On December 17, 2008 the Securities and Exchange Commission mandated that public companies and mutual funds submit their financial statements in the extensible business reporting language, or XBRL, when making filings on EDGAR beginning next year. After a two-year phase in period, issuers are subject to potential liability for errors in their XBRL coding.
In an XBRL filing, all of the facts in a financial statement are labeled with unique computer-readable “tags,” which function like bar codes to make financial information more searchable on the Internet and more readable by spreadsheets and other software. These tags are similar to definitions in an ordinary financial dictionary, and they cover a variety of financial concepts that can be read and understood by software applications.
The new XBRL rules eventually will require all primary financial statements, footnote disclosures and financial schedules to be tagged, but the tagging of other narrative disclosures, such as Management’s Discussion and Analysis, executive compensation, or other financial or statistical disclosures, will be optional under the rules.
XBRL will be required in a company’s periodic annual and quarterly reports, reports on Form 8-K that contain updated or revised versions of financial statements that appeared in a periodic report, and Securities Act registration statements, among other filings. XBRL will also be required to be used on a company’s corporate website, if it maintains one.
Phase-In of XBRL Reporting
XBRL reporting will be phased-in beginning next year, although the SEC encourages companies and mutual funds to adopt interactive data earlier than their required start date.
- Large Accelerated Filers using U.S GAAP, whose public float exceeds $5 billion, will be required to use XBRL starting with their first quarterly report for fiscal periods ending on or after June 15, 2009.
- Other Large Accelerated Filers using U.S. GAAP will be required to file with interactive data starting with fiscal years ending on or after June 15, 2010.
- All other filers using U.S. GAAP will be required to file XBRL compliant financial statements starting with fiscal years ending on or after June 15, 2011.
In addition, starting in 2011, mutual funds will be required to begin including data tags in their public filings that supply investors with such information as objectives and strategies, risks, performance, and costs. A mutual fund also would be required to post the interactive data on its Web site, if it maintains one.
Limitation of Liability for XBRL Errors
XBRL coding raises potential new issues for filers because errors in coding may not always be easily detectable, and erroneous financial information could quickly be spread when automatically incorporated into financial software programs and websites linked to the XBRL filings. Notably, antifraud liability for errors in XBRL filings will, at first, be limited (with XBRL submissions being deemed to be “furnished” rather than “filed” during a phase-in period), but the limited liability will be phased out over a two-year period for each company (with limited liability terminating completely on October 31, 2014). The XBRL portion of a filing will be excluded from the officer certification requirements under the Exchange Act rules, and issuers would not be required to obtain auditor assurance on their interactive data exhibits.