic 
analysis on the costs and benefits of XBRL to smaller issuers 
and to report to Congress on the SEC and investors' use of the 
information.

                  BACKGROUND AND NEED FOR LEGISLATION

    The Final Report of the SEC's Government-Business Forum on 
Small Business Capital Formation recommends eliminating the 
requirement that smaller reporting companies submit financial 
information in XBRL format for SEC filings. The Final Report 
recommended dropping the XBRL requirement ``based on its 
disproportionate burden in terms of cost and time, and because 
it is said few analysts (who primarily benefit from the use of 
XBRL) cover smaller reporting companies in any event.'' In the 
113th Congress, identical legislation, H.R. 4164, passed the 
Committee on a vote of 51-5.
    In the 2000s, the SEC began to phase in the use of 
``interactive'' data for securities filings. Interactive data 
formats can be applied to data--much like bar codes are applied 
to merchandise--to allow computers to recognize data and feed 
it into analytical tools. XBRL is an interactive data format 
developed specifically for business and financial reporting. In 
2003, the SEC required reports of securities holdings and 
transactions under Section 16(a) of the Securities Exchange Act 
of 1934 (Exchange Act) to be submitted in an XBRL format. In 
2009, the SEC issued three final rules requiring XBRL tagging 
of disclosure information for operating companies, mutual 
funds, and credit rating agencies.
    The XBRL requirements impose burdens on small businesses 
but yield little or no discernible value to investors. The 
burdens include cost, additional personnel, management and 
audit committee time and attention, liability for any 
misstatements that result from the miscoding of their data, and 
the need for extensive reviews, tests and additional 
documentation in order to submit their filing in XBRL format. 
The SEC's XBRL requirement is inconsistent with the SEC's 
mandates to promote growth and job creation and to ease 
compliance burdens for smaller companies included in the 
Jumpstart Our Business Startups Act.
    Tagging financial information in XBRL format may be costly 
for SEC registrants, particularly small public companies. The 
Wall Street Journal has reported that companies have spent 
billions of dollars on XBRL compliance, with costs for 
individual companies as high as $500,000. At an April 29, 2015 
Capital Markets and Government Sponsored Enterprises 
Subcommittee hearing, Shane Kovacs of PTC Therapeutics, Inc., 
testified that:

          In addition to failing to provide useful information 
        for investors, XBRL reporting is very costly for 
        resource-constrained small businesses. As its name 
        implies, XBRL is actually its own computing language--
        one that requires specific expertise outside the bounds 
        of traditional financial or accounting training. 
        Companies need experts in the XBRL language to properly 
        file the appropriate reports, so we must turn to 
        external contractors to complete our XBRL filings. The 
        cost of an external XBRL contractor is significant for 
        an emerging company, reducing the capital available for 
        more vital functions like research and development. At 
        PTC, we spend over $50,000 annually on XBRL compliance. 
        The capital we spend on XBRL fees could go to support 
        our clinical testing, but instead we pay for a report 
        that investors do not want or need.

    Notwithstanding XBRL's significant costs, it has yielded 
little benefit. Research from Columbia University indicates 
that fewer than 10% of investors have used XBRL data for 
analysis, with some investors complaining that the data isn't 
reliable or timely. Mr. Kovacs further testified that ``in 
preparation for today's [hearing], I actually reached out to a 
number of the Wall Street analysts that cover our company, and 
cover the industry, and a couple of the large institutional 
investors, and said do you know what XBRL is, and if so, do you 
think it's important to your sense of investing in biotech, and 
the consensus response I got was that they didn't even know 
what XBRL was.''

                                HEARINGS

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing examining matters relating to H.R. 1965 on April 29, 
2015.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
May 20, 2015, and ordered H.R. 1965 to be reported favorably to 
the House without amendment by a recorded vote of 44 yeas to 11 
nays (recorded vote no. FC-35), a quorum being present.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. An 
amendment offered by Representative Ellison was not agreed to 
by a recorded vote of 26 yeas to 34 nays (FC-33). A second 
amendment offered by Representative Ellison was not agreed to 
by a recorded vote of 25 yeas to 35 nays (FC-34). The third and 
final recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House without amendment. The 
motion was agreed to by a recorded vote of 44 yeas to 11 nays 
(Record vote no. FC-35), a quorum being present.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 1965 
will reduce regulatory burden by exempting Emerging Growth 
Companies and other smaller companies from the requirement to 
file SEC reports using eXtensible Business Reporting Language 
(XBRL).

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 17, 2015.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1965, the Small 
Company Disclosure Simplification Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Susan 
Willie and Ben Christopher.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 1965--Small Company Disclosure Simplification Act

    H.R. 1965 would exempt emerging growth companies (EGCs) and 
other small companies from requirements to file financial and 
other periodic reports with the Securities and Exchange 
Commission (SEC) using Extensible Business Reporting Language 
(XBRL). XBRL is a reporting standard that allows financial data 
stored electronically to be shared and searched efficiently. 
The reporting exemption would last up to five years, although 
the bill would allow EGCs to submit information in XBRL format 
if they so desired. Finally, H.R. 1965 would direct the SEC to 
conduct an analysis of the costs and benefits of requiring such 
companies to file reports using XBRL and report the results to 
the Congress. (An EGC is a company that has issued or proposes 
to issue stock and had gross revenues of less than $1 billion 
during its most recently completed fiscal year; companies can 
retain that designation from the SEC for up to five years.)
    Based on information from the SEC, CBO expects that the 
agency's costs would increase under H.R 1965 to meet the bill's 
new reporting requirements. Further, reducing the amount of 
financial information about emerging growth companies that is 
available in an easily searchable format could increase the 
agency's workload to develop rules affecting those entities. 
CBO estimates that those costs would be less than $500,000 per 
year over the 2016-2020 period. Further, the SEC is authorized 
to collect fees sufficient to offset its annual appropriation; 
therefore, CBO estimates that the net budgetary effect of H.R. 
1965 would not be significant, assuming appropriation actions 
consistent with the agency's authority. Enacting the bill would 
not affect direct spending or revenues; therefore, pay-as-you-
go procedures do not apply.
    H.R. 1965 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contacts for this estimate are Susan Willie 
and Ben Christopher. The estimate was approved by H. Samuel 
Papenfuss, Deputy Assistant Director for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    H.R. 1965 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 1965 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   DISCLOSURE OF DIRECTED RULEMAKING

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 1965 contains no directed 
rulemaking.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This Section cites H.R. 1965 as the ``Small Company 
Disclosure Simplification Act.''

Section 2. Exemption from XBRL requirements for emerging growth 
        companies and other smaller companies

    This Section provides an exemption for Emerging Growth 
Companies and other smaller companies (those with total annual 
gross revenues of less than $250,000,000) from the requirement 
to use Extensible Business Reporting Language (XBRL) for 
financial statements and other periodic reports required to be 
filed with the SEC. Under this section, the exemption for 
smaller companies runs for five years from the date of the 
Act's enactment, unless the SEC determines that the benefits of 
XBRL to such issuers outweigh the costs, in which case the 
exemption shall run until two years after such determination.

Section 3. Analysis by the SEC

    This section requires the SEC to conduct an analysis of the 
costs and benefits to smaller companies (those with total 
annual gross revenues of less than $250,000,000) of using XBRL.

Section 4. Report to Congress

    This section requires the SEC to report to Congress, not 
later than one year after the enactment of the Act, regarding 
the implementation and use of XBRL reporting, including the 
results of the analysis required by Section 3 of the Act.

Section 5. Definitions

    This section defines the terms ``Commission,'' ``emerging 
growth company,'' ``issuer,'' and ``securities laws.''

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 1965 does not repeal or amend any section of a 
statute. Therefore, the Office of Legislative Counsel did not 
prepare the report contemplated by clause 3(e)(1)(B) of rule 
XIII of the House of Representatives.

                             MINORITY VIEWS

    H.R. 1965 would exempt small companies (less than $250M in 
annual revenue) and Emerging Growth Companies from the 
requirements to use Extensible Business Reporting Language, or 
XBRL, for their SEC filings for a period of 3 to 5 years 
depending on a cost-benefit analysis that the SEC must conduct 
under the bill. It also requires the SEC to revise its 
regulations within 60 days of enactment to provide the 
exemptions and to report to Congress.
    XBRL is a computer readable reporting format that makes it 
easier to compare companies both against each other and against 
themselves across time. The bill is estimated to exclude more 
than 60% of public companies from using this format in their 
SEC filings, which are used by analysts, academics, 
researchers, the SEC, and investors. Exempting such a large 
number of filers would prevent those companies from being 
easily compared to other companies to the disadvantage of those 
using the data. Ultimately, the companies themselves may be 
harmed, as investors who do not have such information may 
demand a higher rate of return for investment or decide not to 
invest at all. Ironically, this would work against the capital 
formation goal that this bill is designed to achieve.
    In addition, since this bill was considered in Committee 
last Congress, there have been several new developments that 
raise additional concerns with the bill. Specifically, the 
SEC's Investor Advocate has focused his attention on this issue 
and stated that the bill would hurt the SEC's ability to 
modernize disclosure. The Investor Advocate also announced a 
new project by the SEC that would help to reduce costs and 
improve the current use of XBRL by integrating XBRL tagging 
directly into HTML formatted documents. Finally, a large array 
of data transparency advocates, who've joined with both 
Democrats and Republicans like Rep. Darrell Issa, have 
expressed their concerns about making data accessible and 
understandable to the general public.
    Democrats tried to limit the detrimental effect of the bill 
by narrowing the bill to only apply to emerging growth 
companies, as well as directing the SEC to reform XBRL. 
However, both amendments were rejected.
    For these reasons, we oppose H.R. 1965.

                                   Maxine Waters.
                                   Al Green.
                                   Joyce Beatty.
                                   Carolyn B. Maloney.
                                   Wm. Lacy Clay.
                                   Keith Ellison.
                                   Michael E. Capuano.
                                   Daniel T. Kildee.

                                  [all]