SEC proposes mandatory XBRL

By Cydney Posner

After several years of evangelizing by Chairman Cox, at an open meeting this morning, the SEC voted to propose amendments requiring that corporate financial statement information be filed with the SEC in interactive data format using XBRL (eXtensible Business Reporting Language). Data tagging is intended to provide greater context to data through standard definitions that turn text-based EDGAR filings into documents that can be retrieved, searched and analyzed through automated means. The tags give data an identity that can be used with different software applications, enabling investors and analysts to analyze data from different sources more quickly and easily.

The requirement to provide data tagging would apply to financial statements (including schedules and notes) in 10-Ks, 10-Qs, registration statements and on corporate websites. There was also discussion about implementing XBRL for executive compensation at a later point. Companies would be required to supplement their traditional filings with an exhibit in interactive format. In the first year, companies would be required to tag only "block" text, to be followed in the next year by more detailed tagging.

While EDGAR was phased in at a "languid pace," to quote Cox, the SEC intends to phase in XBRL more expeditiously. The SEC's phase-in schedule would require companies to implement the XBRL as follows:

• Large accelerated filers with a worldwide public float over $5 billion (approximately 500 companies) would begin in the spring of 2009 (for periods beginning after 12/15/08 is the date I believe I heard);
• All other large accelerated filers would begin in the spring of 2010; and
• All remaining companies, including smaller reporting companies, would begin in 2011.

The SEC intends to monitor compliance the first year to assess whether delays in implementation would be required. For the first filing with XBRL, as well as the first detailed filing in the subsequent year, there would be a 30-day grace period allowed to provide the required exhibit. Otherwise, companies that failed to provide the required exhibit would be deemed to be late and not eligible for use of Form S-3 or Rule 144 until the exhibit was provided. (Note that, as soon as the filing is corrected, S-3 would become available; no one-year wait would be imposed.) There will also be hardship exemptions.

The SEC staff reports that its voluntary program has gone well and been well received. Moreover, there is now more infrastructure and software available to implement data-tagging. While the staff recognized that an XBRL filing is "not trivial" to prepare, once the basic template has been established, the time and cost involved were reported to drop significantly. Apparently the cost for the average filer was estimated to be $30,000 for the initial filing, but to decline by 85% for the second filing. In Japan, where XBRL has already been implemented, the time expended averaged, at the high end, approximately 36 to 38 hours and, at the low end, average hours were in the teens. There is now software available at low or no cost, as well as services to perform the tagging.

There are sets of data tags applicable to various industries. The tags apparently identify accounting concepts, as opposed to particular numbers. As a consequence, the number of tags is essentially a function of GAAP and could be increased to provide increased levels of granularity and modified to reflect changes in accounting rules.