Using Capital IQ To Access Compustat Data: How To Find The Data You Need

Posted by Valentiam Group on March 24, 2020

Providing tax authorities with reliable, contemporaneous transfer pricing documentation presents an opportunity for global corporations to support transfer pricing positions and demonstrate arm’s length results. To effectively determine and defend arm’s length pricing for intercompany transactions, taxpayers often need access to global financial data of comparable companies for benchmarking.

Recently, there has been a change in the way many companies access such financial data for use in transfer pricing reports. In this article, we’ll break down the transition and offer tips and tricks for navigating it effectively.

Transitioning From Research Insight To Capital IQ

Compustat is a comprehensive database of financial, statistical, and market information on North American companies that has long been the industry standard for transfer pricing comparables data. Traditionally, taxpayers gained access to this data through the S&P Global Research Insight platform. In recent years, however, there’s been a shift to the Capital IQ interface, which is used to access the same Compustat data but in a slightly different manner. While the Compustat financial data is the same in Capital IQ as it was in Research Insight, there are certain disparities between the two interfaces that can sometimes make it a challenge to find the data you need. (Tweet this!)

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4 Tips For Navigating The Transition

As with using any new system, there’s likely to be a bit of a learning curve when you first start using Capital IQ to access comparable datasets. Here are some tips and tricks we’ve learned while transitioning from the Research Insight interface to the Capital IQ interface:

1. Review and update SIC codes.

One of the biggest issues we’ve seen in regard to the transition relates to search results. Both interfaces use Standard Industrial Classification (SIC) codes, which is a system used for classifying industries based on a four-digit code. However, Capital IQ categorizes companies somewhat differently than Research Insight. This is primarily because Research Insight analyzed and sometimes reclassified companies, whereas Capital IQ uses only the SIC codes chosen by the companies themselves.

If a Capital IQ search doesn’t yield the same results you’re used to seeing, you'll need to determine why and make updates to reflect new SIC codes, if applicable. For example, a company previously classified under the manufacturing SIC code for furniture and fixtures might classify itself under the retail SIC code for home furniture, furnishings, and equipment stores.

2. Refresh your comparables.

It’s common practice in the industry to utilize an existing comparable company search for a period of three years, where the business operations of the tested party remain unchanged in order to lessen the burden on the taxpayer. During this time, the financial data for the identified comparable companies (assuming their business operations have not changed) should be updated annually. In this situation, taxpayers will continue to be able to access and update Compustat financial data for the identified comparable companies using the Capital IQ interface.

However, if it is necessary to perform a new comparable search, there are differences in how the search will be conducted using the Capital IQ interface instead of the Research Insight interface. In the table below, we provide an example of how the search steps vary between the two interfaces.

Research Insight Screen

Comparable Screen in Capital IQ

Initial Set:

Select the location of the companies as America, Canada or both, by selecting one or more of the following Compustat data sets: “$C” is the code for the current U.S. set of public companies; and “$T” is the code for the Canadian set of public companies. Lesser used, but important to be aware of, is “$R,” which pulls U.S. companies on a historical basis that may no longer be in business or have current financials.

Geographic Location:

Select location of the company by Headquarters Only as either: United States of America; Canada; or both.

Company Type:

The Company Type screen will limit the company pool to those that have publicly available financial results similar to those available in Compustat. As such, one could select the following Company Types: Public Company; Private Company with Public Debt; or Companies with Public Financials.

Company Status or Market Capitalization:

The equivalent to the $C and $T sets from Research Insight would be to identify only those companies with a Company Status of "Operating." This will identify those companies which are currently identified with the Company Status: Operating. However, if the search would have typically included $R as well, or the search is for a prior period, one could apply a Market Capitalization Screen with an “as of” date instead, which would require the companies to report Market Capitalization greater than 0 as of a certain date.

The table above presents just a few examples of differences to be mindful of while conducting searches in the Capital IQ interface.

3. Maintain data consistency.

The new interface houses both Compustat and Capital IQ data, and while both are acceptable for transfer pricing documentation, it’s important to maintain consistency by utilizing the same data your company used before the transition.

If your organization has always relied on Compustat data through Research Insight, be sure to search for it as opposed to Capital IQ data in the new system. In this scenario, pulling financials using Capital IQ data can produce completely different operating results and inaccuracies in your transfer pricing documentation. This is a result of certain adjustments related to discontinued operations or other non-operating related expenses that are reflected in the Compustat data but not in the Capital IQ data.

4. Seek opportunities for improvement.

Because Capital IQ categorizes things differently, the interface can actually present new opportunities to improve your search strategy. As you learn ways to utilize the new interface to search for the data that you need, you might come across some opportunities to improve your search strategy and identify new potentially comparable companies.

For example, when you identify a new SIC code, you might consider including other businesses in your comparison that are self-classified the same way. This can help you spot trends in how companies classify themselves and point out other fitting comparables within the same category.

Put Your Compliance Burden In Expert Hands

Meeting transfer pricing documentation requirements can be challenging, but doing so contemporaneously is essential to protect your business from penalties. Whether you need guidance performing comparable searches or compiling comprehensive compliance documentation, a transfer pricing consultant can make sure you get it right.

Valentiam’s seasoned advisors can help with compliance issues; we’re also experienced in developing innovative solutions to unique transfer pricing challenges. Contact us to learn more about how we might work together to optimize your company’s transfer pricing policies.