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Wilson So is the Director of Hitachi Consulting Corporation SEC Proposes Rule Mandating XBRL Financial Reporting
Written by Gary Purnhagen Posted on May 15, 2008
Gary Purnhagen has more than 20 years experience in helping firms in diverse industries meet document processing challenges, including SEC disclosure. His engagements have included responding to the SEC’s EDGAR program, use of the Internet and other digital media for information dissemination, and most recently XBRL. Over the past three years he has given dozens of executive briefings on XBRL and spoken about the standard at a number of professional seminars.
The SEC has adopted a rule proposal that, over a three-year phase-in period, would mandate companies submit their financial reports in XBRL format. As I wrote in my recent post, “If the SEC’s Voluntary Filing Program (VFP) and all the speeches Chairman Cox has given have not convinced the public that the SEC is serious about making XBRL a reality, these proposed rules should.”
Here are salient details of the proposal:
The phase-in begins with companies with a worldwide public float of over $5 billion (about 500 firms) for fiscal periods ending on or after Dec. 15, 2008. These companies will be required to “furnish” exhibits with their annual and quarterly reports containing their financial statements tagged and their footnotes tagged on a block level for the first year. The second year after a company is phased-in it will be required to tag footnotes in a detailed manner. The approximately 500 companies will be both domestic and foreign firms that prepare their financials using US GAAP. They will also be required to post these exhibits on their web site if they have one.
In the second year of the phase-in, all other large accelerated filers will be mandated to submit XBRL exhibits.
In the third year, all remaining companies, including small and foreign firms preparing their financials using IFRS, will be phased-in.
For the first year after being phased-in, a company will have a 30-day grace period in which to submit these exhibits (I assume under the cover of Form 8-K).
The rules should be published within two weeks and there will be a sixty-day comment period.
Chairman Christopher Cox presided over the open meeting attended by the two standing commissioners. All three voted to propose the rules. In his introductory comments, Cox spoke of the implementation timeline of the SEC’s EDGAR taking ten years. He called that as being a languid sleepwalk. In today’s environment with information overload and a competitive global capital market, moving quickly to adopt this technology is a necessity.
John White, head of the Division of Corporate Finance, who coordinated the proposed rules and has been a vocal proponent of XBRL for the past two years, noted that these rules were a reflection of Chairman Cox’s vision and dedication to interactive data. In his introductory comments, White cited the milestones leading to this proposal:
2004 – The SEC begins to study the feasibility of XBRL.
2005 – The SEC launches the Voluntary Filing Program.
2006/2007 – Numerous roundtables on interactive data are held.
2007/ 2008 – The SEC creates and posts XBRL viewers.
2007 – The Office of Interactive Data is created.
April 2008 – XBRL US delivers the new US GAAP taxonomy
Observing these milestones, you did not need to be a fortuneteller to know what was going to happen at this meeting.
The SEC also announced a meeting for next week to consider whether to propose amendments to provide for mutual fund risk/return summary information to be filed with the Commission in interactive data format. To date, funds have been lagging corporations in participating in the SEC’s Voluntary Filing Program. This meeting on the heels of yesterday’s event will help to close the gap. After all, Mr. Cox realizes that the biggest impact that XBRL tagging will have with the vast majority of American investors is how it improves how fund information is distributed and analyzed.
Meanwhile, software vendors, financial printers, and other service providers are all rushing to these 500 companies looking to capitalize on the published mandate. Companies will face a basic question of whether to obtain the software tools and learn how to do it themselves or outsource the initial time-consuming preparation work. Companies that offer services all have a different approach to tackling this work, and I’m sorry to say with various degrees of quality. So buyer beware, the solution that a service provider offers you may not be the best one for you.