On January 30, 2009, the SEC issued a long-awaited release adopting final rules that mandate the use of eXtensible Business Reporting Language, known as XBRL, in EDGAR filings by domestic and certain foreign public companies. According to the SEC, these rules will increase the benefit to investors by providing financial statement information in a form that can be downloaded directly into spreadsheets, analyzed in a variety of ways using commercial off-the-shelf software, and used within investment models in other software formats.  

The new rules will become effective on April 13, 2009, subject to an established three-year phase-in period. The rules will apply to (a) public companies and foreign private issuers that prepare their financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP), and (b) foreign private issuers that prepare their financial statements using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).  

XBRL is an open standard electronic format that “tags” or defines data using standard definitions. The new interactive data requirements will not change any current disclosure requirements under federal securities laws and regulations, but will add a requirement to include financial statements in this interactive data format as a new exhibit (exhibit 101). Accordingly, the requirement that filers provide financial statements using interactive data will not otherwise alter the disclosure or formatting standards of periodic or other reports.  

Filers using U.S. GAAP will be required to tag their financial statements using the most recent list of tags for U.S. financial statement reporting, as released by XBRL U.S. and required by the EDGAR Filer Manual. Similarly, filers using IFRS as issued by the IASB will be required to tag their financial information using the most recent list of tags for international financial reporting, as released by the International Accounting Standards Committee Foundation (IASCF) and specified in the EDGAR Filer Manual.  

The principal elements of the new rules, including the three-year phase-in schedule, are as follows:  

Timing

  • 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 will provide a new exhibit to the SEC. The exhibit will contain the financial statements and any applicable financial schedules in interactive data format. The requirement will apply 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
  • All other domestic and foreign large accelerated filers using U.S. GAAP will be subject to the same interactive data reporting requirements the following year, 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, 2010.
  • 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 will be subject to the same interactive data reporting requirements 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, 2011.
  • Filers that first become subject to the requirement to submit interactive data after year three (i.e., companies that become subject to the reporting requirements 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.

Formatting

  • Financial statement footnotes and financial statement schedules initially will be tagged as a block of text. After a year of such tagging, a filer also will be required to tag the detailed quantitative disclosures within the footnotes and schedules, and will be permitted, but not required, to tag each narrative disclosure to the extent it chooses to do so.
  • Interactive data exhibits will be required at the same time as the rest of the related report or Securities Act registration statement, except for the following two circumstances: The initial interactive data exhibit of 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. In year two, a filer will have a similar 30-day grace period for its first interactive data exhibit that includes detailed tagging of its footnotes and schedules
  • A filer required to provide financial statements in interactive data format to the Commission also will be required to post those financial statements in interactive data format on its corporate Web site not later than the end of the calendar day it filed or was required to file the related registration statement or report with the Commission, whichever is earlier.  

Sanctions  

  • Although filers that do not provide or post mandatory interactive data on the date required will be deemed not current with their Exchange Act reports, they will not lose status as having “timely” filed their Exchange Act reports solely as a result of delay in providing interactive data. If a filer hasn’t provided or posted interactive data by the necessary date, it will not be eligible to use the short Forms S-3, F-3 or S-8, or elect under Forms S-4 or F-4 to provide information at a level prescribed by Forms S-3 or F-3. Similarly, such a filer will not be deemed to have available adequate current public information for purposes of the resale exemption safe harbor provided by Rule 144. However, a filer that is deemed not current solely as a result of not providing or posting an interactive data exhibit when required will be deemed current upon providing or posting the interactive data. Therefore, it will regain current status for purposes of short form registration statement eligibility and determining adequate current public information under Rule 144.  

Voluntary Submission  

  • Companies that are not required to provide interactive data until a later time will have the option to do so earlier and may provide interactive data at their discretion until required by the amendments. Such a company may also tag footnotes as a block of text until required to tag the detailed quantitative disclosures within the footnotes and schedules, but otherwise must follow the same requirements as those mandated and can only use a grace period for its initial submission and the initial detail-tagged footnote submission, whether submitted voluntarily or as required by the amendments.  
  • Companies may cease voluntary submissions at any time and need not tag their financial data at a pace other than at which the rules otherwise would require.  
  • An interactive data file generally will be subject to the federal securities laws in a modified manner similar to that of the voluntary program if the filer submits the interactive data file within 24 months of the time the filer first is required to submit interactive data files, but no later than October 31, 2014. During the time a filer’s interactive data files are treated in this modified manner, they 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 failure occurred despite the filer’s good faith effort and the filer corrected the failure promptly after becoming aware of it.  

The SEC expects that the open standard feature of the XBRL format will facilitate the development of applications and software, and that some of these applications may be made available to the public for free or at a relatively low cost. According to the SEC, the expected continued improvement in this software should give the public increasingly useful ways to view and analyze company financial information. As the SEC continues to evaluate the use of the new interactive data technologies, software and lists of tags, it has noted that it may consider proposing rules to require a filing format that integrates HTML with XBRL or eliminating financial statement reporting in ASCII or HTML format.