On Dec. 17, the SEC’s widely anticipated XBRL rules were adopted. This Alert addresses, in Q&A format, common operating company client questions concerning XBRL. This Alert is based on the XBRL proposing release, yesterday’s SEC open meeting at which it adopted XBRL and the SEC’s press release announcing XBRL’s adoption. The SEC has not yet issued the XBRL adopting release; the final rule may therefore differ in certain respects from the information that the SEC has put out thus far.
What is XBRL?
XBRL, which stands for “eXtensible Business Reporting Language,” is a data-tagging program that codes individual pieces of financial data to make it easier to navigate financial documents and locate key financial figures. XBRL utilizes a system of “tags” that code individual pieces of financial data with specific identifiers that can easily be searched. Currently, there are over 13,000 tags and all are capable of being altered to conform to a particular public company’s financial reporting.
Do the new rules affect me?
The new rules apply to all domestic and foreign issuers that are public in the United States. The XBRL rules apply irrespective of whether the registrant prepares its financial statements in accordance with U.S. GAAP or IFRS. Separate rules apply for mutual funds.
What do the XBRL rules require me to do?
Filers will be required to individually tag elements of their financial statements and the related footnotes and schedules with XBRL tags. However, in the first year of filing only, footnotes and schedules may be tagged as a single block of text. XBRL-tagged data must be included as a separate exhibit to the applicable filing. A filer also will be required to post its XBRL-tagged financial data on its website on the same day that the information is filed with the SEC.
When do I need to start complying with XBRL?
There are separate phase in dates for different categories of filers:
- The first group are large accelerated filers that prepare their financial statements in accordance with U.S. GAAP and have a worldwide public common equity float in excess of U.S. $5 billon. They must include XBRL tags in their filings that contain financial information for fiscal periods ending on or after June 15, 2009.
- The second group of filers includes all other large accelerated filers that use U.S. GAAP. This group must comply with the XBRL requirements in filings that contain financial information for fiscal periods ending on or after June 15, 2010.
- The third group consists of all remaining registrants that use U.S. GAAP. For this group, XBRL tagging begins with filings that contain financial information for fiscal periods ending on or after June15, 2011. Companies reporting in IFRS issued by the International Accounting Standards Board will be required to provide their interactive data reports starting with fiscal years ending on or after June 15, 2011.
Notwithstanding the phase-in dates above, it is expected that many registrants will expedite their compliance in order to be perceived as more investor-friendly.
There is a 30-day grace period exception for all filers for their first XBRL submission and for their first set of footnotes and schedules that include individual tags. Thereafter, XBRL-tagged information must be submitted at the same time as the SEC filing that otherwise includes the same financial information.
Which filings are required to include XBRL-tagged financial information?
Financial statements, footnotes and schedules included in registration statements pursuant to the Securities Act and quarterly and annual reports under the Exchange Act must be XBRL-tagged. Financial information contained in interim reports on Form 8-K or Form 6-K generally are not required to be XBRL-tagged.
Where do I find the XBRL tags that I need to use?
A listing of XBRL tags has been compiled by XBRL U.S. and the International Accounting Standards Committee Foundation. The lists are available at http://xbrl.us/pages/us-gaap.aspx and http://xbrl.iasb.org/xbev/viewer/presentation/index.html. The tags are expected to be updated annually. Does all financial information in a filing need to be XBRL-tagged? No. The only information that must be data-tagged is information contained in financial statements, notes to financial statements and financial statement schedules. Financial information contained in other parts of a filing, such as in an MD&A, is not required to be data-tagged. XBRL-tagging is required for all periods included in the financial statements, including for those periods prior to the registrant’s phase in date.
Am I still required to file financial information in other formats?
Yes. All registrants must continue to file their Securities Act and Exchange Act reports in ASCII or HTML format. XBRL-tagged financial information is included as a separate exhibit to those filings.
What happens if I do not comply in time with the XBRL filing requirements in my Exchange Act reports?
A registrant that does not timely comply with the XBRL filing requirements in its Exchange Act reports will be delinquent in its Exchange Act reporting requirements. The registrant may not use a short-form registration statement (such as a Form S-3, F-3 or S-8) until the delinquency is cured. The registrant also will not satisfy the current public information requirement of Rule 144, which would effect the ability of selling shareholders to make exempt resales under that Rule.
If a filer experiences unanticipated technical difficulties that prevent it from filing on time, it may utilize a six- business-day extension in which to comply with the XBRL requirements. If it complies with the requirements within that time frame, the applicable Exchange Act filing will not be treated as delinquent.
A filer also may seek an exemption if it cannot file financial data in XBRL format without undue burden or expense, although this exemption is expected to be granted only in extraordinary circumstances.
Can I outsource XBRL-tagging?
Yes, and many registrants are likely to do so. Many intermediaries, such as financial printers, will tag the registrant’s financial data and then make the applicable filing. For many registrants, this will be a lower-cost option than doing data-tagging internally.
How much time and money do I need to budget for XBRL compliance?
According to the proposing release, the SEC estimates that it will take the average registrant 133 hours to complete and submit the XBRL exhibit to its first Exchange Act filing. Subsequent filings in the first year are expected to take significantly less time, at approximately 25 hours. The first XBRL exhibit in the second year, when individual item tagging is required for footnotes and schedules, is expected to take approximately 127 hours. Thereafter, subsequent tagging is expected to take 72 hours. The SEC estimates an additional four hours to post the XBRL data on the registrant’s website.
In terms of cost, the SEC estimates in the proposing release that a registrant’s initial XBRL filing, with block-text footnotes and schedules, will cost $40,509, and that each subsequent submission in the first year will cost $13,452. In the second year, a registrant’s first submission with individually tagged items in footnotes and schedules is estimated to cost $38,952, with all subsequent filings expected to cost $25,202. The SEC’s cost estimates do not distinguish between internal costs and third-party service provider costs.
If I want to know more about XBRL, where can I find more information?
You can find the press release announcing the adoption of XBRL on the SEC’s website at http://www.sec.gov/news/press/2008/2008-300.htm. The SEC has not yet posted the XBRL adopting release on its site.