02 Feb Accounting technology is SEC-approved, so now what?
If you are in charge of financial reporting at a public company, you likely are aware that XBRL will impact you. XBRL stands for “eXtensible Business Reporting Language” and is a technology that produces interactive data through unique computer-readable “tags” that function like bar codes to the financial statements and related footnotes. On December 17, 2008, the Securities and Exchange Commission (SEC) gave approval of the technology, although the final rule is yet to be published. We now have greater clarity on who, how, and when to implement it, including the sticky issues of web publishing and liability.
Who and when
All SEC registrants (i.e., public companies) will eventually be required to submit financial statements in an XBRL format. However, the SEC is allowing a staggered implementation. In 2009, only the 500 (approximate) largest US public companies will be required to submit financial information using XBRL. Everyone else is pushed off into 2010 or 2011; however, early implementation is permitted and even encouraged by the SEC.
According to the December 18, 2008, SEC press release (2008-300), for companies using U.S. GAAP and have a public float above $5 billion, they must provide interactive XBRL data with their first quarterly report for fiscal periods ending on or after June 15, 2009. This effectively means that calendar year-end companies of this first group will be required to submit interactive data with their June 30, 2009, 10-Q quarterly reports.
When will XBRL be in effect for remaining companies? A note-taker in attendance at the December 17 meeting, Rob Blake, indicates that the SEC may retain the rest of the schedule that was included in the proposed rule from last summer per SEC Release 33-8924. But, given the uncertainty, it was decided not to reprint those dates until there is more certainty.
We do know from the December 18, 2008 press release that companies reporting in IFRS issued by the International Accounting Standards Board are required to provide interactive data per XBRL for periodic reports starting with fiscal years ending on or after June 15, 2011. However, keep in mind that this is the last group and that all public companies will eventually be required to submit using XBRL, so it doesn’t hurt to get an early start.
How to assure quality
The exact process to use for generating XBRL files is beyond the scope of this article. However, in essence you will produce your financial statements using a process similar to your current one, and then generate the XBRL data files using specialized software. A robust quality assurance process then kicks in to validate that the information is complete and tagged correctly. Lastly, these XBRL data files are sent to the SEC through EDGAR, or the new IDEA system (intended to replace EDGAR), and published on your public-facing web site.
The first time you do this will require time and expenses for setup and the configuration process. These XBRL files are in addition to the other text formats of your SEC submissions.
One aspect of XBRL that requires special care and attention is publication of your interactive data on your company’s public facing web site. The proposed rule states that if you have such an Internet presence, you must publish this information on your company’s website. This raises many questions: such as liability issues, correct formats, when it must be published, how many years worth of archives must be on the website, and this is just the beginning of the list. To assist clients, we have developed a service offering to guide establishment of XBRL procedures and to help answer questions. Our methodology includes a list of specific documents often suitable for web publication and the change control procedures required to smoothly release documents into the public.
Certainly this is a situation where you must draw in your legal counsel. One valuable document available to help with this topic is the SEC’s, Commission Guidance on the Use of Company Web Sites, published in the Federal Register on August 7, 2008 (Release 34-58288). This document is not complete and it’s not perfect, however it is a good starting point.
While speaking nationally on XBRL, I have noted a widespread concern about the liability issues affiliated with XBRL submissions. What if the disclosure is incorrect? What if a certain piece of data is tagged incorrectly? What if data is missing? What if your software has a glitch and the file is not readable by the SEC? These questions and many more are keeping financial reporting staff awake at night.
I have good news! At least for two years, the SEC has decided to provide some liability protection for companies that are submitting XBRL files. Realistically we cannot expect this to last forever, but it is a relief for the early adopters.
Additional information will be forthcoming from the SEC on XBRL. However, we also have a glimpse of concerns from an SEC Commissioner who dissented on the December, 2008, vote. Specifically, Commissioner Luis Aguilar believes the vote for XBRL to “significantly weaken the liability provisions of the SEC’s disclosure regime that have effectively protected investors for decades.” It’s not that the Commissioner Aguliar does not like the potential benefits of XBRL technology, but rather that the language of the rules would provide for a broad exemption from liability for interactive data disclosures.
Warning against procrastination
If you plan to conquer XBRL on your own then we recommend the following free reference materials:
- The final rule, which is expected in the Federal Register in late January or early February
- The so-called “public validation criteria” available at www.sec.gov
- Version 10 of the EDGAR Filer Manual Volume II, released in December 2008. It’s only 499 pages.
- The XBRL US GAAP Taxonomy Preparer’s Guide available at www.xbrl.us, 119 pages.
XBRL is likely here to stay. It is used more widely in other developed countries than in the U.S. and it certainly is a global standard. Given the liability protections for early adopters we recommend that all public companies begin their XBRL implementation projects. You have enough time to do this in a smooth and efficient manner instead of waiting until the last-minute and having another time-sensitive crisis on your hands.
This article is reprinted with permission from the Governance Issues Newsletter, Volume 2009, Number 1, published on January 22, 2009.
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.