SEC Releases Proposed Amendments Regarding Mandatory Adoption of XBRL
By: SCOTT J. DORFMAN
On May 30, the Securities and Exchange Commission (“SEC”) published a proposed rule that would require all filers to provide financial reporting information in interactive form using “eXtensible Business Reporting Language,” or XBRL. The XBRL format provides for “tagging” of financial data so that information can be easily downloaded into spreadsheets, analyzed using off-the-shelf software, and compared across companies. Currently, SEC filers file registration statements and periodic reports in ASCII or HTML format, which cannot be directly processed by off-the-shelf software applications. Financial data would still need to be provided in the traditional ASCII and HTML formats. The SEC believes that the transition to XBRL will eventually save issuers money by automating certain financial reporting processes, and will help improve the speed and accuracy of filings.
The proposal builds upon the SEC’s voluntary XBRL pilot program begun in 2005. Over 75 companies with a total public float of more than $2 trillion have participated in the voluntary program. These companies include Altria Group, Inc., Coca Cola Enterprises Inc., General Mills Inc., and Microsoft Corp. The new mandatory requirements, if adopted, would eventually apply to all domestic and foreign issuers that utilize U.S. GAAP to prepare financial statements, as well as to foreign private issuers that prepare statements according to International Financial Reporting Standard (“IFRS”).
The XBRL “tagging” system provides an identifying tag for each line of data, which enables off-the-shelf software applications to recognize the items of data and understand the relationships between items in a standardized manner. XBRL information can be analyzed, stored, selected, and processed in a variety of ways by analysts and investors. According to the proposed rule, for financial statements prepared in accordance with U.S. GAAP, a filer would use the list of tags for U.S. financial statement reporting approved by XBRL U.S. This organization is a national consortium for XML business reporting standards comprised of member organizations including accounting firms, software providers, newswires, filing agents and information intermediaries. This list of tags contains descriptive labels, definitions, authoritative references to U.S. GAAP and Commission regulations where applicable and other elements, all of which provide the contextual information necessary for interactive data to be recognized and processed by software. Also, XBRL terms can be customized by the filer so that companies can create their own elements – called “extensions” – to describe a unique reporting situation.
The key provisions of the proposed rule follow:
- Beginning with fiscal periods ending on or after December 15, 2008, domestic and foreign large accelerated filers with worldwide public common equity float above $5 billion would provide an exhibit to registration statements and periodic reports containing financial statements and any applicable schedules in interactive data format.
- All other large accelerated filers would be subject to the same requirements beginning with fiscal periods ending on or after December 15, 2009.
- All remaining filers, including smaller reporting companies and foreign private issuers that prepare financial statements in accordance with IFRS would be subject to the same requirements beginning with fiscal periods ending on or after December 15, 2010.
- Interactive financial statements would be required to use the list of tags released by XBRL U.S. or the International Accounting Standards Committee Foundation, as required by the EDGAR Filer Manual.
- The interactive financial data would be posted on the issuer’s website on the same day the issuer files or was required to file (whichever is earlier) the registration statement or report with the Commission.
- Financial statements in interactive data format would be provided as exhibits pursuant to Item 601(b) of Regulation S-K.
- Financial statement footnotes and financial statement schedules initially would be individually tagged, each as a block of text. After a year of such tagging, a filer would be required to tag the detailed disclosures within the footnotes and schedules.
- The proposed amendments would not apply to disclosures in the Management’s Discussion and Analysis, executive compensation, or other narrative or financial disclosure sections.
- Viewable interactive data displayed through software on the SEC’s website, to the extent that the interactive data is identical in all material respects to the corresponding portion of the traditional filing, would be subject to the same liability as data is in the traditional format.
- Data submitted in the interactive data file that is viewable via off-the-shelf software is 1) excluded from the officer certification requirements, 2) deemed “not filed” for special liability purposes, and 3) protected from liability for failure to comply with the proposed tagging requirements if the file met the tagging requirements or the issuer complied in good faith with the tagging requirements.
The SEC accepted comments on the proposal until August 1, and is now in the process of evaluating comments. The proposed rule is available on the SEC’s website at http://www.sec.gov/rules/proposed/2008/33-8924.pdf.