Challenges, best practices for the first XBRL filing

Thousands of small public companies will submit eXtensible Business Reporting Language (XBRL) financial reports, for the first time, with their regular June 15, 2011 filings with the Securities and Exchange Commission (SEC) in the third and final phase of the SEC's 2009 rule that requires all public companies to file financial reports with the computer readable tags. Small foreign private issuers reporting to the SEC using International Financial Reporting Standards (IFRS) will not file XBRL exhibits at this time.
 
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.
 
Challenges for first time filers
 
Diana Bourke, chief of operations for EDGAR Online, a provider of XBRL software, services, and data, spoke with AccountingWEB about some of the challenges new filers may face as they prepare their first XBRL submissions, and recommended some best practices.
 
"New filers should understand that XBRL reporting is probably the largest single change to the financial reporting process since the implementation of the SEC's EDGAR database," Bourke said. "Internal accounting managers do not need to become experts in XBRL, but they will understand the basics. They should try to get all the information they can from whoever is helping them and also take advantage of the experience of previous filers. This can provide good guidance about the types of changes they many need to make in their financial reporting processes.
 
"Companies need to bear in mind that creating the XBRL files will add time to the financial reporting process. Managers need to communicate to everyone in the internal accounting area that XBRL is a change, and that it will require more time at closing. It is a separate file, not in the HTML format, and the XBRL tag selection may require an additional review and approval process internally."
 
Best practices for initial filing
 
With approximately 8,700 companies filing for the first time in the upcoming Q2 filing season, a lot of people will be in the same spot on the learning curve," Bourke said. "There are some steps filers should take in the months and weeks preceding their anticipated SEC filing date." They should:
 
  1. Determine the approach that they will use for preparing the XBRL files. The choices include: working with their financial printer/filing agent, working with an ERP or financial software vendor, or self-tagging using XBRL specific software.
  2. Prepare for live filing by engaging in an internal on-boarding process during which a company can "practice" XBRL tagging, approval, and validation on a previously filed document, when they are not facing an immediate filing deadline. Financial reporting teams can set up a template that can be used to start the live filing process. This will also help them in their work on approval processes and timelines.
  3. Set up a pro forma financial statement, possibly from a prior date, and begin the process of selecting tags before the final numbers have been entered into the statements.
  4. Continue to work on the tags as they go through one or two rounds of updating numbers.
  5. Finalize tag selection before inserting final numbers, as much as possible.
  6. Use the SEC's Web site Previewer to review the document.
 
"XBRL is a data standard, not a rendering standard. When a client first views a rendered XBRL document on the SEC site, it might look a little different from the HTML filing," Bourke said. "Managers should talk to whoever is helping them prepare the XBRL submissions to understand where there are differences or inconsistencies and to be sure that the XBRL is structured correctly from the data perspective.
 
"XBRL is a technology that focuses on constructing and building good financial statements. It imposes a rigor that the print process does not. It enables checking of data and calculations to be automated, and the result is really good data. Managers should look at the structure of financial statements in that context."
 
Using the data
 
Bourke emphasized that XBRL is a very young technology and users are only beginning to realize its potential. "The taxonomy is continually being updated. We expect that following the Q2 filing, because of the very large, rich data set, large investment firms and ratings agencies will expand their use of the tools that are out there, including our I-Metrix platform, and that other companies will become involved in building the data analysis software. You really have to have the data supply first. The uses will follow. It is a very powerful tool," Bourke explained.
 
"XBRL provides a framework for defining and sharing information," Bourke continued. "Potentially, in a large company with multiple divisions, it would no longer be necessary to use a single system to construct consolidated reports. Data in XBRL format could be used for internal analysis and could eliminate the need for large expenditures on custom systems or technical support."
 
Frank Brod, Microsoft's chief accounting officer and corporate vice president, sees the real opportunity for XBRL in how companies will use XBRL for their internal reporting processes to standardize and enable efficiencies. Brod will be the keynote speaker at a conference in September that will explore the financial reporting format's future use, XBRL US announced.
 
The SEC uses XBRL data for research and to analyze financial reports. The public can access an analytic tool on the SEC's web site Researching Public Companies Through EDGAR: A Guide for Investors.
 
XBRL and IFRS
 
The SEC has postponed its requirement that foreign private issuers using IFRS submit XBRL exhibits for Q2. The 2011 IFRS taxonomy that would have been used by foreign companies for their XBRL filings was finalized on March 25 by the IFRS Foundation, but SEC officials and others expressed concerns almost immediately following the release of the taxonomy.
 
Cynthia Fornelli, executive director of the Center for Audit Quality (CAQ), wrote a letter to the SEC on March 29, stating that there was not sufficient time for the SEC to review the taxonomy before the Q2 submission date. The CAQ letter also questioned the adequacy of the taxonomy, stating that that,
 
numerous extensions may still be needed in the IFRS Taxonomy 2011 because .the taxonomy does not yet fully address common reporting practice or industry specific disclosures and does not include standard definitions. In addition, absent significant development of the IFRS taxonomy for footnote disclosures, the need to create a significant number of extensions may continue in year two of the phase-in period, when detailed tagging is required.
 
The SEC, responded with a No Action letter on April 8, stating that since "the Commission has not specified on its website a taxonomy for use by foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB and it is not possible for such foreign private issuers to comply with Rule 405 until the Commission does so."
 
Bourke is optimistic that XBRL will be used by foreign issuers. "At some point we will reach the point where the XBRL taxonomy for International Financial Reporting Standards will reach the desired richness and depth."
 
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