Public Companies Soon Required to Provide Financial Information in Interactive Format
By: SCOTT J. DORFMAN
All SEC public reporting companies will soon need to provide financial reporting information in interactive form using eXtensible Business Reporting Language (XBRL). The Securities and Exchange Commission (SEC) published its final rule on January 30, 2009. XBRL is an interactive reporting format derived from XML, which provides for “tagging” of financial data and allows financial data to be downloaded into spreadsheets and analyzed by end-users utilizing commercially available off-the-shelf software.
The SEC will phase in XBRL compliance over the next two and a half years for the various filer groups. In each case, the new rules apply first to those periodic reports filed on Form 10-Q, Form 20-F or Form 40-F which contain financial statements. Large accelerated filers with worldwide public common equity float greater than $5 billion which utilize United States Generally Accepted Accounting Principles (U.S. GAAP) are required to comply when filing such periodic reports ending on or after June 15, 2009. All other large accelerated filers utilizing U.S. GAAP are required to comply when filing such periodic reports for fiscal periods ending on or after June 15, 2010. Smaller reporting companies and all other filers utilizing U.S. GAAP are required to comply when filing periodic reports for fiscal periods ending on or after June 15, 2011. Following their initial filing, registrants must include an XBRL exhibit on all subsequent annual and quarterly reports and on current reports that contain updated interim financial statements or financial statements that have been revised to reflect the effects of certain subsequent events.
The SEC believes that the transition to XBRL will create new ways for investors, analysts, and others to retrieve and use financial information in documents filed with the SEC. Issuers will continue to provide financial information in traditional HTML or ASCII formats, but issuers will be required to include a new XBRL exhibit to each filing. That exhibit can then be downloaded and analyzed by an end-user. The exhibit must contain the same information provided in traditional format, but each financial statement item must be tagged using standard tags developed by XBRL International, a consortium of over 500 organizations involved in financial reporting. For example, the balance sheet line item “Inventory” must be tagged with the corresponding XBRL International “Inventory” tag, so that it can be separated and compared across companies by an end-user.
According to the SEC, financial statement footnotes and financial statement schedules initially will be tagged individually as a block of text. After a year of such tagging, a filer also will be required to tag the detailed quantitative disclosures within the footnotes and schedules, and filers will be permitted, but not required, to tag each narrative disclosure. Entity identifier elements, such as form type, public float, and company name, must also be tagged. The final rule does not require tagging of disclosures in the Management’s Discussion and Analysis, executive compensation, or other narrative sections of a periodic report. Issuers are required to file the XBRL exhibit at the same time as the related report, except the SEC is providing a 30-day grace period from the earlier of the due date or filing date of the report for first time XBRL filers. A similar 30-day grace period is available for the first filing that is required to have detailed tagging of the financial statement footnotes and schedules. Issuers will also be required to post XBRL financial statements on the company website at the earlier of the due date or filing date of the related report.
Issuers that do not comply with the interactive reporting requirements are deemed not current with their Exchange Act reports for purposes of short form registration statement eligibility and for determining adequate current public information under Rule 144. Upon posting the required interactive data, issuers will regain current information status.
The final rule is substantially similar to the proposed rule adopted by the SEC on May 30, 2008, with a few minor modifications. These modifications include clarification that interactive financial data posted on an issuer company’s website remain available for 12 months after posting, a revision that narrative disclosures in financial statement footnotes are permitted to be tagged, but not required, and a revision that interactive data need be submitted with a Securities Act registration statement filing only after a price or price range has been determined and at any later time when the financial statements are changed, rather than requiring interactive data submissions with each filing.
SEC reporting companies should quickly begin evaluating when they will be required to comply with the XBRL final rule, and make preparations for tagging all required financial data. An issuer can tag financial statements itself using commercially available software, or can contract out the tagging to financial printers or other XBRL specialists. As with any major shift in financial reporting, compliance may require software upgrades and additional training of financial reporting personnel.
If you have any additional questions about the final rule or the shift to interactive reporting, please contact Scott Dorfman at (612-492-7406), or any member of Fredrikson & Byron’s Securities Group for more information.