Public companies must submit XBRL exhibits to SEC in 2011

The U.S. Securities and Exchange Commission (SEC) in 2009 issued rules requiring public companies and foreign private issuers that prepare financial statements in accordance with US GAAP to attach an exhibit with all their periodic filings that contains computer readable tags written in eXtensible Business Reporting Language (XBRL).

The tags, which contain underlying accounting and contextual information, are required for line items on the face of the financial statements and for numbers and accounting principles in the footnotes to the financial statements. The content of the tags can be read using commercial software.
 
The mandate is in effect over a three-year phase-in period. The largest accelerated domestic and foreign issuers were required to submit the XBRL exhibit by June 15, 2009. Other large filers were required to submit as of June 15, 2010, and all remaining filers, including smaller reporting companies, will be required to create and submit XBRL exhibits effective June 15, 2011.
 
For the first year, companies are allowed to block tag the footnotes to the financial statements, but in the second year, all accounting policies and information presented in tables must be tagged.
 
Speakers at a recent American Institute of Certified Public Accountants (AICPA) Webcast moderated by John F. Hudson of Hudson consulting Group agreed that companies that will submit XBRL exhibits for the first time at the end of the second quarter should start their planning now. These companies should:
  • Begin preparing the exhibit by March 1 at the latest
  • Evaluate vendors and their ability to train in-house personnel
  • Keep abreast of SEC changes
  • Focus on tag selection
 
Even when a company decides to outsource the process – and more than 85 percent of XBRL filers use outside companies to assist in the creation of XBRL files – it needs to take ownership from the beginning and evaluate its XBRL capability, Paul Penler, executive director of National Professional Practice at Ernst & Young, told Webcast participants.
 
SEC overview
 
The SEC's Jeffrey Naumann emphasized the importance of selecting the right tag. Companies select tags from the US GAAP Financial Reporting Taxonomy, which now includes more than 10,000 elements. Naumann is assistant director of the Office of Interactive Data for the SEC.
 
While there are various entry points to the taxonomy that can be viewed through industry filters, it is important to select the narrowest tag, Naumann said. It may be necessary to go beyond the industry filter to find the correct tag. Companies are writing numerous extensions – custom elements – when an existing tag would have provided the required, useful information for the line item, he said.
 
First-time filers have a 30-day grace period, which no one has used thus far, Naumann said, and have limited liability protection for the XBRL exhibits for 24 months.
 
Filers may submit a test filing of their interactive data exhibit in EDGAR to test whether it will pass the SEC validation requirements and also may preview the rendering of their test filing in the SEC previewer.
 
Controls and procedures
 
There is no requirement to document all tagging procedures, Penler said, but filers should incorporate XBRL controls into existing disclosure controls and procedures. There is no SOX 404 impact.
 
Filers should document the tag selection and validation process, and provide evidence that the disclosure controls and procedures are performed and reviewed, he said. Audit committees should be aware of controls. There is no requirement to have auditors involved, but companies may reach out for guidance. Approximately 24 percent of companies said they would involve their auditors, according to the AICPA.
 
Companies need to understand best practices, Penler said. They should:
  • Monitor changes to the SEC EDGAR Filer Manual, the SEC Q&A section, and the taxonomy
  • Incorporate controls over the preparation of the XBRL exhibit into their documentation of disclosure controls and procedures
  • Design a review and update process that leverages their third-party EDGAR filer (as applicable)
  • Utilize the SEC test submission process and previewer prior to every submission
  • Incorporate XBRL controls into existing disclosure controls and procedures.
 
Perspective of an in-house preparer
 
After evaluating their internal resources, CIGNA Corporation decided to prepare the XBRL exhibit in house. John W. McMonagle III, accounting director, Financial Reporting, who led the XBRL reporting team, said team members began with a mapping document created in Excel, "which we all know and love." The mapping document proved critical to success in their initial and subsequent filings.
 
In the early stages, the CIGNA team also turned to resources, including the SEC/Edgar Filer Manual, Webcasts, and public accounting firms.
 
CIGNA used 184 elements for tagging in its first quarterly filing. McMonagle estimated that the project required 100 to150 hours for implementation, mapping, tagging, and successful validation/filing.
 
For year end, CIGNA leveraged its XBRL solution provider to train on:
  • Third-party taxonomy creation tool
  • Tagging of financials and footnotes
 
CIGNA expanded its project team to include the same core team and divisional accounting teams.
 
Over 1,100 element and dimensional combinations were used for tagging in the second year, McMonagle said. The time required was 250 to 300 hours for implementation, mapping, tagging, and successful validation/filing.
 
The U.S. GAAP Financial Reporting Taxonomy for 2011 is now available on the SEC's Web site. The taxonomy is maintained and developed by The Financial Accounting Foundation (FAF) and the Financial Accounting Standards Board (FASB).
 
The AICPA's XBRL Update details some of the problems preparers have encountered with accuracy, the SEC's requirements, and tag selection.
 
A filer must post the interactive data exhibit on its corporate Web site no later than the end of the calendar day it submitted or was required to submit the interactive data exhibit, whichever is earlier, the SEC rule states.
 
The SEC also requires nationally recognized statistical rating organizations (NRSROs) to provide ratings information in the XBRL interactive data format. Mutual funds were required to submit Risk/Return Summary information in XBRL, effective January 1 2011.
 
The SEC explains the usefulness of interactive data to investors on its Web site. "Interactive data allows investors and others to pinpoint facts and figures within today's often lengthy disclosure documents. Using interactive data, an investor can immediately pull out specific information and compare it to information from other companies, performance in past years, and industry averages."
 

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