The mandate for companies to tag their financial statements using XBRL technology hasn’t yet proven to be the compliance nightmare that many feared. It also hasn’t yet revolutionized investors’ ability to analyze and compare corporate data.
Overall, officials at the Securities and Exchange Commission and others involved with XBRL say they’re pleased with what they’ve seen from the nearly 500 companies that have submitted XBRL-tagged financials so far. Still, others say “interactive data” isn’t yet the game-changer XBRL proponents predicted.
The nation’s largest 500 filers have had to comply with the XBRL mandate since last June, and most have gone through two reporting periods since then. David Blaszkowsky, director of the SEC’s Office of Interactive Disclosure says the technology is “working well.”
“It’s not the major event that many had feared,” Blaszkowsky said during a Nov. 16 XBRL panel at a Financial Executives International conference.
The SEC has received more than 800 XBRL filings, more than 10 percent of which are from companies implementing the XBRL mandate earlier than they need to. (The largest 500 filers started this year; other large filers go in 2010, and all other public companies in 2011.) The Commission has also received two filings with all footnotes and disclosures tagged (another provision to become more widespread in 2010), and one Form 10-K submission.
Blaszkowsky
“In terms of the learning curve, we’ve found lots of challenges and issues in the filings, but the most frequent problems have turned out to be the most basic, easy-to-fix problems,” Blaszkowsky said.
An XBRL “tag” is a piece of computer code that identifies a piece of corporate financial data as a certain item under Generally Accepted Accounting Principles. Many problems so far, Blaszkowsky said, revolve around using a tag that’s too broad or too narrow for the data in question, or using a custom-made extension when a standard tag already exists. Companies have also been using labels that don’t match the labels in the HTML version of the financial statement, or reversing debit and credit attributes for some amounts.
Likewise, in remarks during a panel at XBRL U.S.’s national conference a day later, SEC staffer Walter Hamscher reported that the second round of XBRL filings “was tremendously better than the first.”
“People have not only come up the learning curve, but I consistently hear that the amount of time people have to spend on it has gone dramatically down,” Hamscher said.
Pryde
Campbell Pryde, chief standards officer for XBRL U.S. (the consortium that manages the taxonomy of XBRL tags for U.S. GAAP), said that the error rate plunged from 71 percent in the first wave of filings to only 10 percent in the second wave. He attributed that to additional validation criteria the SEC has implemented in its EDGAR filing system, which will now kick back an XBRL filing that doesn’t adhere to the rules.
Pryde says XBRL U.S. will make consistency checks available in January, through service providers and directly to filers, and that should help eliminate some common errors and improve the consistency of data.
“In terms of the learning curve, we’ve found lots of challenges and issues in the filings, but the most frequent problems have turned out to be the most basic, easy-to-fix problems.”
—David Blaszkowsky,
Director,
SEC Office of Interactive Disclosure
Observers did say they’ve seen numerous companies tinkering with their XBRL tags, trying to get their filings to look a certain way when viewed through the rendering software on the SEC’s Website. They urged filers not to worry about appearance, since different software tools will have their own presentations of the filing anyway.
“It’s the data that matters … so don’t spend lot of time on that,” Hamscher said.
Blaszkowsky echoed that sentiment. “The previewer is not to check to see how pretty the filing is,” he said. “Tagging integrity is more important than aesthetics. XBRL is about the data, so please focus on the accuracy of the tags, not on the visual appearance of the rendering.”
Blaszkowsky urged companies to check the U.S. GAAP taxonomy carefully before they decide to create an extension tag of their own, and to document their decision to create an extension in case they need to defend it. He also reminded companies that senior management should be reviewing the XBRL before it’s sent to the SEC.
“Even if the tagging is outsourced, as far as we’re concerned, they’re still your financials, your tags and your tag choices,” he said. “It really is important for you to understand what’s going on in the tagging process.”
Curb Your Enthusiasm
Others were less sanguine about XBRL’s potential. Kurt Schacht, managing director of the CFA Institute Centre for Financial Market Integrity, said XBRL isn’t yet “well-followed or well-known” among analysts. Also speaking at the XBRL U.S. conference, he cited a CFA Institute survey released this month that shows only 45 percent of its membership has a general knowledge of XBRL, up only slightly from 41 percent in a 2007 poll.
Schacht
And of that 45 percent who do know about XBRL, Schacht said only 24 percent—that is, only 151 people of the original 1,400 in the survey—have some use for it. Even fewer actually bother to download the XBRL-tagged data.
POINTS TO PONDER
Veteran XBRL filers had some words of wisdom for the newbies at the XBRL U.S. conference last week. Not surprisingly, they were unanimous in their first advice: “You can never start too early.”
Foremost, they said, decide early on whether to outsource the XBRL tagging or do it yourself. Dan DelMonte, manager of financial and SEC reporting at Constellation Energy Group, chose outsourcing. He recommended that issuers going that route have a sit-down session with their outsourcer to discuss the financial statement line-items, so the outsourcer will know which tags to use. He also urged issuers to perform a trial XBRL submission using a shell 10-Q prior to their required compliance date.
“Going through this process is very different than just planning it out on paper,” DelMonte said. “Events happen that can throw off your plan and you have to adjust on the fly.”
He also reminded issuers to remember that their EDGAR document must be locked down before the tags can be applied and the final XBRL document created. That means issuers should allow extra time for the usual last-minute updates to footnotes; then you can apply a fresh coat of XBRL tags.
DelMonte also offered a bit of good news: Constellation’s time commitment was “drastically reduced” for the company’s second XBRL filing, falling by more than 50 percent.
Meanwhile, companies that keep tagging in-house should establish a cross-functional team of IT and business people who are comfortable working together, said Douglas Fusco of specialty insurance provider Assurant. It did its own tagging internally using both custom and third-party tools.
Fusco advised those planning to do the tagging themselves to develop a “deep familiarity” with the U.S. GAAP taxonomy and the SEC’s EDGAR filer rules, and to understand best practices within their industry.
Assurant’s Eric Klingerand also urged companies to “look at the entire taxonomy” rather than isolate themselves to tags specific to their industry. He also stressed the importance of educating the right players, including external reporting, IT, investor relations, tax, and internal audit executives.
—Melissa Klein Aguilar
“The opportunities for XBRL to improve the quality, detail and efficiency of information is immense,” Schacht said. “But we’re still quite a ways off.”
Jeffrey Morgan, president and CEO of the National Investor Relations Institute, said issuers “haven’t yet seen the advantages of filing with XBRL.”
While it’s still early days, he said XBRL hasn’t “increased or improved the two-way financial communication dialogue between companies and with investors. We’ve barely moved from the starting line on the benefits for issuers.”
Schacht argued that most investors get all their important insights from data not yet tagged in XBRL: footnotes, prospectuses, Form 8-Ks and quarterly earnings, to name a few. “Unless and until we have detail tagging for disclosure notes, that value to investors is pretty limited,” he said. (Under the SEC’s rule, issuers must start tagging their footnotes in their second year of XBRL compliance.)
Schacht said analysts also worry about extension tags, since those will reduce comparability of financial data among companies. Analysts would also like to see outside auditors review the accuracy of tagging (currently not required in the SEC mandate), either alone or as part of the integrated financial audit.
When the SEC was first formulating its XBRL mandate in 2006 and 2007, agency officials always stressed that auditors’ review of XBRL would not be a part of the rule. Now, however, at least a few other voices are raising that idea; Mark Bolgiano, president of XBRL U.S., told Compliance Week in an interview that “active discussions” about assurance are underway among auditors. The American Institute of Certified Public Accountants has established a task force on XBRL assurance, for example, and Bolgiano said the large accounting firms aren’t “standing still” on the issue.
Speaking later at the XBRL conference, CoreFiling chief executive John Turner predicted that XBRL “will end up as part of assurance,” but said that will take “several years.”
XBRL enthusiasts are also pushing to expand the technology’s use in other disclosure areas as well. A project to tag corporate actions, such as mergers and tender offers, is well underway, with a taxonomy slated to be issued for public review in the second quarter of 2010. A taxonomy for tagging proxy disclosures is also in development by XBRL U.S.
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