An XBRL Prod from the SEC

The SEC has been noticeably quiet about XBRL compliance since those regulations were adopted in 2009. In July, however, the staff softly prodded this public company sore spot (think: conflicts mineral sore) with a letter addressed to certain filers and some general “observations” addressed to everyone.

An XBRL Refresher…

As surely everyone knows, eXtensible Business Reporting Language requires companies to tag their financial information according to thousands of standardized financial elements set forth in the regulations. This common taxonomy is supposed to “promote the comparability of financial information across companies” and “lower the time and expense required for market participants to aggregate and analyze the reported data.” While there is anecdotal evidence that progress is being made toward these goals, most “market participants” still think XBRL is a waste of time and money. Nevertheless, rules are rules and compliance is mandatory.

The Staff’s “Observations”…

The staff has observed that many filers, particularly those that were in the third (smaller company) phase-in group, have been using an unacceptably large number of “custom tags” for their financial data, noting that many companies had custom tag rates greater than 50% of their total tags. This appears to be particularly true among companies that outsource their XBRL to certain third-party providers, which suggests that some of the fault may lie with the providers themselves, rather than the companies.

This is inconsistent with the staff’s intent that companies use a customized tag “if and only if an appropriate tag does not exist in the standard list of tags for reasons other than or in addition to an inappropriate standard label.”

The Staff’s July Letter to Companies…

On a different but related note, in July the staff sent a gentle-reminder letter to certain companies whose XBRL exhibits did not include the required calculation of relationships for certain financial statement line items and footnotes. (See Chapter 6 of the EDGAR Filer Manual.)

Why you should care…

The staff’s observations and letter may fall somewhat short of earth-shattering in the overall reporting scheme of things. However, it is noteworthy that the staff is, for the first time, taking a closer look at XBRL exhibits as a part of a company’s filings and says that it will continue to monitor the situation. It is conceivable that the staff could conclude in a future filing review that a company is not SEC rule compliant due to an XBRL problem, particularly if non-compliance is egregious. This could have the same delay, hassle, expense and penalty consequences as any other noncompliance issue.

If you have not thought about your XBRL processes in a while or are not sure how those exhibits are being handled, the staff’s July guidance is a good reminder to make reasonable efforts to be sure they are being prepared correctly.

 

Topics:  Compliance, Enforcement, Enforcement Actions, SEC, XBRL Filing Requirements

Published In: General Business Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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