Subject to a three-year phase-in, public companies are required to file their financial statements in XBRL format in a separate exhibit to reports and registration statements that contain financial statements.

On January 30, 2009, the U.S. Securities and Exchange Commission (SEC) issued new rules and related guidance that require domestic and non-U.S. public companies to provide their financial statements to the SEC in a separate exhibit to certain reports and registration statements in an interactive data format using eXtensible Business Reporting Language (XBRL).  Companies will also be required to post their XBRL filings on their corporate websites.

With interactive data, all of the items in a financial statement are labeled with unique computer-readable “tags,” which make financial information more searchable on the internet and readable by spreadsheets and other software.  The XBRL rules are designed to make it easier for analysts and investors to find and compare data on financial and business performance.  Click here to view the SEC release, No. 33-9002; 34-59324, adopting the new rules

Compliance Dates

The XBRL rules apply to all SEC reporting companies that prepare their financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP) or International Financial Reporting Standards (IFRS).  The rules will be phased-in over a three-year period as follows:

  • Domestic and non-U.S. large accelerated filers that use U.S. GAAP and have a worldwide public float above $5 billion as of the end of the second fiscal quarter of their most recently completed fiscal year will file the separate XBRL exhibit beginning with a periodic report on Forms 10-Q, 20-F or 40-F containing financial statements for a fiscal period ending on or after June 15, 2009.  This includes approximately 500 companies. 
  • All other domestic and non-U.S. large accelerated filers that use U.S. GAAP will file the XBRL exhibit beginning with a periodic report on Forms 10-Q, 20-F or 40-F containing financial statements for a fiscal period ending on or after June 15, 2010.
  • All other companies that use U.S. GAAP, including smaller reporting companies and companies reporting in IFRS, will file the XBRL exhibit beginning with a periodic report on Forms 10-Q, 20-F or 40-F containing financial statements for a fiscal period ending on or after June 15, 2011. 
  • Companies that become subject to SEC reporting requirements after the phase-in is complete will be required to file the XBRL exhibit for their first periodic report on Form 10-Q or first annual report on Forms 20-F or 40-F.

Companies may adopt the XBRL rules earlier than their required start date, although early adopters may cease voluntary submissions until the rules would otherwise require.

Filings Subject to New Rules

The XBRL rules do not eliminate or alter existing requirements for filing financial statements and financial statement schedules.  Subject to the phase-in schedule, companies will file a separate exhibit containing their financial statements, including the footnotes and financial statement schedules, in XBRL format with periodic reports on Forms 10-Q, 10-K, 20-F and 40-F and to current reports on Forms 8-K and 6-K that contain updated interim financial statements or financial statements that have been revised to reflect the effects of subsequent events, and for transition reports to Forms 10-Q, 10-K and 20-F. Registration statements filed pursuant to the Securities Act of 1933 (i.e., Forms S-1, S-3, S-4), other than for initial public offerings, will also require an XBRL exhibit when financial statements are included directly in the registration statement, rather than being incorporated by reference.  The exhibit is required for the first filing of a covered registration statement in which an offering price or price range has been determined and any time thereafter when the financial statements, including footnotes, are changed. 

The exhibit is not required for data included in management’s discussion and analysis; executive compensation; or other financial, statistical or narrative disclosure.  Additionally, financial statements of acquired businesses and pro forma financial statements required under the SEC’s Regulation S-X are not subject to the interactive data requirements. 

Interactive Data

Companies will convert their financial statements into an interactive data file using the SEC-approved list of tags.  The rules require that the entire financial statements be tagged, although there is a phase-in for the tagging of footnotes and schedules.  The tags establish a consistent structure that can be recognized and processed by a variety of software applications, such as databases, financial reporting systems and spreadsheets. 

Tagging is accomplished using commercially available software that guides the company in mapping information in the financial statements to the appropriate tags in the most recently issued list of approved tags.  Each element in the standard list of tags has a standard label. 

To a limited extent, companies will be able to add to the standard list of tags in order to accommodate unique items in their financial disclosures.  When a financial statement element does not exist in the standard list of tags, the company may add a customized tag (i.e., an extension), but whenever possible and when a standard element is appropriate, companies are required to change the label for a financial statement element that exists in the standard list of tags instead of creating a new customized tag.  The adopting release provides as an example a company using the label “gross margin” in its financial statements.  In that case, in its XBRL submission, the company would use the standard tag “gross profit” and change the label for that data tag to “gross margin.”

Grace Periods

The XBRL exhibit is required to be filed with the report to which it relates.  The initial XBRL submission, however, may be filed as an amendment within 30 days of the date of the filing of the report or registration statement. 

The final rules provide a grace period for the tagging of financial statement footnotes.  For the first year a company is subject to the XBRL rules, each footnote must be tagged as a single block of text.  Starting in year two (one year from the company’s first required XBRL submission), companies will be required to tag the following details of the footnotes:

  • Each significant accounting policy within the significant accounting policies footnote as a single block of text
  • Each table within each footnote as a separate block of text
  • Within each footnote, each amount (i.e., monetary value, percentage and number)

Companies will have a 30-day grace period for the filing of the first XBRL exhibit that requires detailed tagging of footnotes. 

The final rules permit, but do not require, tagging of narrative disclosures within footnotes other than the block tagging of footnotes in the first year and the required tagging of significant accounting policies starting in year two. 

Website Posting of Interactive Data

Each company must provide the same XBRL data on its corporate website that it files with the SEC.  The data must be posted for at least 12 months and must be posted not later than the end of the calendar day that the report or registration statement was filed, or was required to be filed, with the SEC, whichever is earlier.  Companies are not permitted to satisfy this requirement by including a hyperlink to the documents available electronically on the SEC’s website.

Consequences for Non-Compliance

If a company does not make its XBRL submission, or post the data on its corporate website, it is deemed ineligible to use short form registration statements on Forms S-3, S-8 or F-3 and would be deemed not to have adequate public information available for purposes of the resale exemption safe harbor provided by Rule 144.  Once a company complies with the interactive data submission and posting requirements—provided it previously filed its financial statement information in traditional format on a timely basis—it would be deemed to have timely filed all of its periodic reports.

Liability Issues

The readable XBRL data that is displayed on the SEC’s website must be exactly the same as the data included in the traditional format in the applicable report and is subject to the same anti-fraud provisions under the federal securities laws.  For the XBRL data that is not readable by humans (i.e., computer-readable tags), as opposed to the data filed in the traditional format, the final rules provide the following limitations on liability: 

  • It is deemed not to be filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act.
  • It is deemed not to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act), or Section 34(b) of the Investment Company Act of 1940.
  • It is excluded from the officer certification requirements of Section 302 of the Sarbanes Oxley Act and Rules 13a-14(f) and 15d-14(f) of the Exchange Act.

In addition, issuers will not be liable for failure to comply with the tagging, format and content rules if they can demonstrate, upon failing to meet the requirements, that the failure occurred despite the company’s good faith and reasonable effort, and the company corrected the failure as soon as reasonably practicable after becoming aware of it.  These limitations on liability, however, are only available for submissions made within 24 months of the date the company is first required to comply with the XBRL rules and no later than October 31, 2014.

Role of Auditors

In the adopting release, the SEC states that there is no additional basis for auditor liability based on XBRL data tagging and that it does not believe that auditor involvement is necessary with respect to the interactive data file.  The rules do not require that auditors’ reports be tagged, nor prohibit issuers from indicating in the financial statements (such as in a footnote) the degree of any auditor involvement in the tagging process.  If an issuer refers to any third party assurance voluntarily obtained from an auditor or other party, the issuer must comply with the SEC’s applicable consent requirements. 

Action Steps

A company may choose to tag its own financial statements using commercially available software and the efforts of its internal auditors, or it may choose instead to outsource the tagging process.  Commercial printers have established procedures and proprietary software for this purpose. 

The SEC has been conducting a voluntary program in which companies have already undertaken to provide XBRL data that can viewed at the SEC’s website at www.sec.gov/xbrl.  More than 100 companies are participating in this voluntary program.  In addition, XBRL U.S., the developer of XBRL U.S. GAAP tags, has published a guide that can assist you in understanding XBRL and hosts a useful website for learning more about preparing XBRL submissions.