SEC posts mandatory XBRL release

By Cydney Posner

The SEC has posted its 206-page release mandating the use of XBRL interactive data. Under the new rules, companies will be required, under a phase-in schedule, to provide their financial statements to the SEC and to post it on their corporate websites. Data tagging is intended to provide greater context to data through standard definitions that allow data in text-based EDGAR filings to 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 SEC believes that the process of preparing an interactive data file will not impose a significant burden or cost on issuers. (Where have we heard that before? It is groundhog day, isn't it?) The rules become effective 60 days following publication in the Federal Register.

The new XBRL mandate will apply to filers beginning with a periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending:

• on or after June 15, 2009, for domestic and foreign large accelerated filers that use U.S. GAAP and have a worldwide public common equity float above $5 billion as of the end of the second fiscal quarter of their most recently completed fiscal year (for calendar year companies, their June 30, 2009 Forms 10-Q);
• on or after June 15, 2010, for all other domestic and foreign large accelerated filers using U.S. GAAP; and
• on or after June 15, 2011, for all remaining filers using U.S. GAAP, including smaller reporting companies, and all foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB.

Filers that first become subject to the requirement to submit interactive data after year three (i.e., after the phase-in is complete), will first be required to submit an interactive data file for their first periodic report on Form 10-Q (or first annual report on Form 20-F or Form 40-F, as applicable.)

For those who prefer visuals, here is the SEC's table:

The SEC intends to monitor implementation and make necessary adjustments during the phase-in period.

The new rules will not change the disclosure, but will add a requirement to include financial statements in interactive format as an exhibit to Securities Act registration statements and to periodic, current and transition reports. The requirement will apply only to those current reports (think 8-K) that contain revised or updated financial statements. An interactive data exhibit is not required for an IPO registration statement or for registrations statements that do not include financial statements directly in the registration statement (for example, a Form S-8 or Form S-3 where the financial statements are incorporated by reference). In addition, the exhibit will be required for a registration statement filing only after a price or price range has been determined and any later time when the financial statements are changed, rather than with each filing. Similarly, in the context of a business combination, interactive data will be required for the acquiring company, the filer, but not for the company being acquired. Where it is applicable, the exhibit requirement will apply to the issuer’s financial statements for all periods included in the registration statement. The new rules will not, however, require interactive data submissions for other financial statements that may be required of filers, including those provided pursuant to Rules 3-05, 3-09, 3-14 and 3-16 of Reg S-X or for pro forma financial statements.

The exhibit will use data "tags" selected from a standard list (the "taxonomy"). The data tags are applied to financial statements by using commercially available software that guides a preparer to tag information in the financial statements with the appropriate tags in the standard list. Each element in the standard list of tags has a standard label. In the event that a company uses a non-standard financial statement line item that is not included in the standard list of tags, it may create a company-specific element, called an "extension." Because financial statements in interactive data format are intended to be processed by software applications, the unprocessed data are not readable by humans, but must instead be read through "viewers" that convert or "render" the interactive data file to human readable format. The SEC's website currently provides links to viewers.

Financial statement footnotes and financial statement schedules initially will be tagged individually as a block of text. After a year of block tagging, filers will also be required to tag the detailed quantitative disclosures within the footnotes and schedules and will be permitted, but not required, to the extent they choose, to tag each narrative disclosure. In addition to providing the interactive exhibit, a filer will also be required to post its financial statements in interactive data format on its corporate website not later than the end of the calendar day (not business day, as proposed) it filed or was required to file the related registration statement or report with the SEC, whichever is earlier. The interactive data must remain posted for at least 12 months. (The day the registration statement or report is submitted electronically to the SEC may not be the business day on which it was deemed officially filed. For example, a filing submitted after 5:30 p.m. generally is not deemed officially filed until the following business day. Under the new rules, the website posting will be required at any time on the same calendar day that the related registration statement or report is deemed officially filed or required to be filed, whichever is earlier.)

Interactive data exhibits will be required at the same time as the rest of the related report or registration statement, except that:

• the initial interactive data exhibit for a filer will be required within 30 days after the earlier of the due date or filing date of the related report or registration statement, as applicable; and
• there will be a similar 30-day grace period for the first interactive data exhibit that includes detailed tagging of its footnotes and schedules.

Filers that do not provide or post required interactive data on the date required will be deemed not current with their Exchange Act reports and, as a result, will not be eligible to use the short Form S-3, F-3 or S-8, or to elect under Form S-4 or F-4 to provide information at a level prescribed by Form S-3 or F-3. Similarly, these filers will not be deemed to have available adequate current public information for purposes of Rule 144.

Limited liability treatment will be available for interactive data files that a filer submits within 24 months of the time the filer first is required to submit interactive data files and no later than October 31, 2014. During this period, the interactive data file will be

• deemed not "filed" for purposes of specified liability provisions; and
• protected from liability for failure to comply with the tagging requirements if the interactive data file failed to meet those requirements but the failure occurred despite the filer’s good faith effort and the filer corrected the failure promptly after becoming aware of it.

(Of course, the financial statements themselves will continue to be part of the registration statement or report and, therefore, subject to the full panoply of the federal securities laws.) Interactive data files will also be excluded from the officer certification requirements under Rules 13a-14 and 15d-14 of the Exchange Act.

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