Corporate America has finally begun filing financial statements tagged in XBRL technology—and the mandate once hailed by the Securities and Exchange Commission as a transformational event in financial reporting has passed with little fanfare.
The SEC’s mandate formally went into effect this summer, ordering the nation’s largest public registrants to start using XBRL technology for periodic reports filed after June 15. By now almost that entire group has submitted at least one XBRL-tagged filing, and the experience “was better than most people felt it would be,” says Mike Schlanger, vice president of business development and strategy at Merrill Corp. and an XBRL U.S. board member.
XBRL, also dubbed “interactive data,” is a technology that tags individual pieces of financial data so they can be more easily found and displayed by computer programs. That, in turn, would allow investors and analysts to sift through financial information more quickly or to construct more penetrating analyses of the data.
The SEC’s mandate applied only to the roughly 500 largest filers on U.S. exchanges today; as of early September, 442 filers submitted XBRL-tagged statements. Other large filers will follow suit in 2010, non-accelerated filers in 2011.
Blaszkowsky
“There have been questions and some concerns, but we’re pleased with the first round of XBRL filing submissions under the new rule,” says David Blaszkowsky, director of the SEC’s Office of Interactive Disclosure and the agency’s point-man for all matters XBRL. His staff will now study the filings’ technical quality, tagging practices and so forth to see how the process can be improved as it expands.
“We’re focused on understanding the overall quality and also on how to provide feedback to everyone so the filings in the upcoming period and the second phase of filings will benefit from the learning of the first filers,” he says.
According to an analysis by consulting firm XBRL Cloud, which tested the submissions against the validation criteria in the SEC’s EDGAR Manual, 71 percent contained validation errors. None of those submissions were rejected, however, because the SEC hasn’t yet activated all the Edgar Filer Manual validation rules. Experts say companies will need to clean up those errors before their next quarterly reports, since the SEC will add additional validation tests to EDGAR on Sept. 28.
Pryde
“The errors we’re seeing are not critical, but there are some things companies are doing wrong that have to be fixed,” says Campbell Pryde, chief standards officer for XBRL U.S., which publishes the XBRL definitions companies must use. He described the glitches as “fairly low-grade errors,” such as tags being slightly mislabeled or reporting items like dividends payable with a negative number rather than positive.
“The errors we’re seeing are not critical, but there are some things companies are doing wrong that have to be fixed.”
—Campbell Pryde,
Chief Standards Officer,
XBRL U.S.
Cliff Binstock, CEO of XBRL Cloud, agrees that many errors are easy to fix, but adds that others require some level of human judgment that will make them tougher to spot and correct. “There will be more work for companies to do as time goes on and the tools get better, and it becomes more obvious where XBRL isn’t meaningful or is incorrect,” he says.
Larger Contexts
Neal Hannon, a senior XBRL strategy consultant at the Gilbane Group, says the SEC seemed to need more time to prepare for its mandate rather than the filers. He points to several mis-steps, such as changes to the EDGAR filing manual the SEC made in the middle of the filing season, and EDGAR’s inability to accept submissions based on the 2009 XBRL taxonomy until late July.
More confusion arose when the Financial Accounting Standards Board finally replaced its cannon of U.S. Generally Accepted Accounting Principles with the Accounting Standards Codification, which took effect for interim and annual periods this month. The 2009 taxonomy of XBRL terms relies on the older GAAP structure, so XBRL U.S. had to publish updated guidance that agreed with the Codification. (Future taxonomies will be in full accordance with the Codification, so this problem won’t happen again.)
Purnhagen
Another criticism: the rendering of XBRL-tagged statements—that is, how they appear to investors when viewed in XBRL reader programs, such as the one on the SEC’s Website. “Companies are hung up on the fact that it doesn’t look exactly like the PDF version of their financials,” says Gary Purnhagen, an XBRL consultant in New York.
YOUR QUESTIONS ANSWERED
Frequently Asked Questions About FASB’s Codification:
How do I use the codification files?
The zip files are for information purposes only—the FASB codification references are available to preparers, along with the label and definition, to help preparers choose the best elements to match up with their financial statement captions. They are also used by consumers of XBRL data to better understand the information they receive.
What Zip Files should I use?
The file you use depends on whether the XBRL creation tool you are using is Web-based or on your own local file system. Use the relative reference files if the 2009 taxonomy is located on a local file system. Use the absolute reference file if the 2009 taxonomy used is located at http://taxonomies.xbrl.us/us-gaap/2009.
Do I need to submit the codification file to the SEC?
No, you refer to them to give you more information when you’re selecting which elements you want to use, but they are not needed for submission of your SEC XBRL filing. Simply submit your XBRL documents that reference the 2009 taxonomy as defined by the SEC filing manual.
If I submit a copy of the FASB codification extension file with my XBRL submission to the SEC, will it be rejected?
Yes, the EDGAR system will not accept it. You simply need to submit your XBRL-formatted financial statements that reference the relative components of the 2009 U.S. GAAP Taxonomy including any company-specific extension files you have created. This is the same process you will follow in 2010.
How do I use the codification files when I’m creating XBRL-formatted financials working with the U.S. GAAP 2009 Release?
First, download the codification files from the XBRL U.S. Website, then open up your XBRL creation software tool and download the 2009 US GAAP Release. When you select an element in the tool, you will see a URL to the FASB codification reference for that element. You can use that URL to go directly to the FASB codification site and view the reference. When you submit your completed XBRL document to the SEC’s EDGAR system, only submit your instance file and your company extension file (if extensions were created). This is the same process you will file in 2010 with the 2010 release of the U.S. GAAP Taxonomy.
How do I view the Codification References?
You can view the Codification either by accessing it from the URL link in your XBRL creation tool (as noted above) or use the XBRL US Taxonomy viewer located at http://viewer.xbrl.us. The figure below [See figure on Website] shows the Codification references as they appear in the viewer. The Codification URI or link can be followed to the FASB Accounting Standards Codification. To link to the Codification you will need to set up a Codification account on the FASB Website at http://asc.fasb.org. You can sign up for either professional or basic access to the FASB site. Once you have a username and account you will be able to link directly to the FASB Codification from the 2009 taxonomy.
How will this change in 2010?
In 2010, companies will not need to download the codification files from the XBRL U.S. Website. They will simply open their software tool and download the 2010 taxonomy release. The codification will be embedded within the 2010 taxonomy. As they do with the 2009 Release, when the preparer selects an element in the tool, they will see a URL to the FASB codification reference for that element. They can use that URL to go directly to the FASB codification site and view the reference. They will still be required to log in to the FASB site to access the codification references. The only change from 2009 is that they will no longer need to download the codification files from the XBRL US web site.
Why didn’t XBRL U.S. just publish a new release of the U.S. GAAP Taxonomy that includes the FASB codification?
XBRL U.S. releases one new taxonomy each year to ensure (1) that preparers are not confused about which taxonomy should be used, and (2) that data produced from XBRL submissions is consistent and comparable. The FASB and XBRL U.S. have an agreed-upon process such that when new accounting standards are promulgated, they are released as a set of extensions that can be used by those preparers that need them.
Source
XBRL U.S. FASB Codification FAQ.
Purnhagen and others say issuers are tweaking their XBRL to make it look better in the SEC’s rendering tool. But attempts to make the XBRL “look pretty” in the viewer can stray from correct XBRL tagging or otherwise send “different signals to the market than [companies] intended,” Hannon says. He cautions companies to “create the tightest fit with what the accounting intention is” when choosing elements, since “people will be looking at your accounting choices and drawing conclusions based on the XBRL elements chosen.”
A new standard, Inline XBRL, should resolve most of the worries about proper rendering. The standard will allow companies to embed XBRL directly into their HTML documents (the ones published on Websites for years); Pryde says XBRL International is reviewing the standard now, and that software is already available that can read it and create Inline XBRL documents.
XBRL extensions—tags companies write themselves, because the formal XBRL taxonomy doesn’t exactly fit their accounting needs—are another concern. Some filers did create “an excessive” number of extensions, Pryde says, but on average only 11 percent of the tags a filer used were extensions, “which seems reasonable.” XBRL U.S. is analyzing those extensions and will add them to the 2010 XBRL taxonomy as necessary.
Pryde says new tools are coming that should help improve the consistency of XBRL data and provide guidance on creating extensions. To that end, he says, the SEC is developing a “compliance suite” to make sure all validation software interprets the rules the same way, and XBRL U.S. will beta-test new tools this fall to help preparers working with the U.S. GAAP Taxonomy.
Devil in the Details
Meanwhile, many say companies’ biggest XBRL-related challenge still lies ahead: the detail tagging of the footnotes, required during their second year under the SEC rule.
“That’s a far bigger deal than the tagging required in the first year,” Schlanger says, since companies must tag their footnotes and all the numbers within them, including any tables.
That can mean as much as a tenfold increase in the amount of work for the same report, says Rob Blake, senior director of interactive services at Bowne & Co. “It’s like riding a moped versus riding a Harley,” he says. “They’re both motorized and have two wheels, but it’s a totally different experience.”
Further complicating matters is issuers’ habit of changing their financials until the last minute before filing, Schlanger says. Any changes to a number in a table, for example, would require corresponding change to the other levels of tagging, much of which is still manual.
“Even though they may want to celebrate having gotten through their first filing, [companies] ought to be focusing on that,” Blake says. He warns that the task will be especially onerous for financial services companies, since their financial statements tend to be more numerically complex than most commercial and industrial companies.
Schlanger likens the pain of the move to XBRL to the pain of the move from paper to the EDGAR system in the 1980s. “People came screaming to the altar … but years later, they wondered how we ever could have lived without it,” he says. “XBRL is difficult, but 15 years from now, we’ll say, ‘How did we ever live without it?’”
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