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XBRL: Here to Stay

California CPA October 2009

Complying with, benefitting from SEC mandate.

By Christopher J. Bourdon, CPA and Eric E. Cohen, CPA
If you haven’t heard, the SEC has published rules requiring that most filers provide financial statement information in an “interactive data” format over the next three years. These rules have brought an increased focus on the benefits and challenges of extensible business reporting language (XBRL), the technical foundation for interactive data. Here’s a guide to XBRL, the SEC rules and how your company might benefit from the investment in XBRL.

What Is XBRL?
In essence, XBRL is an openly developed global standard for more transparent, reusable and interactive data. It’s being widely applied to business information in external company reports, as well as across internal corporate ledgers and subledger systems in a few cases.

Instead of treating financial information as a block of text—as in a standard internet page or a printed document—XBRL provides an identifying tag for each individual item of data.

For example, company net profit has its own unique tag. These tags form the XBRL taxonomy and allow computers to automatically search, retrieve and analyze information more efficiently and effectively. Overarching XBRL rules are provided so the codebooks can be modified by companies—through the creation of extension elements—to address company specific needs without loss of understanding by others. The basic rules of XBRL are developed by a nonprofit organization, XBRL International.

U.S. generally accepted accounting principles are different than international financial reporting standards, so there are different codebooks for each, depending upon which regulations you’re reporting under.

The use of XBRL for specific reports and regions is driven by local XBRL jurisdictional organizations, such as XBRL US, Inc., in the United States, governments (e.g. Australia or the Netherlands), securities administrations (e.g. ISA in Israel) or other groups. Many other countries have also formalized XBRL for their own regions. XBRL is being used for financial reporting and statutory reporting, especially in the banking industry; taxation; and even for the detailed information found within ERP systems to facilitate better controls and simpler consolidation and integration.

The SEC has invested more than $5 million to update the U.S. GAAP XBRL codebook of the financial reporting concepts. That inventory of disclosure concepts is necessary to communicate the facts in corporate filings. The improvements include more complete descriptions, definitions, references to underlying authoritative pronouncements and identification of interrelationships, as well as documentation to assist companies in the preparation of their financial statements in XBRL format.

SEC Mandate
In 2008, following mandates by other securities, banking and tax regulators around the world, the SEC initiated issuance of three proposed rules especially relevant to XBRL.

In January 2009, the SEC finalized the third of these proposed rules, Interactive Data to Improve Financial Reporting, and published its final rule of the same name.
The final rule includes a three-year phase-in for all companies that file using U.S. GAAP and IFRS (as published by the International Accounting Standards Board). Companies with a worldwide global float of $5 billion or more filing using U.S. GAAP began submitting XBRL-formatted versions of their 10-K, 10-Q and registration statements, along with their traditionally formatted reports, for fiscal periods ending after June 15, 2009.

Other accelerated filers will need to begin one year later, and all other filers will join them one year after that.

These XBRL-formatted documents will need to be submitted to the SEC and made available on corporate websites on the same day with the traditional filing, although the first submission related to the Year 1 requirements, and the first submission related to the more detailed Year 2 requirements, can be provided up to 30 days later than the traditional filing.

Each company will be allowed to take broader strokes when it comes to associating their reported disclosures with the XBRL codes in their first year of filing under the rules. Each disclosure item on the face of the financials must be associated with its XBRL counterpart, but disclosures embedded in the “Notes to the Financial Statements” or additional schedules may be associated with a “block text” or broader disclosure concept. By way of reference, there are approximately 300 first-year disclosure elements. In Year 2, individual numeric disclosures contained within the “Notes to the Financial Statements” must be directly associated with an XBRL coded counterpart.

The second-year requirement to address the individual disclosures on the face of the primary statements, as well as those contained within the “Notes,” includes disclosure elements typically exceeding 3,000. The mapping requirements of the second year may facilitate a closer review of existing pervasive company manual assembly and review processes.

In addition to the final rule, the SEC requires that companies follow the requirements and guidance in the Edgar Filer Manual. There are numerous resources available to help you understand the rules on the XBRL US website and the SEC website.

The following key issues have surfaced in our dealings with companies implementing XBRL for the first time, including some of those complying with the final rule in the calendar quarter just ended:
  • Ensuring compliance with the Edgar Filer Manual: There are approximately 200 fairly complex technical specifications, some requiring financial reporting judgments.
  • Establishing appropriate preparation and review processes and internal controls, especially when part of the preparation process is outsourced (e.g. disclosure of controls and procedures).
  • Dealing with the financial reporting process implications of concurrent submission of the XBRL Exhibit, given the compression that already exists in many companies reporting timetables and the manual nature of such processes.

Benefits Beyond Compliance
While there has been discussion that XBRL compliance places incremental burden and costs squarely on filers with no initial—or perhaps eventual—direct benefits, many filers have noted various benefits, including:

  • More efficient and timely access to information;
  • More transparency and easier analysis;
  • Increased analyst coverage and improved understanding;
  • Reduced transposition and other errors;
  • Encouragement of better analysis and publication tools; and
  • Improved market oversight and investor protection.

Other benefits companies realized:

  • United Technologies Corporation achieved a 25 percent cost and time reduction by bringing XBRL deeper into their systems.
  • Microsoft’s XBRL-enabled Investor Central boasts a more efficient publishing environment for Investor Relations-related content.
  • Some other companies, having experienced the financial reporting implications of concurrent submission of the XBRL Exhibit, are exploring opportunities to drive effectiveness and efficiency in the overall financial reporting process by bringing XBRL from the end of their processes—as incremental bolt-on to existing process steps—in to their processes and reporting new efficiencies. 

Further, XBRL’s Global Ledger Framework has been applied across internal systems, providing standardization and simplification for working with information as it moves from transactional systems through to consolidation systems.

While some companies doubt that they will receive such benefit, we’ve found that a standards-oriented approach costs no more than a proprietary integrated solutions, while retaining its investment despite changes in related application systems and processes.

One example of this approach is the application by Fujitsu (a Gartner Magic Quadrant ERP vendor) of the XBRL Global Ledger to its corporate infrastructure to realize enhanced transparency, access and control over the information contained in more than 150 disparate internal ERP systems.

Next Steps
To realize some of the benefits being achieved by other organizations and comply with the mandate, there are several implementation issues you may wish to consider:
Assessment of implementation alternatives: There are many options your organization needs to consider, such as: whether to do all of the necessary preparation in-house or outsource some of the process; selecting the software or services you will use to prepare or review the XBRL-formatted financial statements (the SEC has stated that you can outsource the work, but not the responsibilities); and decididing whether to consider voluntary auditor involvement (there is no mandatory assurance under the final rule).

Taxonomy selection and company-specific extensions: The SEC gives companies options on which taxonomy to use and provides guidance (which involves understanding and financial reporting judgment) related to their filing.

Software selection: Filers should consider an appropriate collection of solutions as part of their creation, review and filing processes.

Process re-engineering: Filers can begin the XBRL implementation process with minimal disruption to their current processes, but receive no immediate
internal process improvement. Conversely, filers potentially can drive internal efficiencies so that external reporting in both the traditional and XBRL formats becomes a product of an internal process enabled through transparent standards. Companies need to consider the costs, benefits and feasibility of the spectrum
of approaches.

Assessment of related controls: Whether outsourcing the preparation or embedding XBRL within their systems, management is advised to ensure reasonable preparation and review processes. Internal controls should be designed and put in place given the SEC’s expectation of accuracy and reliability.

XBRL Resources

Christopher J. Bourdon, CPA is a senior manager in PricewaterhouseCoopers’ entertainment and media assurance practice in Los Angeles. Eric E. Cohen, CPA is PricewaterhouseCoopers’ Global XBRL technical lead/leader.